SEC pushes back on GCash IPO float issue

The Securities and Exchange Commission (SEC) [link] put out a press release yesterday to say that it “remains firm on the 20% minimum public float requirement for companies applying for an initial public offering”, but that it would “allow by way of exemptive relief, a initial public float of 15% subject to strict criteria”. The SEC did not elaborate on the strict criteria it would use, but did mention that a condition of this exemptive relief would be for the company to “bridge any gap from the 20% standard within less than 24 months from the listing date”. In the statement, the SEC underlined the benefits of the current minimum public float rule, which are to enhance market liquidity, improve price discovery, reduce opportunities for market manipulation, reduce ownership concentration, and encourage good corporate governance. GCash has openly lobbied for the PSE and SEC to waive the 20% rule for its potentially massive IPO, due to concerns the market may not have the capacity to absorb all of the shares. The SEC said that it has not received any application for an exemption for any potential IPO, implying that GCash has not yet officially sought the waiver with the appropriate agency.

MB bottom-line: I’m really happy the SEC didn’t just roll over to GCash’s classless statements in the media requesting an exemption from the public float rule. While it did provide a path to an exemption to the rule, it still maintained the need for GCash to pull itself in line with the 20% rule within two years. That’s a longer time period than I’d have liked, but it’s reasonable. Without knowing more about the SEC’s criteria for this exemption I can’t tell if GCash would qualify, but if it did qualify and it listed with an initial public float of 15%, it would then have two years to push an additional 5% of its outstanding shares into public hands by way of a follow-on offering, stock rights offering, or private placement. At the end of the day, the number of shares on sale is the “supply”, and number of shares the market is willing to buy is the “demand”. GCash wants to limit the supply to preserve a higher price, because it fears that a greater supply of available shares will require it to lower the price to make the sale. When GCash talks about the market’s ability to “absorb” the shares, it’s really trying to gaslight us into thinking that we are somehow the problem, when in reality, the issue is simply that they want to charge us more money and they’re afraid that we won’t pay the number that they want. As I’ve said many times before, the market would happily “absorb” 100% of GCash if they slashed the price. That tells me there is actually no “absorption” problem at all. The problem is price, so I’m glad the SEC held its ground and pushed the issue back to GCash.

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