PSE wants new rules to help spot financially troubled firms

by Miguel R. Camus, BusinessMirror

MANILA, Philippines - The Philippine Stock Exchange (PSE) is proposing new rules to help identify firms under “financial distress” as well as revised guidelines covering companies under corporate rehabilitation, a memorandum posted on its website showed on Wednesday.

The filing covered extensively the PSE’s proposed “pre-rehabilitation rules,” which are being put in place to identify “red flags” in a company’s operations and provide minority stockholders ample time and information to make the appropriate investment decisions.

The draft rules also outline actions to be taken against erring firms, including delisting procedures for those failing to address their financial deficiencies.

Under the current rehabilitation guidelines, a firm’s shares are immediately suspended giving minority stockholders no exit mechanism, the PSE noted in the filing. And while the suspension can be lifted conditionally, the company’s shares have likely fallen to such a level that stockholders have to sell either at a significant discount or choose to wait it out with a financially unstable firm, it said.

“In order to warn investors of the financial state of the investee companies and afford them a timely opportunity to dispose of their shares, the proposed pre-rehabilitation rules indentify ‘red alerts’ that indicate a possible bankruptcy and require listed companies to immediately report the existence of these circumstances to the exchange,” the PSE said.

The PSE noted five key events that need to be disclosed—disposal by the issuer of a major business, suspension of operations for at least six months, negative stockholder equity for three consecutive years, delays to loan payments equivalent to 10 percent of total assets, and issuance of an adverse opinion on a company’s financial statement for three consecutive years.

Once these disclosures are made, the PSE designates a firm as a “company under financial distress.” The firm is then given five days to submit a business plan on actions it will take to address its financial situation, the PSE said.

Companies will be given three years to meet the requirements of the PSE or face delisting, although a further one-year extension will be given to firms taking concrete steps to restore their financial and operational viability.

The draft rules came as a result of a survey made on practices of other bourses in the region. Included in the survey are the Stock Exchange of Thailand, Bursa Malaysia, Singapore Exchange, Hong Kong Exchange and Clearing Ltd. and Korea Exchanges.

The PSE is, likewise, proposing to revise and expand the rehabilitation guidelines and align these with the Financial Insolvency Act of 2010. The bourse will accept public comments for the rules until April 10, the memorandum showed.

http://www.abs-cbnnews.com/business/03/21/13/pse-wants-new-rules-help-spot-financially-troubled-firms