PSE seeks tax breaks to help stock market

By Ian C. Sayson

Bloomberg

Philippine Stock Exchange Inc. (PSE), which has pursued reforms to restore credibility shredded by a share rigging scandal in 1999, will push for tax breaks to help expand the nation's equity market, one of the smallest in Asia. The exchange will ask Congress to pass a law reducing tax rates over a five-year period for companies that hold initial public offerings (IPOs) within two years of approval, Francis Lim, the stock exchange's president, said. It will separately propose tax exemptions to encourage the creation of real-estate investment trusts, known as REITs, he said. "We have cleaned the house," Lim, 52, said in an interview in the central city of Cebu. "It's now time to make the stock market bloom. We have to encourage companies to go public if we want to catch up with our neighbors." The nation's stock market, with a capitalization of $73 billion, ranks 12th out of the 14 tracked by Bloomberg in the Asia-Pacific region. Only Pakistan and New Zealand are smaller. Japan's market, the biggest, is valued at $4.97 trillion. Philippine stocks rose for the fourth straight year in 2006. The Philippine Stock Exchange index, the nation's benchmark, jumped 42 percent last year, its biggest advance since a 158-percent surge in 1993. The Morgan Stanley Capital International Emerging Markets index added 29 percent last year. Yet only four companies, including geothermal-producer PNOC-Energy Development Corp., held IPOs in the country last year, raising P19 billion in capital. That's a far cry from 1994, when a record P36.3 billion was raised in 21 IPOs, according to the stock exchange.   'IPO drought' "THE market went through an IPO drought," said Paul Garcia, who oversees $1.6 billion of assets as chief investment officer at ING Investment Management Philippines in Manila. "We have one of the smallest numbers of listed companies and the universe shrinks further after screening stocks for market capitalization and turnover." The exchange has 239 listed companies, compared with 346 in Indonesia's Jakarta Stock Exchange, which ranks 11th in the region. SM Investments Corp. holds the record for the nation's biggest IPO. The company and its founder Henry Sy Sr., the nation's richest man, raised P28.8 billion in 2005. Aboitiz Power Corp., whose energy assets include the nation's second- and third-biggest electricity distributors, and National Reinsurance Corp. of the Philippines, are among the five companies that have announced IPO plans this year.   'Gloom and doom' IN 1999, the exchange, then fully owned by brokers, was accused of coddling members alleged to have joined in manipulating shares of BW Resources Corp., an unprofitable property company that expanded into gaming. The scandal, mixed with political instability, slowing economic growth and concern over the government's mounting debt, turned off investors. The value of trades sunk to P504 million a day in 2002, compared with P2.25 billion in 1999. "It was a time of gloom and doom," said Fitz Aclan, who helps manage about $2 billion at Banco de Oro in Manila. "The country was facing problems left and right and investors were resigned that the market will be a perennial laggard." The exchange changed its status to a company from a mutual organization in August 2001 after a new securities law required it to broaden its ownership base. Under the law, no individual can own more than 5 percent of the exchange and no single business group can hold more than 20 percent.   'Restoring credibility' MUCH has improved since 2004, when Lim gave up his partnership in ACCRA, the nation's biggest corporate law firm, to assume the presidency of the exchange. Lim reformed the bourse, raised its investigation capability and reduced brokers' ownership in the exchange and participation in its operations. Last year, seven companies that failed to submit financial reports were suspended from trading. Last month, the exchange's Web site carried a list of brokers who were fined for breaking trading rules. Average daily trade has more than doubled to P4.71 billion this year. Total trade surged 49 percent last year to P572.6 billion. Overseas investors bought shares valued at P349 billion, 69 percent more than in 2005. Raising the number of companies could sustain that momentum, Lim said. "We have made headway in restoring credibility," Lim said. "Money is coming in again and we can keep that flowing by increasing the products available to investors and the companies trading in the market."

 

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