IT was another wild roller-coaster ride for the Philippine Stock Exchange (PSE) this year.
At the start of the year, many thought that main index may not recover from its low, as the Duterte administration was placed under pressure by the international community due to its campaign against drugs. As a result, the main index sunk as low as 6,861.31 points.
But, as the months went by, the PSEi managed to close at its historic highs 12 times, reaching as high as 8,523.07 points. It is now hovering at 8,300 points.
BDO-Nomura Securities, an online brokerage firm, said the benchmark may breach the 9,000-point level next year and possibly hit the 10,000 milestone by 2019, as corporate earnings continued to drive growth.
BDO-Nomura Securities Research Head Dante Tinga Jr. said the 30-company PSEi may settle at around 8,300 at the end of this year and grow by 13.9 percent to 9,100 in 2018. This will further grow by 13 percent to about 10,280 by 2019.
Tinga said growth next year will be driven mainly by rising earnings per share led by the property, banking and industrial sectors, although conglomerates will be bearish on the consumer and telecommunication sectors.
“There is no bubble in the property sector, and sales continue to be strong,” he said. “Tax reform and accelerated infrastructure spending should provide long-term tailwinds to the sector. Concerns on residential oversupply have eased. Real estate remains a direct proxy for the Philippine economy.”
Also, the start of the year saw the change of guards after Hans B. Sicat announced his intent to step down as president and CEO of the PSE after six years in the position.
In May the PSE board elected Ramon S. Monzon, who also owns the Miss Earth beauty pageant, as its new president, replacing Sicat, who served the bourse for about a decade.
Monzon told reporters his main order of the day was to take the process for the PSE to merge with the Philippine Dealing System (PDS), the owner of the trading floor for the fixed-income exchange. It was during the time of Sicat when the relationship of the PSE and the Securities and Exchange Commission (SEC) was frayed after the agency thumbed down its proposal to acquire PDS Holdings, which, in turn, owns the Philippine Dealing and Exchange Corp. or Pdex, operator of the fixed-income exchange.
“The larger fear here is that the PSE does not appear to fully appreciate the central importance of the fixed-income market in financial intermediation and does not have a concrete plan on how to develop and manage such a market going forward,” the SEC said in its decision last year.
In November, however, the PSE has secured the nod from the Philippine Competition Commission (PCC) to acquire PDS Holdings, leaving the SEC the single stumbling block for the deal to proceed.
The PCC’s approval, however, focused on the so-called efficiencies when the the equities and fixed-income exchanges are owned by a single entity.
The SEC’s approval, on the other hand, will focus, among others, on the PSE’s request for exemptive relief on the 20-percent industry-ownership limit and, in this case, the stock brokers.
“I always like to put myself out on a limb. I’d like to think it will happen before the end of the year. I hope it will happen before the end of the year,” Monzon said. He added the PSE already filed a registration statement with the SEC for its stock rights offering of 11.5 million shares, aimed at diluting the combined ownership of brokers to pull it down to 20 percent, from the current 23 percent.
“The stock-rights offering will not be open to the stockbrokers so that there will be a forced dilution of the stockbrokers,” he said. “In our computation, with the 11.5 million shares that we will be offering, we believe that the final ownership of the brokers of the PSE will be a little less than 20 percent.”
“Since we filed a registration statement with the SEC… so there can be no doubt about the compliance plan. So, hopefully, it just involves a little more dialogue, a little more explanation and, if we are successful in doing that, before the end of the year, hopefully we can get the relief from the SEC,” Monzon said.
He addedthe PSE also talked with the PSE’s other major shareholders—the Government Service Insurance System, PLDT Inc. and San Miguel Retirement—not to participatein the rights offer so that it could argue better with brokers on the necessity of diluting their shares.
“They sit on our board, and when we are discussing this stock rights offer, we have made request to them if they could waive their preemptive rights so that when we tell the brokers that you [other owners] cannot subscribe to this, we can tell the brokers,” he said.
He estimated that it will take the SEC about a month to six weeks to review the PSE’s registration statement and the PSE and its underwriters are planning to start the book-building process by January and is looking at listing the new shares by February.
Aside from acquiring PDS, the PSE also busied itself on maintaining good governance among listed firms.
In July the PSE decided to start delisting procedures against Calata Corp., after it found that the firm violated
its disclosure rules by 29 times during November 29, 2016, through June 20, 2017. The PSE also found 26 violations of Section 13.2 of the PSE Disclosure Rules from October 6, 2016, to March 16, 2017, and April 26, 2017, to May 2, 2017.
Calata Corp.’s principal shareholder and Chairman Joseph Calata sold large chunks of his stake in the company, resulting in his ownership of just a minority interest, but failed to disclose this to the PSE.
He then blamed his staff for literally filing away the disclosure at the Cabinet, instead of filing it with the PSE.
As a result, the PSE has added a new criteria for its approval of the listing of initial public offering (IPO) of a company as it ups its ante on governance to avoid a repeat of delisting firms due to violations of rules.
“Recently, the PSE has added a qualitative criteria for approval of IPO listing. We call that suitability. Suitability means aside from reviewing the financials of the company, we look at the people behind the company,” Monzon said. “We do our background check on the stockholders, on the officers. So we apply the suitability rule now. Hopefully a Calata Corp. will not happen again,” he said.
Monzon was referring to the Calata Corp. that underwent a bitter process of being kicked out at the PSE.
“Before this, Calata issue became a problem for the PSE…when you apply for listing with the PSE, you have a checklist of requirements. You comply with those requirements. If you are able to complete the checklist, you are listed. As long as the SEC has approved the registration,” Monzon said.
Calata was known as one of the youngest leader of a listed company when he took his agricultural company public in 2012. A few months after its listing at the PSE, however, Calata Corp. was subject of an insider trading and price-manipulation investigation by both the PSE and the SEC. The SEC filed a complaint with the Department of Justice against several individuals alleged to have participated in the trading of the firm’s shares with the aim to push up the stock price.