PSE sees relaxed rules enticing startups to go public

The Philippine Stock Exchange (PSE) is banking on relaxed rules to entice high-growth and startup companies to go public amid the coronavirus pandemic.

The local bourse operator recently amended its listing rules, relaxing profitability and operating history requirements, as well as including a temporary relief clause in applications due to the pandemic.

The new rules also feature a sponsor model for companies intending to list on the small, medium, and emerging (SME) board.

Under the sponsor model, a company will be evaluated in the first instance by a listing sponsor accredited by the PSE.

If the company meets the criteria, which assesses its financial condition, business viability, future prospects, and management track record, among others, a listing sponsor will then endorse the listing application to the PSE.

“The sponsor model has been practiced in other bourses and we see the merit of adopting this in the PSE. This listing format will be beneficial to SMEs and startup companies that have very good profitability and expansion potential but could not tap the stock market for funding because they do not qualify to list based on the set criteria,” said PSE president Ramon Monzon.

The Philippine stock market is quite small compared to regional neighbors, with only under 300 publicly listed companies. Philippine companies opt to stay private and find other means to raise capital.

Main board

Here are some of the requirements for companies intending to list on the main board of the PSE:

• Cumulative net income of at least P75 million for 3 years immediately preceding the application for listing and a minimum net income of P50 million for the most recent fiscal year.
• An exemption for the 3-year track record requirement are companies that have been operating for at least 10 years prior to the filing and have a cumulative net income of P75 million for at least 2 of 3 fiscal years immediately preceding the filing of the listing application.
• An applicant company must have stockholders’ equity of at least P500 million.

SME board

Here are some of the general criteria for companies intending to list on the SME board:

• Cumulative earnings before interest, taxes, depreciation, and amortization or EBITDA of at least P15 million for 3 fiscal years immediately preceding the application for listing or such shorter period as the company has been operating.
• Cumulative operating revenues or sales of at least P150 million for 3 fiscal years.
• Stockholders’ equity of at least P25 million.
• Has an operating history of at least 2 years prior to application for listing.

For high-growth and startup companies that do not have the required track record of profitable operations and/or stockholders’ equity access to the capital market, they may apply through the sponsor model.

To qualify for listing under the sponsor model, the applicant company should be endorsed by a sponsor accredited by the PSE. The listing sponsor will conduct due diligence and check the applicant’s financial condition and viability, among others.

A sponsor must not directly own 20% or more of the total outstanding shares of the sponsored company to demonstrate independence from the firm. – Rappler.com