The Organization for Economic Co-operation and Development (OECD) recently partnered with the Securities and Exchange Commission (SEC) to conduct an in-depth analysis of the Philippine capital markets, focusing on its growth prospects.
Reduce fees, rethink IPO profitability rule
Listings could also be more attractive if regulators such as the SEC and the Philippine Stock Exchange (PSE) reduce fees, simplify processes, and ease the requirement that firms be profitable, similar to several other exchanges that are more flexible.
“Indonesia, Malaysia, and Singapore allow unprofitable companies to list if they meet alternative criteria, such as certain market capitalization thresholds or cash flow requirements,” the report showed.
“This flexibility allows for the inclusion of high-growth companies that are not currently profitable but have significant growth potential,” it added.
Huge IPO opportunity
The PSE had 269 listed firms on the main and small, medium-sized enterprise boards at the start of 2024.
The report also found another 411 large unlisted non-financial companies, meaning those with assets above P5.6 billion, that could be potential IPOs.
These were also more mature firms with average sales of P9.9 billion and an average return on equity of 13 percent.
“Aside from fulfilling the minimum criteria, many large unlisted companies outperform the currently listed ones both in terms of size and profitability,” the report noted.
State-owned enterprises valued at P11.6-trillion
Capital market regulators can also tap SOEs, which make up a sizable portion of publicly-listed firms in other exchanges.
In Singapore, these firms account for 27 percent of total market value, thanks to names such as DBS Group Holdings, Singapore Telecommunications, and Singapore Airlines.
The top three listed SOEs in Malaysia, Indonesia, Thailand, and Vietnam each represent 15-18 percent of the domestic stock exchanges’ market value.
“In the Philippines, public equity markets could be expanded by listing minority stakes of financially significant SOEs. At the start of 2023, there were 118 government-owned or -controlled corporations (GOCCs) in the Philippines with total assets amounting to P11.6 trillion,” the report showed.
Boosting smaller enterprises
The report pointed out a relatively small pool of companies listed on the SME board.
“By the end of 2023, the SME Board hosted only 10 companies with a total market capitalization of P27 billion, which is significantly lower than peer countries,” it said.
Stock market fundraising lags peers
According to the report, 95 companies since 2000 have raised almost $13 billion through IPOs.
“This is significantly lower than the least active market among peers, Vietnam, where 584 companies raised $36 billion,” the report showed.
“Between 2000 and 2023, the capital raised through IPOs in the Philippines represented only 0.2 percent of GDP, much lower than in all other peer countries except Indonesia,” it added.
Special program for large companies
“To encourage large unlisted companies to go public, the SEC, CMDC [Capital Markets Development Council], and PSE could create a program for large unlisted companies to prepare them to join the stock market,” the report said.
“While the [PSE’s Listing Engagement and Assistance Program] is promising, most companies in the program are SMEs. A similar program targeted to large unlisted companies – including grantees of local franchises of larger multinationals – could perhaps result in more listing and increase the attractiveness of the stock market,” it added.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
