March 16 Advanced Securities Transcription

What is a security? You need to be able to identify w/n it is a security. Like when you offer a
participation in some project.
What will require registration? Which is why we focused on exempt transactions. Sec. 8 and 12
of the SRC and the IRR.
What is listing? It is the ability to use the facility of the PSE, so that you can get the benefit of
the lower tax, a lot of buyers and a lot of sellers, etc.
What I wanted to focus on sa listing is the Suitability Rule you cannot have an estafador in
your Board, or an insolvent person. Or the corporation must not be insolvent. Or your
corporation/its officers must not be convicted of crimes here or abroad. Because weve had
instances when they were already under indictment in the US then they run home to the Phils.
Then they do quite well here. If you recall Mark Jimenez. A very successful Filipino who came
home and became one of Eraps advisers. The thing was he was plaa under indictment
because he had a string of comp companies because they were charged with illegal campaign
contributions. Because they come out with a list. He went back to the US to serve his sentence
then he came back to the Philippines to be a Congressman. Whats new? (Haha)
Initial Public Offering. Secondary Public Offering. Listing By Way of Introduction.
IPO shares of stock that have not been listed before. They exist. But they have not been
registered/listed before. And a lot of people know how to make money on IPOs. Because they
come in at the IPO price on the expectation that it will go up. They come in and sell immediately
once it goes up.
Secondary listing naman is when youre already listed. For example, you have a shareholder
that owns 30%. If they dump that on the market, share prices will go down. Prices will go up if
theres good news about the company, which is why there must be a public float. That means
there must be enough shares in the hands of people like you and me. Hindi yung controlling.
If youre a 30% shareholder, you cant just dump that on the market kasi babagsak ang price
mo. So what they will often do is have a secondary offering. Which means, lets say Miss Cruz is
a SH of San Miguel owning 30%. She will prevail on the management that she will do a
secondary offering; it will go through the same process. Usually they tie that up with an offering
of new shares. So yung secondary offering, meron ng may-ari, binebenta na lang through a
public offering to make sure that prices will be stable.
Listing By Way of Introduction. You dont expect money to come in. Youre just listing your
shares. That means you already have a lot of shareholders so you want to list it but you are not
raising funds. In theory, list ka muna, pagkatapos i-aano mo, then you will have an offering of
shares, a rights offering. Why is it called a rights offering, Mr. Manalo? Because there are preemptive rights. If there are no pre-emptive rights, many corporations will have a provision in
their articles that say that there shall be no pre-emptive rights to all issuances of shares.
Because that used to be the policy of the SEC. Masyado kasi magulo. But now, under
Corporate Governance, there must be pre-emptive rights. The SECs changing it na. because
the pre-emptive rights diba, if you have 50,000 SH, medyo magulo talaga offering mo dun. Lets
say one share for every eight, eh pano yung mga fractional? Actually stock dividends thats also
a problem ah, yung fractional shares. Because ano babayaran mo ng pera? You round off?

Although the normal thing is just to drop it. If youre entitled to say, half a share the SEC will ask
the corp to just drop your half a share. Essentially, shares on the market are fungible. You dont
know who your shares originally came from. Now you dont know who owns what which we will
take on uncertificated securities.
OUTLINE PROPER
Registration and Listing. You can register and not list ha. Take note. But as we will find out,
the tax rules are different for your listed shares.
One of the things that you really need to know is the Registration process. And as weve said
before, registration requires a Prospectus. What must be in that Prospectus? You will have to
trace it. Madami kasi sa SRC na this section requires so and so. This is one of the things you
have to learn - on how to read regulations. That you have to be able to figure out what is what.
First, registration statement. Under Sec. 8.1 of the SRC, what does it say? So you go now to
IRR 8.1 1 (A) pano mo ngayon ireregister? The provisions in Sec. 8 are really general, but you
need to be specific now. What does it say?
Under 8.1 1(A) which says Filing of Registration Statement, take note SEC Form 12-1. Ano ba
laman ng aking registration statement? And the RS has been declared effective by the SEC. Let
me explain to you. When you file kasi a RS, diba we said you really have to have a Prsopectus.
It cannot be na pagnaka-effective ka na ng prospectus, tsaka ka lang mag-bebenta. Because
people need an opportunity to absorb what your company is all about. Therefore, once you have
filed your RS and Prospectus with the SEC, you can already go with some limited marketing
effort. You try na to sell your shares, pero wala pang commitment. In effect, its just informing the
world about your shares. Because diba an underwriter will be required. You will need an
underwriter. It commits that SELL ALL SHARES. If nobody buys it, WE WILL BUY ALL. SELL
ALL BUY ALL. Why do you think thats required? Diba you always have to have use of
proceeds. Yung mararaise mo from your rights offering or IPO. You need use of proceeds.
Anong pagagagamitan mo? What will you use your money that you raise the money for? Youre
building a factory kunwari. For example, Globe may want to buy a new equipment. Or you could
be paying off obligations. If you have a debt, your debt is affecting your ability to pay dividends.
So make your SH buy more shares. You have to have use of proceeds. Because you have to let
people know where the money that theyre investing will go. The other reason is, kung hindi mo
mabenta lahat, lets say you need P100M to build your factory, eh kung P50M lang nabenta mo,
ano yun you will build half a factory? Hindi pwede. In fact, the PSE requires you to deposit the
proceeds and there a certain requirements for you to withdraw.
So the reason you need this Sec. 8.3 of SRC, kasi while you are trying to get the shares
registered, you are also book-building. What does it mean? Youre trying to find buyers. Thats
what the underwriter will be doing. So hindi naman pwede, in limbo. They have to able to show
something which is why certain communications are allowed under 8.3.
Also under 8.1.3B, you would see a provision tere that you cannot offer it for sale unless the
information is widely disseminated. There has to be wide dissemination. So while youre going
through the registration and listing process, youre already letting the public now. May wide
dissemination but wide dissemination is presumed to exist when, theres a provision here. You
have to give the investment houses, or you have provided people 20 copies, and you have to
say that a copy is available at the SEC for anyone who may be interested.

And then under IRR Sec. 8.1. 3C, take note ha, the number of the rules will correspond to the
numbers of the provisions in the SRC. Under 8.1.3 C, a prospectus including a prelim
prospectus, shall contain info contained in SEC Form 12-1. That will now bring you to what is
required under SEC IRR 12.1 and SEC Form 12-1. That will bring you to this enumeration in
page 1 of that outline. Because there is actually an Annex C.
Part I - Business
Whats the first thing that your prospectus has to contain? Under SRC Rule 12. Brief description
of the Business check Annex C. If you have to look under enumeration like, percentage sales
and revenue, distribution methods of the product and services, etc.
P&G for example, contracts with SuySing, and it is SuySing that will distribute in the
supermarket. So that it eventually reaches the end consumer. Maraming ganyan and they make
a lot of money. It is required that you have a distribution network. Like you have to make sure
that someone buys your product. Distribution Methods, you have to include that in the
Prospectus so you know how that company will move.
Part II Securities of Registrant
You have to put in market price, market information saan ka ba magbebenta ng shares mo?
You have to put in how many shares you have. What are the rights? Then you have to put in the
holders. Sino ba may-ari ng shares mo? The key here is 5%. Anyone who holds 5% must be
included. Who are the directors and officers? The issue now is the sweldo of the directors and
officers. But siyempre, madaming may ayaw nito.
Dividends. For a listed company, you have to have a dividend policy which means for example,
you can say that for every year you declare 10% of net income. You have to have that dividend
policy.
Debt securities. Promissory notes. Stock Options actually the key here is, when is the
exercise price set. You have this thing called strike price. The lower your exercise price is, the
better for the option holder. Warrants. Alam niyo na yan.
Part III Financial Information
Take note of MDNA. Material events and uncertainties (ex. like a new law that will kill your
industry or a new development).
Five Key Performance Indicators (KPI what are your indicators whether youre doing well or
not).
Part IV Management and certain security holders
Take note of the Compensations of Directors. (too many kwentos here haha)
Part V Corporate Governance
Part VI Registration Statement and Prospectus Provisions
Actually, theres a rule saying even the paper where youll put it. What youre putting in the
prospectus.
Part VII Exhibits

Read Warning Rule 8.1 (3) (D)

*Very important* This statement must be on the face of your prospectus. All countries have this.
They are making sure that nobody is misinterpreting this to be an offer. Another warning, all
registration requirements have been met, true and accurate. Para kung may false statement
dun, pwede ka makasuhan dun.
Disclosure requirements/reports
What are the structured reports? The annual report 17A. It is very similar to the
prospectus except that it contains the current information for that year. Those are the nonfinancial disclosure requirements. Kasi yung financial, that is your audited FS. There are two
basic structured reports, the 17A (annual report) which must be filed within 105 days after the
end of the fiscal year. What is 105 days? April 15 which will coincide with the filing of the tax
return from the end of the fiscal year which is normally Dec.31.
Whats the other structured report? 17Q. Within 45 days after the end of each of the first
three quarters of each fiscal year. What about the fourth quarter? Actually its integrated into the
annual report that is due on the 105th day. For example, whats the first quarter? January,
February, March. March 31 diba. So you have to file your report on May 15. But the funny part
is, hindi naman matatanggap ng SEC yan kasi matatabunan sila if everyone will file on April 15.
So usually SEC will give you the date when to file.
The 17A is really like the Prospectus pero updated. Yung 17Q is only for that particular quarter.
The unstructured report, basically is the 17C. When is it due? 17C is like the PSE
Disclosure. It is for material facts that you have to file. Like the declaration of dividends, may 10minute rule.
Structured Disclosure 17A, 17Q. Unstructured Disclosure, 17C. To figure out what should be
disclosed in a 17A, what do you need to know? - what is material information. It is defined in
SRC 27.2 (Insider Trading). It is also defined under the IRR SRC 3.1 I. It is also discussed 14.1
(Rule on Amendments to the Registration Statement). Under the PSE Disclosure Rules, Sec.
4.3. If lets say, San Miguel Corporation. Ramon Ang is the CEO. If Ramon Ang has a terminal
disease, is San Miguel expected to disclose that? They did that in the case of Steve Jobs. They
had to disclose that he was very sick. Because hes the visionary of Apple. Now Ramon Ang of
San Miguel, thats a judgment call. Depends. For me, siguro his resignation or if hes really
terminal ill. If for example his illness will materially affect the price of the securities then
probably. Like for example, MVP. What do you think?
What are the events mandating prompt disclosure? This is a long, long list, yung Sec. 4.4. So if
a client calls you, check mo 4.4. or kung wala dito, check mo 4.3. This includes any resignation,
any election of directors/officers. Any litigation that affects 10% of more of your assets, any
proposed amendments. That must be immediately disclosed.