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Corporate News

Posted on 09:11 PM, November 28, 2010

THE FINANCE department is again at loggerheads with private corporations, this time, on the required public float for listed firms on the Philippine Stock Exchange (PSE).

The department wants the enforcement of a law that orders at least a 20% public ownership for bourse traders, which are seen cool to the idea after regulators recently approved the revival of a 2005 rule that allowed them only a minimum 10% public float.

Finance Secretary Cesar V. Purisima told reporters last Friday he already asked the Bureau of Internal Revenue (BIR) to write a letter to the Securities and Exchange Commission (SEC) “asking for at least 20% public float� from over 200 listed firms to “make [the bourse] deeper and unsusceptible to price influence.�

Public float is the portion of a company’s outstanding shares that is in the hands of public investors, as opposed to company officers, directors, or controlling-interest investors.

This new development is expected to become another source of disagreement among Finance, PSE, and the listed firms, which are still yet to meet halfway on the real estate investment trusts (REIT) law.

The said law has been postponed indefinitely after BIR reserved the issuance of tax rules until firms agree to hike REIT public float to 51% from 33%.

Sought for details, BIR Commissioner Kim S. Jacinto-Henares, in a phone interview, said she would communicate Finance’s concern to the SEC “this week.�

She noted that corporations are governed by Section 38 of the Securities and Regulation Code that prescribes that “two members or at least 20%� of a company’s board of directors should be “independent� from it.

Ms. Jacinto-Henares emphasized that listed firms’ “privilege� of not paying capital gains tax “may be scratched off� if companies will not follow regulations.

Listed firms are exempted from 5% capital gains tax for the first P100,000 transaction, and another 10% above that amount if the traded stock has a higher value.

Instead, they pay a lower 25% final tax for a percentage of the amount the stock was sold.

The law however goes against a listing rule revived by PSE last Oct. 28, in concurrence with SEC, which requires corporations only at least 10% of their shares to be offered to the public.

The rule, stipulated under the amended Article 18 of the Listing and Disclosure Rules, will take effect tomorrow (Nov. 30).

“The PSE rules were approved by SEC. I think they (PSE and SEC) should resolve this issue with BIR,� said Nestor C. Mendones, Tanduay Distillers, Inc. senior vice-president, in a text message.

Alphaland Corp. general counsel Rodolfo Ma. A. Ponferrada was more open. “As a listed company we will ensure compliance with all existing regulations. Right now, the SEC just reinstated the 10% minimum public ownership requirement… [a]nd we will abide by that,â€� he said.

Companies that will not be able to comply tomorrow are given until December 2011 to increase their public ownerships, after which erring firms will be slapped with penalties.

But Ms. Jacinto-Henares said “a regulation cannot repeal a law,� more so those regulations issued by PSE “which is not the regulator� of the code.

Mr. Purisima agreed with Ms. Jacinto-Henares, but said the matter “should be decided by SEC.�

Both SEC and PSE officials contacted by BusinessWorld declined to comment pending their receipt of a copy of Finance’s letter.

Earlier, the Finance department and BIR have asked the SEC to amend its implementing rules on REIT and require firms to sell more shares to the public.

The DoF and BIR want corporate regulators to amend rules on minimum public ownership and capitalization requirement.

The higher public ownership requirement is consistent with the thrust of the law, which is to make REITs public companies, the SEC earlier said on its Web site.

The DoF and BIR also want to add a requirement, mandating REIT firms to invest 50% of fresh capital to develop infrastructure projects in the first year, and the rest of the funds should be invested until the end of the third year.

The SEC said the BIR also suggested to do away with the appointment of a property manager on the ground that “REIT itself should be construed as a property company that is expected to be an expert in dealing with property management.�

“Moreover this expertise of a REIT in dealing with property is the major consideration of the public in investing with it,� the BIR earlier said.

“Aside from expertise, a REIT has a name and reputation that has positive effect on public perception. Thus contracting the service of a property manager would be illogical and unreasonable for a REIT,� the bureau added.

Among the firms that previously expressed interest in doing REIT offers are Ayala Land, Inc., Robinsons Land Corp., and SM Prime Holdings, Inc.

The REIT Act of 2009 took effect on Feb. 9. It provides tax incentives to REITs and their investors. — Prinz P. Magtulis

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