Local small investors — or LSIs — can now look forward to greater participation in companies’ initial public offerings (IPO), following new regulations changes meant to attract more investors to the Philippine markets.
An IPO is a company’s debut into the public market — wherein new or existing shares are sold to the public for the first time.
According to the Philippine Stock Exchange (PSE) memorandum issued last Thursday, the Securities and Exchange Commission has just approved amendments to their regulations, prioritizing the involvement of LSIs in these initial public offerings.
Under these revisions, LSIs can now invest a maximum of P100,000 in a company’s IPO, four times higher than the previous cap of P25,000. In addition, companies are now required to allot 10 percent of their entire IPO to local small investors.
For IPOs exceeding P5 billion, the PSE may opt to increase LSIs’ subscription cap “on a case to case basis… to help facilitate greater participation and subscription to the LSI allocation.”
The new rules also require issuers to employ share “clawback” or “clawforward” mechanisms in the event of over- or under-subscription within the 10 percent allocated for LSIs. Simply put, these would be provisions that allow issuers to take back or give out shares as needed, in order to maintain balance.
The PSE first raised the possibility of increasing subscriptions for LSIs back in 2016 after noticing that IPOs were growing larger and the investing public was expressing more interest in putting their money in these newly listed companies.
Philstocks Financial, Inc. Research Head Justino R. Calaycay, Jr. expects the rules to positively impact future IPOs. “That will give more room for individuals to participate in IPOs.”
“However, given the current times, IPOs in general don’t seem attractive,” he said. While recent economic gains have seen Filipinos gain more and more capacity to invest, current market volatility may prove to be a hindrance.
Omen, or opportunity?
The PSE index has lately been trading within a 7,500-7,800 range, a far cry from its peak of 9,058 last January. While performance metrics were up last Thursday, those numbers were still 17% lower than the record high posted at the start of 2018.
“If we look at the precarious level of the market right now as well as the internal and external factors that influence the recent move of the index, I think market participants will stay cautious until they see signs of recovery in the market,” said Jervin de Celis, a trader with Timson Securities, Inc.
But flagging market performance may also present opportunities for retail investors.
“In reality, from an investors’ point of view, the recent slump of the market can be seen as a buying opportunity, a good entry point to position into stocks that have reduced its valuation,” said Rens V. Cruz II, an analyst with Regina Capital Development Corp.
“If you’re an investor, you’re looking at prospects long-term, and you enter at dips, such as the recent weakness of the market,” he said.
Edited by Santiago J. Arnaiz
With reporting by Arra B. Francia and Anna Gabriela A. Mogato. Read Arra’s original piece on the new changes in IPO rules here.