The financial services industry has been shocked by various elements of the new securities laws that have just gone into effect.
One of the most contentious issues is the new regulations on takeovers, an area where the Philippines has seen a good deal of activity in recent years. The old takeover rule had suggested that a general offer must be made to all minorities if parties acting in concert amassed 51% of a company. However, that was not a law and was not mandatory.
In an effort to boost minority shareholder rights and general market confidence in the wake of last year’s BW Resources scandal, the new takeover rule has become law.
However, the way this occurred was via a morning of debate between the Congress and the Senate, each of which began the day with highly divergent positions. Certain Congressmen believed the trigger for a general offer should remain at 51% , while some Senators suggested 10%. At the end of the debate, an amount of 15% was arrived at.
No one seems to be very happy about this, least of all big foreign fund managers. A major fund could easily take a 15% position in a Filipino company with no intention of taking it over. Under this new code it would have to make a general offer for all shares at the price it paid for the 15%.
"It may lead to creativity," says Senen Matoto, executive director of BPI Capital and head of the Investment Houses Association of the Philippines, an umbrella organization of local investment firms. "An investor might buy 14.9% instead."
The regulation is remarkably vague in other respects, however. It appears you could buy 14.9% in year one and 14.9% a year later without triggering a general offer.
What is most vague, however, is the definition of "in concert". The regulation says a general offer is triggered if "any persons or groups of persons acting in concert intend to acquire 15%".
That’s fine, but what happens if a global fund manager - such as a Templeton - owns 5.1% of company X via one fund, then another of its funds buys 9.9%? In total Templeton will hold 15%. Would that trigger a general offer? That would depend on how the SEC in the Philippines defines "in concert". And that is not yet clear to anyone.
Incidentally, this tender offer clause is not the only vague issue in the new Securities Regulation Code. Another contentious issue is the broker-dealer rule where a legal distinction between the two has proscribed brokers from dealing for their own accounts.
Given that the Philippines is desperate to attract high quality investment to its shores, it seems that this new takeover code will put off some big foreign funds.
As for M&A proper, it will definitely slow down the pace of activity. This in itself is bad, as the Philippines - with its host of vested interests and family controlled businesses - needs M&A as much as any Asian economy, perhaps more.
