New takeover code will be tested

The sale of a stake in Equitable PCI Bank will put the new Philippines takeover law to the test for the first time.

With rumours flying about as to who will buy the Go family and government stakes in Equitable PCI bank, it is clear that many of the buyers are going to face a problem - the new and untested Philippine takeover code, as well as elements of the General Banking Act.

Among those rumoured to be interested in Equitable PCI are a coalition of BPI and Singapore’s DBS, Metrobank, AIG/Newbridge and Standard Chartered. Up for grabs are the Social Security System’s 25% stake, a 12% block owned by the Government Service Insurance System and the 30% owned by the Go family.

Equitable PCI’s president, Wilfrido Vergara has said he wants to see between 20% and 35% sold to a foreign partner, which would cost between $227 million and $284 million. However, it won’t be a straightforward sale. This is thanks to the new takeover code.

The new takeover code - as yet untested - was passed last year and was designed to protect minority investors. Under the aegis of Senator Raul Roco, a law was passed that said a general offer would have to be made to all shareholders if more than 15% of a company was acquired. The Philippine Stock Exchange promptly complained about the law and said 15% was too small a number. It said it wanted the law “suspended”. However, you can’t suspend a law, only amend it. With the Philippines moving from crisis to crisis there have been no takeovers that have tested whether or not the law is suspended.

Until now. Anyone who buys the 20%-35% that Vergara refers to will, by law, have to make a general offer to all shareholders. This may suit certain potential bidders, but it isn’t what Vergara necessarily wants. A financial investor such as AIG/Newbridge may not want to buy 100%, for example.

On the other hand, Standard Chartered and the coalition of BPI and DBS would probably want to buy 100%, and would be happy to make a general offer. Of all the bidders, BPI and DBS would find their path the most straightforward. The central bank is known to be keen on creating a big national champion and the enlarged BPI Equitable PCI would control 25% of the assets in the Philippines. Standard Chartered will face a problem: The General Banking Act - passed last year - is the reason.

The General Banking Act allows foreigners to own 100% of a commercial bank. However, it prohibits the buyer from owning branches outside of that entity. This would mean Standard Chartered would, in theory, have to close its own Standard Chartered branch in Manila in order to buy Equitable PCI.

Again, this is untested territory. The only foreigner to buy a bank in the Philippines so far is HSBC, which bought 100% of PCI Savings Bank. According to the General Banking Act it could do so, and still keep its HSBC branches because PCI Savings is classified as a thrift. The rule prohibiting buyers from owning branches only applies to ‘commercial banks’, which are bigger.

And what of HSBC? Would it be interested in Equitable PCI? Many think not. Given it bought PCI Savings from Equitable PCI it is thought that it has already taken a good look at Equitable PCI.

It is thus unclear who will win the battle for Equitable PCI. But it is clear that the takeover code ought to come to the fore for the first time since it was passed into law.

For more detail on the takeover code see the related article below, “Vagueness rules Philippine Securities law”.

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