The Philippine Stock Exchange (PSE) is in talks with the Shenzhen Stock Exchange (SZSE) to be a cornerstone investor in the former’s P2.5-billion follow-on stock offering program.
In a presentation before the Shareholders Association of the Philippines (SharePHIL) yesterday, PSE president Ramon Monzon mentioned the possibility of forming a tie-up with SZSE to establish a cross-border trading linkage or “Shenzhen Connect.”
Monzon said he was pursuing this tie-up because he was particularly interested in boosting the flow of Chinese investments into the local stock market.
Part of the prospective tie-up is for SZSE to acquire shares in the PSE but this should be no more than 5 percent as mandated by local securities law as the ownership cap for any single investor in a local bourse, Monzon said.
After the SharePHIL forum, Monzon said talks with SZSE were “very preliminary” but he noted that since 2009, the PSE has had a memorandum of understanding (MOU) with SZSE to create a trading linkage.
“Now we want a more concrete partnership with them,” Monzon said. “I’m trying to convince them to subscribe to our follow-on offering because I’d like them to be a shareholder.”
The proposed trading linkage may take some time but the prospective equity investment may happen first, he added.
The Bangko Sentral ng Pilipinas will also have to be involved in the creation of Shenzhen Connect to iron out cross-border payment and settlement issues, Monzon said.
Established in 1990, SZSE is a self-regulated legal entity under the supervision of the China Securities Regulatory Commission. Since 2000, SZSE has signed MOUs with 30 major stock exchanges and financial institutions in the world and enhanced cross-border cooperation and communications.
For its part, PSE hopes to conduct its follow-on offering within the year. It has mandated BDO Capital and Investment Corp. to arrange an equity deal.
It was earlier disclosed that the PSE was planning to issue a maximum of 11.5 million common shares out of the unissued portion of its authorized capital stock, which would dilute the cumulative ownership of trading participants.
The follow-on offering of shares is part of the PSE’s compliance plan to align the shareholder ownership with the limits set by the Securities and Regulation Code. Proceeds of the offering will be used to fund the acquisition of PDS and for the working capital requirements of the exchange.
A PSE source privy to the initiative said trading participants would not subscribe to the fresh equity offering to achieve the goal of reducing the ownership of trading participants to 20 percent, the maximum stake allowed by law that any single industry can acquire in an operating local bourse.
