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Wednesday, July 12, 2006

Going public 101 for a franchise company

An established company can raise capital for expansion by selling its shares to the public. Here's how it's done. Companies wanting to raise additional capital for expansion may list in the Philippine Stock Exchange, which provides the facility for the selling of shares to the investing public.

A company may choose to list its shares in the First Board, the Second Board, or the Small and Medium Enterprises (SME) Board, provided it meets the requirements. The First Board is for the big players. It requires the company to have a five-year operating history and a market capitalization - net tangible assets - of P500 million.

The company must be operating profitably for three full fiscal years, which means having a cumulative consolidated pre-tax profit of at least P50 million and a minimum pre-tax profit of P10 million for each fiscal year.

The company must also be engaged in the same business and have a good management track record throughout the three years before filing the listing application. The company must have a minimum capitalization of P400 million, and at least 25 percent of which were subscribed and paid in full. The company must also maintain, upon and after listing with the exchange, at least 1,000 security holders each owning securities equivalent to at least one board lot.

'Capital requirement for listing in the SME Board ranges between P20 million and P100 million, of which at least 25 percent is subscribed and fully paid up.'The Second Board is for companies that demonstrate a potential for superior growth to list in the exchange.

Compared with the First Board, it has far less exacting financial requirements:

Authorized capital stock of P100 million, at least 25 percent of which must be subscribed and paid in full (although at listing, the market capitalization of the company must be at least P250 million).

Holding companies or companies whose earnings are derived exclusively from passive revenues are now qualified to list under the Second Board. A listing applicant in the Second Board must have an operating history of at least one year prior to its application. And unlike applicants to the First Board, the company shall only maintain a minimum of 500 security holders each owning at least one board lot of the company's securities.

A company in the Second Board may write the exchange and request to be elevated to the First Board after showing that it has met the requirements.

Capital requirement for listing in the SME Board ranges between P20 million and P100 million, of which at least 25 percent is subscribed and fully paid up. Except for information technology firms, the applicant should have net tangible assets of at least P5 million.

It must also be operational for at least one year with positive net operating income (income before interest, taxes, depreciation, and amortization) during the last financial year. The exchange will evaluate the applicant based on the integrity and capability of its management and controlling stockholders, its prospects for further growth and profitability, and its lack of existing material conflicts of interest.

What companies are banned from listing on the SME Board? Holding, portfolio, and passive income companies or those which confine their activities to owning stocks in and supervising management of other companies; and those whose source of income are mainly dividends, equitized earnings, and interest earnings from those investments.

Upon and after listing with the exchange, the company must maintain at least 50 security holders owning securities equivalent to at least one board lot. It may opt to transfer to and from the First or Second Board upon written request to the exchange and upon showing that it has already met the listing requirements.

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