September 19, 2012 / 9:05 PM / 6 years ago

Crunch looms in Philippines over free float rules

HONG KONG/MANILA (Reuters) - A deadline set for listed companies in the Philippines to meet a 10 percent free float requirement could prompt a spate of issuances in coming months, but several firms, including units of San Miguel Corp (SMC) (SMC.PS), may opt to delist instead.

If all the companies below the threshold were to comply with the stock exchange rule, the new issuance over the coming months could total around $3 billion, potentially swamping a market whose benchmark index hit all time highs this year.

That would be nearly 60 percent more than last year’s total issuance, which is prompting deal-starved Asian bankers to focus on the emerging business opportunities in the Philippines.

Already some companies have announced plans to sell more shares. JTH Davies JTH.PS, with a free float of 8.8 percent, unveiled plans to raise up to $155 million, while the cement maker Lafarge Republic Inc’s LRI.PS parent sold $27 million worth of shares to increase free float.

But there remains considerable doubt over what SMC, the country’s largest diversified conglomerate, plans to do with three units, San Miguel Brewery SMB.PS, San Miguel Properties Inc SMP.PS and San Miguel Pure Foods Co Inc PF.PS.

They have among the lowest free floats, and for them to meet the 10 percent threshold would require issuance of $1.73 billion in new shares, according to Reuters’ calculations.

Bankers expect some companies to opt for delisting, while those that choose to increase their free float will want to avoid rushing to the market with new issuance at the same time.

“The opportunity exists for companies to increase their free float, but offerings will take some time to work through, and not every company will choose to issue shares,” said Steven Barg, co-head of investment banking for Southeast Asia at Goldman Sachs.

“It may not necessarily be a bonanza with 20 offerings in the market over the next six months.”

A higher free float would improve trading volumes, help greater price discovery of stocks and lift revenue for the stock exchange. It would also provide foreign institutional investors with a wider range of stocks invest in.

Foreign investors were largely responsible for driving the Philippine stock market to record peaks this year and a higher free float will only help to attract more inflows, analysts say.


Philippine Stock Exchange (PSE) President Hans Sicat is optimistic that most companies will find ways to improve their free float by the December 31 deadline.

“The clock is ticking,” Sicat told reporters last month. “We are confident that most will be on their way to complying.”

The so-called minimum public ownership rule has been around for a while. It was suspended following the onset of the global financial crisis and reinstated in late 2010 when companies were given one year to comply. But having already granted an extension to the end of 2012, Sicat said the exchange will not move the deadline as it would be unfair to companies that have already complied with the rules.

For some companies delisting may be the easier option.

“If a company doesn’t need to raise funds now, or has access to bank loans, then it may prefer to delist than be forced to tap the equity capital markets unless the price is right,” said Patricia Tan Openshaw, a partner in Hong Kong at law firm Paul Hastings, which has worked on four Philippines equity deals.

Twenty-seven companies have told the exchange that they are short of the required threshold, but the number could be as high as 38, according to Reuters’ calculations using publicly available figures.

San Miguel Brewery’s main shareholders, SMC and Japan’s Kirin Holdings (2503.T), which holds a 48.4 percent stake, are discussing ways to increase the free float.

But a voluntary delisting is on the cards if no agreement is reached, SMC’s investor relations department said in an e-mail to Reuters.

San Miguel’s property unit might also be delisted, though San Miguel Pure Foods will “most likely be able to increase its float to more than 10 percent”, SMC added.

Metro Pacific Tollways Corp TOL.PS, with a free float of 0.2 percent, is among companies considering delisting as it has no need for new funds, the chief financial officer of its parent, Metro Pacific Investments Corp (MPI.PS), told local media last month.

Dairy maker Alaska Milk Corp AMC.PS, with a 2.3 percent free float, filed for a voluntary delisting this month after a buyout offer from Dutch company Royal FrieslandCampina.

($1 = 41.6250 Philippine pesos)

Additional reporting by Karen Lema and Rosemarie Francisco in Manila; Editing by Denny Thomas and Simon Cameron-Moore

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