PSE to tighten rules on selection of fairness valuation providers

By Arra B. Francia, Reporter
THE Philippine Stock Exchange, Inc. (PSE) plans to impose stricter guidelines on the selection of fairness valuation providers for companies in need of valuation reports, in a bid to protect small investors.
“What we’re going to do now is if you’re going to do a tender offer or any offering that will require a fairness opinion, you will give the exchange a list of three fairness opinion providers acceptable to you,” PSE President and Chief Executive Ramon S. Monzon told reporters in a press briefing in Taguig on Tuesday night.
“And then we will engage them and they will report to us.”
This is opposed to the current practice of firms tapping a fairness valuation provider by themselves, although the selection is from a list of companies accredited by the PSE.
Mr. Monzon said they will charge the company for the valuation fees, which will then be used to pay the fairness valuation provider. This will ensure that the provider remains independent from the issuer.
PSE Chief Operating Officer Roel A. Refran said they are currently asking for public comments for the proposed rule change, after which it will be transmitted to the Securities and Exchange Commission for approval. This will amend PSE Memorandum No. 2011-0104, or the Guidelines for Fairness Opinion and Valuation Reports.
“We really are here to protect the small investors… Moving forward, that’s why we had this proposed rule change para mawala na ang reklamo sa (so there will be no complaints about) fairness opinion provider,” Mr. Monzon said.
The PSE decided to revisit the guidelines following concerns over the fairness valuation of Melco Resorts and Entertainment (Philippines) Corp. (MRP).
MRP’s largest shareholder, MCO (Philippines) Investments Limited (MCO Investments), had planned to conduct a mandatory tender offer in line with the listed firm’s intention to delist from the PSE.
MCO Investments engaged FTI Consulting Philippines, Inc. for the valuation of MRP’s shares, who priced them at P7.25 per share. The PSE however received several complaints from MRP shareholders, calling the price “unfair.”
“We had that valuation problem in Melco, they were attacking the fairness valuator. A lot of people were agitating for PSE to hire another one, another fairness opinion provider to validate what Melco did,” Mr. Monzon explained.
The PSE executive said they didn’t want to hire another fairness provider because of the nuances in valuation.
“You can value the same company but we can really come up with different answers, it’s an accounting problem,” he added.
While MRP withdrew its plan to file for a voluntary delisting at the PSE, MCO Investments still conducted a voluntary tender offer, citing its intention to consolidate its shareholdings in the firm. After the completion of its tender offer last Dec. 10, MCO Investments now owns about 96.1% of the outstanding capital stock of MRP.
Since MRP has fallen short of the minimum public ownership rule of 10% for listed companies, it will be subjected to involuntary delisting procedures by the PSE.