LandBank angles for majority in fixed-income bourse

By Elijah Joseph C. Tubayan, Reporter

THE LAND BANK of the Philippines (LandBank or LBP) is considering acquisition of a majority stake in the Philippine Dealing System Holdings Corp. (PDS) at a time the Philippine Stock Exchange (PSE) has been moving to do the same.

An unsigned Jan. 16 letter from LandBank President and Chief Executive Officer Alex V. Buenaventura to the state-run lender’s Board of Directors, e-mailed to journalists on Thursday night, said he “recommends to the Board the acquisition by Land Bank of the Philippines of a majority stake or at least 66.67% of the Philippine Dealing System Holdings Corporation.”

Mr. Buenaventura confirmed the move in a mobile phone message on Friday morning, saying the recommendation would be “submitted to the LandBank Board for approval on Jan. 23.”

”The objectives are to increase LandBank profits and to accelerate development of capital markets in the country,” he explained.

Currently, the LandBank owns 1.56% of PDS through the Bankers Association of the Philippines (BAP), according to the letter.

The state lender’s move comes amid PSE’s own steps since 2013 to acquire PDS shares in order to merge the country’s equities and fixed income bourses. Since June last year, the PSE has signed share purchase agreements with the BAP; Whistler Technologies Services, Inc.; Investment House Association of the Philippines; The Philippine American Life and General Insurance Co.; FINEX Research and Development Foundation, Inc.; San Miguel Corp. and Tata Consulting Services Asia-Pacific Pte. Ltd., giving the PSE a 61.03% total stake in PDS.

While the Philippine Competition Commission approved the agreements in November last year, they have yet to secure the green light of the Securities and Exchange Commission (SEC), which is requiring reduction of ownership of trading participants in PSE to below 20% from 27.9% currently. The SEC said last Thursday that it has given the green light for the PSE to proceed with its P3.16-billion stock rights offer next month that will reduce brokers’ ownership of the equities bourse.

”Research on the financials of comparable market infrastructure enterprises in the region and globally”, LandBank said in its letter, “indicates that… PDS is undervalued and purchasing PDS shares could be a profitable investment for LBP”.

LandBank is a government-owned and controlled corporation focused on countryside lending and was the country’s fourth-largest lender in terms of assets as of September 2017.

Its letter said that the bank would “benefit from stable recurring cash flow from the various fees PDS charges market players as the country’s central securities depository and fixed-income exchange.”

”The maturation of the domestic fixed-income market, improved financial sophistication of local investors, ASEAN financial integration, and a high growth economy underpinned on infrastructure development make PDS an attractive business model. We also foresee potential synergies with LBP’s treasury operating activities as a government securities eligible dealer.”

Hence, Mr. Buenaventura in the letter asked LandBank’s board for “authority to formally engage the Development Bank of the Philippines as the financial advisor for the transaction, pursuant to RA 9184”, or the Government Procurement Reform Act, describing this as a “vital preparatory act to initiate the acquisition process.”

Asked why LandBank made the move, Finance Secretary Carlos G. Dominguez III — ex-officio chairman of the lender’s board — recalled in a Viber message: “Around September of 2016, I told PSE to be compliant with the law with regards to the allocation of their share to groups of shareholders as a condition to SEC’s approval of their plan to acquire PDX.”

”As of now, 16 months later, they are not compliant. The development of the capital market is being slowed down by the PSE’s inability to be compliant with the law,” Mr. Dominguez added.

”The Duterte Administration will no longer tolerate private institutions thwarting the goal of achieving a robust & inclusive financial system,” he added, saying he discussed the matter “with key members of the Admin[istration]”.

PSE Chief Operating Officer Roel A. Refran declined to comment on the development as of late Friday afternoon.