March 25, 2025 l Manila Bulletin
Here’s the happy news: The Philippines Stock Exchange Inc. (PSE) recently announced that big companies planning to be listed in the Philippine stock market through initial public offerings (IPOs) are now allowed to offer less than the 20 percent public float requirement for their planned IPOs.
PSE President and CEO Ramon Monzon said PSE was able to secure approval from the Securities and Exchange Commission (SEC) that these companies could also offer 15 percent, with the commitment that they will make a follow-on offering or a private placement in the two or three years in compliance with the 20 percent public float requirement. Monzon said this new rule would make it easier for companies to come up with the decision to do an IPO earlier than later. This is a better bet than what has been the old PSE rule for a long time.
Deciding to go public is a milestone for any company; it is both a big step and a tough choice. To begin with, one must be aware of some disadvantages of becoming a publicly listed company, such as ownership dilution, more public disclosure of major corporate decisions, possible additional restrictions on operational issues, constraints on some growth plans, and even the high cost of getting the company’s shares listed in the Philippine stock market.
Admittedly, selling shares to the public provides many positives, such as an enhanced corporate image, a broader equity base, disciplined financial conditions, improved balance sheets, better cash flow management, and reduced borrowing costs. The newly listed shares have busted out of the rut and are now making a real run. There’s also a potential price appreciation as the listed shares acquire extra liquidity since banks readily accept listed company sheets as loan collateral. We all know that any low-cost business operator in any industry gets a better-than-average chance of surviving even when economic conditions (as they do sometimes) deteriorate.
Assuming the company eventually decides to do an IPO, here are the basics: Assess realistically the company’s debt-carrying capacity, review the impact of the planned IPO on the possible share dilution of existing shareholders, and thoroughly review the company’s business and market growth prospects. Does it have favorable economics? Are they sustainable? What’s the company’s standing within its industry? Are the owners and top management publicly known for integrity and competence in the industry?
Another important concern is that timing is significantly crucial in an IPO. Avoid coming out with an IPO offer price that may be quite high, particularly when the stock market is in the doldrums. Check out the market’s mood. Is it bullish or bearish? Are listed share prices rising or falling? Is the trading volume going up or down? What’s the general investors’ sentiment? Indeed, risks will be greatly minimized if IPO is launched at the most appropriate time.
If the ardent objective is to achieve a successful IPO, owners and their investment bankers must present a compelling and credible business plan to spur company growth including a persuasive narrative on why the owners are now doing the IPO. The company’s ratios must be credible, realistic, and justifiable, like its projected P/E, revenue estimates, and other vital numbers on sales, production, and operational costs. Needless to say, the owners must be convinced that doing IPO will work best for the future of their business.
Indeed, worries about a possible recession, persistent inflation, capital impairment of some large corporations, geopolitical issues, and ambivalent US-initiated tariffs (now seriously causing major economic distortions) are prompting investors to become somewhat reluctant to go into the capital market. Owners and investment bankers should listen to all propositions, evaluate all the possibilities and make their business more appealing and credible.
At the moment, the global economy is navigating structural changes at a time when there is considerable fragility in the global economy, including the challenge of a disastrous global climate change that has not yet been fully addressed globally. The Russia-Ukraine conflict also continues to unsettle energy security, and the Israel-Hamas war continues to foment instability in the Middle East. These headwinds are expected to weigh on global economic growth, although the Asia-Pacific region is still considered to be the key long-term global engine for growth in the years ahead, with the US dollar remaining strong and dominant as the world’s reserve currency.
If there’s anything most of us (fellow bankers) have learned over the years in banking and investment management in the capital market, it’s that good business could still get worse while terrible businesses could, not surprisingly, sometimes get better.
As the world-famous economist John Maynard Keynes once said, “When the facts change, I change my mind. What do you do, sir.”
***The views expressed herein are his own and do not necessarily reflect the opinion of his office as well as FINEX. For comments, email abelardo.cortez7@gmail.com. Photo is from Pinterest.