At least twenty-seven (27) publicly-listed firms, including San Miguel Brewery (SMB), Eton Properties Inc. (Eton), and First Metro Investment Corporation (FMIC), are facing possible trading suspension by next year, if they are unable to comply with the minimum public ownership requirement set by the Philippine Stock Exchange (PSE).
The stock exchange issued another memo last week reminding companies to abide by the 10% public float rule, unless they want to be delisted from the PSE starting January 2013.
What does it mean by Public Float or Minimum Public Ownership requirement?
The PSE requires publicly-traded companies to be really “publicly traded,” which means maintaining a minimum public ownership level of 10%, effectively ensuring that at least 10% of the firm’s outstanding stock are held by the general public and are freely available in the market.
Erring companies are given a grace period of until December 31, 2012 in order to comply. Those still unable to comply will have the trading of their shares suspended for 6 months, and subsequently delisted if still not complying after that period.
What is the impact of a trading suspension or delisting?
Trading suspension and, ultimately, delisting from the stock exchange would make the stock illiquid. Since the stock is not be freely traded, it will be difficult for buyers and sellers to complete a transaction. At the same time, in the absence of public trading, the “true” market-driven price of a stock will be difficult to determine.
In addition, stocks that are not traded on the exchange are slapped with higher capital gains tax. The regular capital gains tax rate for publicly-listed stocks is 1.5% while for non-publicly traded firms, this increases to 5% if the net capital gain is less than P100,000 and 10% if the net capital gain is above P100,000.
How can companies increase their public float level?
During the height of the 2007 financial crisis, the PSE lifted the public float rule to allow publicly-traded firms to buy back shares in order to prevent a price freefall. In recent years, however, stock prices have recovered but several companies continued retaining ownership of the shares that were bought back.
According to the PSE, the reintroduction of the minimum public ownership rule is in consonance with the meaning of a “publicly traded firm.”
“Whether none or all 27 companies make [the public float requirement], then you’re left with companies that are truly public,” says PSE President and CEO Hans Sicat.
To increase public ownership to the required 10% minimum level, companies can issue more shares to the public or sell back previously-bought stocks. Some firms, however, including the Ramon Ang-led businesses Pure Foods, San Miguel Properties, and San Miguel Brewery have said that they would simply “voluntarily delist” the shares if they are unable to comply.
Which 27 stocks are in danger of trading suspension?
The following firms face possible trading suspension next year due to the low public ownership level.
Before the end of the year, we will revisit each stock’s public float level to check which companies have complied and which ones still have not.
Update (December 120, 2012): 25 PSE firms still below minimum public ownership level