The Philippine Stock Exchange expects to complete by the first half of 2015 its acquisition of majority stake in Philippine Dealing Systems Holdings Corp. (PDS Group)—the first step towards unifying two distinct capital market systems in the country.
PSE president Hans Sicat said the local bourse, which now owns a little over 54 percent PDS, was now undertaking a due diligence study on the the company. He replied in the affirmative when asked whether this would be possible by the first half of next year.
The local bourse has offered to buy 100 percent of PDS Group—the holding firm for fixed-income trading platform Philippine Dealing and Exchange Corp. (PDEx), Philippine Depositary and Trust Corp. (PDTC) and Philippine Securities Settlement Corp.—for P2.25 billion.
The PSE earlier signed a deal to buy the 28.91 percent stake held by the Bankers Association of the Philippines and some member-banks, hiking its interest to nearly 50 percent. It afterwards launched a general offer for other shareholders of PDS. Most recently, San Miguel Corp. and another minority investor agreed to sell a 4-percent interest, giving the PSE its current 54-percent stake.
Other PDS shareholders whose shares the local bourse has offered to buy are: Singapore Exchange Ltd. (20 percent), Tata Consulting (8 percent), Computershare Technology (8 percent), Philippine American Life and General Insurance Co. (4 percent), Financial Executives Institute of the Philippines (1.54 percent), Investment Houses Association of the Philippines (1.12 percent) and Social Security System (1.54 percent).
SGX is the single biggest investor that could spell the difference on whether the PSE will get a “super majority” of 67 percent of PDS. Under corporate laws, the approval from 67 percent of shareholders is needed for a merger to happen.
“We are quite hopeful, with or without [SGX],” Sicat said.
One structure being proposed is for PDS to be made a subsidiary of PSE instead of being dissolved.
As part of the agreement with BAP, it was earlier reported that 30 percent of the PSE’s payment to the bankers was put in escrow pending the resolution of a lawsuit involving the alleged monopolistic activities of PDEx in the trading of government securities. In case the critics of PDEx win, the government securities side of the business will simply be carved out of the consolidation.
From the point of view of the PSE, on the other hand, the depository business under PDTC is the immediate motivation for proceeding with this acquisition despite the pending legal challenge to PDEx.
PDTC accounts for at 70 to 80 percent of the PDS’ net income. The remaining 30 percent comes from PDEx. Of the fixed income trading business under PDEx, government securities trading accounts for about 80 percent while private corporate bonds and other debt papers account for the rest.
The PSE’s offer to buy out other shareholders at an enterprise value of P2.25 billion is based on a multiple of 10 times PDS’ earnings for 2013 and 11 times the projected earnings this 2014. The offer is also priced at twice the book value of PDS.
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