Posted on 08:29 PM, October 25, 2010 [ BusinessWorld Online ]
THE PHILIPPINE Stock Exchange (PSE) wants minimal revisions to the implementing rules of the law on real estate investment trusts (REIT), the bourse’s top executive said late last week.
In particular, the local stock exchange wants to allow REIT firms to have less than 50% public float, repay debts, and hire property managers.
The PSE’s position, which has been submitted to corporate regulators conducting a review of the REIT law’s implementing rules, counters that of the Finance department.
“I think you cannot go immediately, out of practicality, for a 51% float ... Either it just does not make sense from a market perspective or the market just would not buy something like that,” PSE Chairman Hans B. Sicat told reporters late last week.
Mr. Sicat said REIT firms should be allowed to sell “less than 50%” of their shares when they decide to raise funds and go public under the new law.
The Finance department, whose Bureau of Internal Revenue (BIR) is holding back the release of separate taxation rules pending changes to REIT rules, wants REIT companies to sell 51% of their shares to the public, up from the required 33.3%.
The public float should increase to 67% before the end of the third year of a REIT firm’s establishment, the BIR had said.
On the provision involving the repayment of debts using funds raised by REITs, Mr. Sicat said firms should not be restricted. But their activities will be monitored.
The government wants REIT firms to use all fresh capital on new projects.
The REIT law, which took effect last December, establishes the framework for REITs -- corporations that use a pool of investor funds to purchase and manage real estate assets. REITs, which will be given tax perks, can raise money by conducting an initial public offering.
The PSE, moreover, wants REIT firms to hire property managers.
“If you are raising funds to generate a project, you need all these roles farmed out appropriately,” Mr. Sicat said.
The government wants to discourage property managers, saying REIT firms themselves should be established property managers.
The Securities and Exchange Commission will receive comments until Oct. 29, prior to a possible revision of REIT rules.
Analyst Astro C. del Castillo, managing director of brokerage firm First Grade Holdings, Inc., said in a phone interview REIT firms should be given enough leeway to encourage them to invest.
“What is the incentive of REIT firms if at the end of the day they are at a disadvantage?” he asked.
Claire S. Quiray, analyst at Regina Capital Development Corp., said in a separate phone interview that while the use of funds raised from the public for debt repayment is allowed by the REIT law, “the PSE has to define how much.”
Meanwhile, the PSE is holding back on the release of rules on listing by way of introduction, which were shelved early this year. “At this stage, with the market now very active and robust, we might as well continue with direct listing,” Mr. Sicat said.
Last Feb. 17, the PSE board suspended the implementation of the rules on listing by way of introduction, which allow a firm to join the PSE without having to sell shares to the public for a 12-month period.
The rules took effect in 2003 and the PSE itself listed by way of introduction that year. They were shelved when stock prices of some newly listed firms jumped, which was traced to valuation problems.
“There is no rationale for you do to listing by introduction right now given the market bull,” Mr. Sicat said.
On Friday, the PSE index rose by 0.89% or 37.70 points to post a fresh all-time high of 4,286.87. Year-to-date, the index has gained 1,234.19 points, or 40.43%.
Mr. del Castillo said companies that want to go public might still benefit from the bull run even early next year.
The local stock exchange originally wanted to release the revised listing rules in April.
In another development, the spin-off of the local bourse’s Market Regulation Department has yet to be approved by corporate regulators.
“It is still with the [Securities and Exchange Commission] for approval.
But in the meantime, we have named the transition team,” Mr. Sicat said.
The new entity will have seven directors: three nominated by the PSE and four independents. It will allow the PSE to focus on business aspects of the exchange like offering new products and encouraging the entry of more investors.
Meanwhile, the board of the local stock exchange has allowed the entry of Credit Suisse’s Hong Kong brokerage.
“The PSE Board approved the application by Credit Suisse (Hong Kong) Ltd., Philippine branch to acquire a trading right at the PSE,” the bourse said in a statement late last week.
The PSE operates the only stock exchange in the country with 248 listed firms and 132 operating participants. -- Neil Jerome C. Morales
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