PSE clarifies SMPH index weight rebalancing

James Ryan Jonas

The Philippine Stock Exchange (PSE) issued a clarification on October 29 as regards the adjustment in the index weight of the Henry Sy-led property conglomerate SM Prime Holdings (SMPH).

The full text of the advisory posted in the PSE website goes:

The PSE would like to clarify to the investing public that the increase in the index weight of SMPH, which happened on October 25, was a result of the increase in outstanding shares of SMPH that took effect on the same day, pursuant to its merger with SM Land Inc.

The transaction was approved by the Securities and Exchange Commission and previously disclosed by the Corporation to the Exchange through Circular 7636-2013. No adjustment was made to the free float level of SMPH in the index.

Any adjustments to the free float level of index constituents arising from corporate actions are made, in general, on a quarterly basis, in accordance with Section 4.5 of the PSE Policy on Index Management. The adjustments are based on changes such corporate actions may have on the free float level as reflected in the public ownership reports submitted by listed companies.

The consolidation of all SM Group’s property units under SM Prime Holdings would make SMPH the Philippines’, and perhaps even Southeast Asia’s, largest property company in terms of market capitalization. The merger of the units under SMPH is expected to result to SMPH having a $14 billion market capitalization.

With the merger, SMPH has surpassed Ayala Land Inc. (ALI) which used to be the country’s biggest property developer with an $11 billion market capitalization.

The change in SMPH’s free float was not yet adjusted because the PSE has a rule that free float adjustments can only be made quarterly, in March, June, September and December.

SMPH shares surged 15.86% during the final minutes of Friday’s trading. It closed at P19.58 as the company’s weight in the PSEi nearly doubled to 5.3% from 3.2%. The weight rebalancing caused PSEi-tracking fund managers to buy SMPH stocks, driving upward its price.

On Wednesday, SMPH closed atP18.68, up almost 1%, while the PSE index closed at 6,597.21, up 0.82%.

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James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.