PUBLIC COMPANY INVESTMENTS

Investments in public companies are subject to the same foreign equity restrictions as those applicable to private companies. In terms of corporate governance and share acquisitions and transfers, they are subject to additional or stricter rules that are essentially intended to protect public investors.

MANDATORY TENDER OFFER

Under the Philippine Securities Regulation Code (SRC), any person or group of persons acting in concert, who intends to acquire any of the following amounts of shares in a public company must do a tender offer prior to completing the proposed acquisition: 

  1. at least 15% of the shares in the public company in one or more transactions within a period of 12 months;

  2. at least 35% of the outstanding voting shares in the public company, or such outstanding voting shares that are sufficient to gain control of the board of directors of the public company, in one or more transactions within a period of 12 months;

  3. at least 35% of the outstanding voting shares in the public company, or such outstanding voting shares that are sufficient to gain control of the board of directors of the public company, directly from one or more stockholders;

  4. such amount of the outstanding shares in the public company that will result in the acquiring party owning more than 50% of the total outstanding shares. 

 

The SRC lists down specific types of acquisitions that are exempt from the tender offer requirement, including, among others, (i) purchases through an open market at the prevailing market price, and (ii) merger or consolidation.

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REPORTING OF ACQUISITION OF SUBSTANTIAL SHAREHOLDINGS

A person is required to file a report his acquisition of beneficial ownership of shares in a public company the following instances:

  1. upon acquisition of 5% beneficial ownership;

  2. upon any increase (to less than 10%) or decrease in beneficial ownership; 

  3. upon acquisition of at least 10% beneficial ownership; 

  4. upon any change in the 10% beneficial ownership; and 

  5. upon change in the information submitted in an earlier beneficial ownership report.

 

“Beneficial owner” is defined in the SRC rules as any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power (which includes the power to vote, or to direct the voting of such security) and /or investment returns or power (which includes the power to dispose of, or to direct the disposition of such security). 

 

The report referred to above must be filed with the Philippine Securities and Exchange Commission (SEC), the Philippine Stock Exchange (PSE), and the public company.

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CORPORATE STRUCTURE: GOVERNANCE, OFFICERS, STOCKHOLDERS

“Beneficial owner” is defined in the SRC rules as any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power (which includes the power to vote, or to direct the voting of such security) and /or investment returns or power (which includes the power to dispose of, or to direct the disposition of such security). 

 

The report referred to above must be filed with the Philippine Securities and Exchange Commission (SEC), the Philippine Stock Exchange (PSE), and the public company.

  1. The board of directors is primarily responsible for governance of the company.  It should be composed of a majority of non-executive directors who possess the necessary qualifications to effectively participate and help secure objective, independent judgment on corporate affairs and to substantiate proper checks and balances.  It should have at least three independent directors, or such number as to constitute at least one-third of the members of the board of directors, whichever is higher.

  2. A public company should have the following committees:

    • Audit Committee;

    • Corporate Governance Committee; 

    • Board Risk Oversight Committee; and 

    • Related Party Transaction Committee.

  3. The board of directors should establish corporate disclosure policies and procedures to ensure a comprehensive, accurate, reliable and timely report to shareholders and other stakeholders that gives a fair and complete picture of a company’s financial condition, results and business operations.

  4. The board  must appoint a compliance officer, who shall be responsible for monitoring, reviewing, evaluating and ensuring the compliance by the company, its officers and directors with the relevant laws, rules and regulations and all governance issuances of regulatory agencies, and the Code of Corporate Governance for Publicly Listed Companies.

  5. The company should establish standards for the appropriate selection of an external auditor, and exercise effective oversight of the same to strengthen the external auditor’s independence and enhance audit quality.

  6. The board of directors should oversee that an appropriate internal control system is in place, including setting up a mechanism for monitoring and managing potential conflicts of interest of Management, board members, and shareholders. 

  7. The board of directors should ensure that basic shareholder rights are disclosed in the Manual on Corporate Governance and on the company’s website.  It should encourage active shareholder participation.  

  8. The board of directors should identify the company’s various stakeholders and promote cooperation between them and the company in creating wealth, growth and sustainability.

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DISCLOSURE OBLIGATION OF PUBLIC COMPANIES

Public companies are required to comply with the following disclosure requirements:

  • structured/regular continuing disclosure requirements, including submission of (i) periodic and other reports and (ii) submission of beneficial ownership report; and

  • unstructured/current continuing disclosure requirements (relating to every material fact or event that occurs which would reasonably be expected to affect investors’ decision in relation to the shares). 

 

In addition, in the event a news report appears in the media involving an alleged material event, which report would create public speculation if not officially denied or clarified by the issuer, and the issuer has not yet submitted a current report therefor, the SEC may require the issuer to file such a report within the period prescribed, in order to clarify the news report. 

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REGISTRATION OF SECURITIES

Items 1.1. to 1.4 above cover certain topics that may be relevant to foreign companies that intend to invest in public companies in the Philippines.

 

In cases where, instead of investing in shares in a public company in the Philippines, the foreign company would like to offer its shares or other types of securities to persons in the Philippines, or would like its subsidiary in the Philippines to go public, then it should be aware of the requirement for the registration of securities under the SRC.

 

Under the SRC, as a rule, no securities shall be sold or offered for sale or distribution within the Philippines unless such securities shall have been registered with the SEC. By way of exception, registration of securities with the SEC is not required under any of the following circumstances, notwithstanding that the subject securities are sold or offered for sale or distribution within the Philippines: 

  • if the securities are of a class of securities that is exempt as listed in Section 9.1 of the SRC, including, among others, (i) any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic relations, or by any state, province or political subdivision thereof on the basis of reciprocity, provided, that the SEC may require compliance with the form and content for disclosures the SEC may prescribe, (ii) any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the Office of the Insurance Commission, Housing and Land Use Rule Regulatory Board, or the Bureau of Internal Revenue; (ii) any security issued by a bank except its own shares of stock;

  • if the securities are to be offered or sold in a transaction that is exempt as listed in Section 10.1 of the SRC, including, among others,(i) the distribution by a corporation actively engaged in the business authorized by its articles of incorporation, of securities to its stockholders or other security holders as a stock dividend or other distribution out of surplus, (ii) the sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock, (iii) the sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period (private placemen), and (iv) the sale of securities to any number of qualified buyers (as this term is defined in SRC rules); or

  • if the securities are to be offered or sold in a transaction that is not an exempt transaction under Section 10.1 but which transaction the SEC, pursuant to its power under Section 10.2 of the SRC, exempts from the registration requirement on the ground that the SEC finds that requiring registration is not necessary in the public interest or for the protection of the investors such as by reason of the small amount involved or by the limited character of the offering.

 

If  the company intends to list the securities on the PSE, it must comply with the listing requirements under PSE rules.

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