PSE makes contradicting verdicts on disclosure issues

By Lala Rimando,

Posted at Feb 13 2009 01:44 AM | Updated as of Feb 13 2009 11:01 PM

On the same day that the Philippine Stock Exchange (PSE) imposed a P50,000 penalty on listed firm Filinvest Development Corporation, it withdrew the same fine against another listed firm, San Miguel Corporation.

Both were faced with the same issue: failure to abide by the bourse’ disclosure rules after they entered into agreements with other parties.

In February 11, the PSE published on its website Memorandum No. 2009-0082, entitled, “Decisions rendered on cases re: Compliance with the Revised Disclosure Rules."

In one document, the PSE informed the investing public contradicting decisions it enforced on FilInvest and San Miguel.

FilInvest's case

Filinvest, a real estate and financial conglomerate, was fined for failing to disclose the terms and conditions of the agreement that its non-listed subsidiary, East West Banking Corporation, entered into with financial giant, American International Group (AIG).

In January 23, East West Bank acquired AIG’s banking and leasing units by buying all the shares of AIG in PhilAm Savings Bank, PhilAm Auto Finance & Leasing, and PFL Holdings.

The exchange required FilInvest to disclose details of the transaction between East West and AIG, including the terms and conditions of the sale. FilInvest cited the confidential nature of the deal, and asserted in a February 4 letter to the exchange that Filinvest is not a party to the deal, while East West is not subject to disclosure rules since it is not listed.

On February 11, however, the PSE decided that FilInvest has the “obligation to properly inform its stockholders and the investing public” about its subsidiary’s deal.

PSE cited Sections 1, 2, and 4.3 of its Revised Disclosure Rules, which state that the exchange “may require listed companies to submit a disclosure regarding the transactions of its subsidiaries, whether listed or not.”

The PSE regularly disciplines locally listed firms through penalties when they neglect—advertently or inadvertently—to provide information about transactions made by the company or its officials that may affect, among others, the economic or financial performance of, or equity situation in the company.

Since listed companies raise funds through investors that put in money into the companies’ initially offered or already traded stocks (units of ownership), it is the duty of the exchange to ensure that all investors have equal access to material information about the company. Ideally, equal access and prompt disclosures on the part of the listed firms level the playing field so investors could then decide to either buy, sell, or hold their stocks.

According to PSE’s disclosure rules, the listed company even have to report to the PSE within 10 minutes upon the occurrence of a financial or commercial transaction. The PSE would then post the disclosure on its website, which all investors could access.

But while the PSE was strict in implementing the disclosure rules to FilInvest that day, it was more lenient with San Miguel.

San Miguel’s case

The diversified conglomerate has been on a buying spree lately. After divesting a significant stake in its drinks and food businesses here and abroad, it has clinched two deals that involved the country’s biggest firms.

• In October 2008, San Miguel bought a 27 percent direct stake in electricity giant Manila Electric Co. (Meralco).
• In January 2009, it entered into an option agreement with a major stakeholder of Petron Corporation for an indirect 50.1 percent stake in the giant oil refiner and retailer.

On February 3, the PSE wrote San Miguel to ask why it should not be penalized for its failure to promptly disclose details pertaining to dates of these transactions.

In the case of San Miguel's purchase of the Meralco stake, the PSE noted from a January 29, 2009 disclosure of San Miguel that the share purchase agreement signed by San Miguel way back in October 27, 2008.

And for the stake in Petron, PSE said San Miguel disclosed the option agreement only on January 5, 2009, when agreement was signed in December 24, 2008.

On February 4, the day after receiving PSE’s memo, San Miguel's reply focused on the Meralco deal only.

It asserted that it did disclose that its board has authorized the deal, and even provided details about the acquisition price and terms of payment. It added that on November 5, 2008, it provided the exchange additional information, and even confirmed the execution of the share purchase agreement.

On February 9, PSE wrote San Miguel that it violated disclosure rules in its Meralco transaction and that the bourse is imposing the mandatory P50,000 penalty.

PSE insisted that despite disclosing some aspects of the deal, “the investing public…do not have any information if an Agreement has already been signed.”

It added that the closing date of the signing is important information since “It will apprise the investing public of the actual date for the delivery of the down payment which can ensure that the planned acquisition of shares will materialize.”

The following day, on February 10, San Miguel appealed PSE’s move to penalize it since, it said, the PSE had not expressly requested for the signing date.

It wrote, "The tenor of the request of PSE assumed execution (of the transaction) when it asked that SMC submit copies of all 'agreements executed' on the transaction. The text of the request enumerated seven matters for clarification, none of which was a request to declare the date of execution."

"There were seven items enumerated in the 'additional information' requested, but none stated that we should identify the date of the signing of the (agreement). Had the request for clarification simply asked for the date of signing, we would have promptly given the information," noted San Miguel.

The company said it could not provide the PSE a full copy of the said agreement because it was bound by confidentiality.

On February 11, PSE granted San Miguel’s appeal on the Meralco deal.

It wrote the diversified conglomerate that it “accepts the Corporation’s explanation on the matter and hereby grants its request for reconsideration.

On the same day, PSE wrote San Miguel over the second issue—the Petron stake, which was not discussed or were there exchange of correspondence as was the case in the Meralco stake.

PSE said, “The Exchange resolved not to impose a penalty on the Corporation for its violation of Section 4.1 of the Revised Disclosure Rules.”

It also reminded San Miguel to make prompt disclosures in the future, and added, “The Online Disclosure System is capable of receiving disclosures 24 hours a day 7 days a week to ensure that listed companies are able to make prompt disclosures.”

The PSE then warned San Miguel that “subsequent violation of the same nature would result in the imposition by the Exchange of the appropriate penalty.”