IN the first week of November 1989, then-President Corazon C. Aquino was welcomed to the floor of the New York Stock Exchange to launch the listing of Clemente Capital’s First Philippine Fund. The fund was designed to allow US investors to take part in the boom of the local stock market that had seen the composite index move from 800 to 1,400 in 1989.
Unfortunately, less than 30 days later, the Reform the Armed Forces Movement staged a violent attempt to bring down the government. Interestingly, as the local market index moved from 1,400 to 550 during the next 11 months, Clemente Capital promoted its “foresight” that the fund was only down 13 percent in 1990 as most of its funds were invested in US Treasury bonds.
That sort of begs the question of why it was called the First “Philippine” Fund.
Back then though, there were placements in locally listed stocks by international financial institutions through their investment funds. The largest was from a firm that had been in business since the early 1800s. This fund was probably managed by the “I-just-got-out–of-drug-rehab” nephew of one of the higher executives as the total value of the fund was $7 million. At the time, the company managed a portfolio of $100 billion.
During the course of three decades, foreign investment has flowed to Philippine stocks. Maybe “flowed” is too strong; “trickled” is probably more accurate. The progress has been difficult for both local companies and foreigners. Political instability was a constant threat even into the 21st century with the Estrada impeachment. The dismal state of the government finances and ever increasing foreign-denominated debt was not corrected until the Arroyo administration.
Most substantial investment came in directly such as the buy-in of San Miguel Corp. by the Japanese beverage company Kirin and from the foreign telecommunications companies. Other local companies listed their shares for the purpose of attracting foreign ownership. Listed companies have an advantage as there is greater transparency and oversight with public companies not found in private corporations. Further, an investment in a listed company is easier to value for accounting purposes because of the daily market price.
Most investors and stock-market watchers are only focused on price movement with little understanding of what goes on beneath the surface. While the stock market is not a benchmark of the economy, decisions made in the boardroom do give some insights for the future.
Before buying into a local
listed company, foreign money moves cautiously and one way to do that is
through buying both listed and unlisted “preferred shares.” Preferred shares
offer a set income and return on investment. Nonconvertible
preferred shares do not dilute the common share ownership. Often, these shares
are purchased by existing company majority owners as a way to increase their
income through the cash dividends.
However, those preferred shares that also included “voting rights” give an added incentive for foreign money as this gives the holders a voice in decisions and often a minority seat on the board of directors.
This year there have been several preferred share offerings, including from Petron and most recently from ArthaLand Corp. While the Petron offering was to replace previously issued preferred shares and the ArthaLand shares are nonvoting, the cash dividend return is attractive to foreign money.
Nonetheless, other listed companies are in the process of readying to offer more preferred shares including with voting rights. They may not have suitors waiting at the door just yet. But they are prepared when it happens and the day will come. Philippine companies are becoming too valuable to pass up.
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.