Capital movement in the 21st century is a global phenomenon. Despite geographic controls in some places, funds flow in and out of borders, and among various asset classes, depending on the relative attractiveness of opportunities. These can be affected by interest rates, taxation, ease of access to investments, and the products and services available in a given market.
A good example highlighting the increasingly borderless ecosystem of financial markets is the cross-listing of equity securities on multiple exchanges, provided that these exchanges have rules and regulations that allow the cross-listing of foreign companies. At the Philippine Stock Exchange (PSE) foreign listing applicants can be admitted to the registry via a process called listing by way of introduction (LBI).
Listing by Introduction
Going public through an LBI does not require a public offering because the shares to be listed are assumed to already be widely held and adequately marketable. The PSE’s LBI rules, last amended in 2011, provide five circumstances where an LBI may be allowed, including when a company is already listed or will simultaneously list on another exchange.
There are currently three foreign listings on the PSE out of the total 267 listed firms. The PSE continues to keep its facilities open to foreign companies looking for a venue that can generate attractive valuations and accommodate their funding needs. The case of Del Monte Pacific underscores this opportunity, having first listed its shares on the Singapore Exchange (SGX) instead of the PSE. Despite operating one of the world’s largest fully integrated pineapple operations in the Philippines, Del Monte found it more convenient to first conduct an initial public offering in SGX back in 1999 before listing in the PSE 14 years later in 2013. Fortunately, the company soon after took advantage of its Philippine listing as it conducted a follow-on offering of more than 5m new shares in 2014, and was the first to tap the PSE’s dollar-denominated securities facility in April 2017 to raise dollar funding for its foreign currency requirements, followed by another dollar-denominated security offering by the end of the same year.
Based on data from the World Federation of Exchanges, the PSE is one of three ASEAN+6 Exchanges which have foreign listings, with Bursa Malaysia having 10 overseas firms in its roster and SGX having 265 cross-listed firms as of end-April 2018. The PSE hopes to continue being a viable listing venue for foreign companies, which can benefit from the enduring strength of the local economy, a broadening base of investors, growing domestic liquidity and an expanding portfolio of exchange-offered options for raising capital.
Foreign Investment
The rising inflows of foreign direct investment (FDI) into the country has supported the sustained optimism over the local market’s potential. In 2017 the Philippines netted an inflow of $10.05bn, 21.4% higher than the $8.28bn received in 2016. The Philippines, alongside Vietnam, were the only two ASEAN+6 economies whose FDI inflows have consistently grown since 2013. Foreign interest and investments are expected to be amplified in the coming years, with the government articulating plans to liberalise a number of industries to foreign ownership.
At present, the foreign investment negative list bars and restricts foreign ownership across various sectors. The limits vary from one industry to another, but as a general rule, foreigners are only allowed to own up to 40% of businesses in the Philippines. Foreign investors, however, are allowed to own 100% equity in industries and economic activities not covered by nationality restrictions under existing laws.
In 2015 the Philippine banking sector was liberalised to allow foreign banks to fully own existing local lenders or to establish new subsidiaries. This was subsequently followed by the liberalisation of foreign ownership in financing firms, investment houses and insurance claim adjustment companies. There also plans to enable greater foreign participation in priority sectors, such as telecommunications, construction and professions.
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