The stock market, where investors can buy and sell shares in listed companies, is one of the best platforms to raise capital efficiently for businesses. However, judging from the track record of the Philippine Stock Exchange (PSE), the equities market is practically a no-man’s land for startups and small and medium enterprises (SMEs).
That’s hardly surprising considering the tough listing requirements. The minimum authorized capital requirement to list at the PSE is Php500 million and potential listers must have posted a cumulative earnings before interest, taxes, depreciation and amortization (Ebitda) of at least Php50 million for three years before listing.
In 2013, the rules were relaxed for the stock exchange’s SME Board. The authorized capital requirement was reduced to Php100 million and cumulative Ebitda was lowered to Php15 million for three years prior to listing.
Despite the relaxation in the requirements for the SME Board, hardly any small businesses listed at the PSE, however. Rather than further loosen the rules, many capital market experts thought it may be better to create a separate stock exchange altogether for small and medium enterprises. Like similar exchanges in the US, Japan and other countries, it will be governed with an entirely different set of rules.
In support of the idea, Senator Cynthia Villar last year filed Senate Bill 720 or “An Act Establishing The Small And Medium Enterprises Stock Exchange (SMEX).” It seeks the creation of a self-regulatory stock exchange exclusively for small and medium businesses to make it easier for them to raise capital.
“Public listing in the SMEX may well provide SMEs with a cheap and steady pool of funds for their business requirements,” Villar said in the explanatory note.
“This has been the experience of the United States when they set up the National Association of Securities Dealers Automated Quotations (NASDAQ) stock market for growing companies, which has been the market for the public listing of phenomenal companies such as Intel and Microsoft,” added Villar.
However, unlike the PSE or NASDAQ, SMEX will be established with government funds and managed initially by government officials. It will be under the supervision of the Office of the President for policy and budget coordination purposes. It will be governed by a Board of Governors composed of the governor of the Bangko Sentral ng Pilipinas, representatives from the PSE and five members of the SMEX.
Under the proposed law, the SMEX may be privatized after a period of five years "to ensure the efficient and effective functioning of the stock exchange.”
The Senate bill has been referred to the Committees on Trade, Commerce and Entrepreneurship; and Finance, which conducted an initial hearing on the proposed law last March 2017.
Meanwhile, a counterpart bill has also been filed at the House of Representatives, House Bill No. 3102. It was submitted by DIWA Party-List Representative Emmeline Aglipay Villar, who is Senator Villar’s daughter-in-law. The House bill is still pending with the House Committee on Trade and Industry.
As of 2015, there are 900,914 business establishments in the Philippines. Of these, 96 percent are SMEs, accounting for 31.2 percent of the total jobs generated in 2015.
Cherrie Regalado is a contributor to Entrepreneur.com.ph. Follow her on Twitter @cherrieregalado