1. INITIAL PUBLIC OFFERING (IPO) PROCESS IN THE PHILIPPINES: AN UNDERWRITER’S VIEW
Some pointers for companies that plan to
GO-PUBLIC
By Prof. Dr. Eric Y Nasution

2. DEFINITION OF AN INITIAL PUBLIC OFFERING OR IPO
An Initial Public Offering or IPO is the process by which a private company, or in our case the small & medium enterprises (SMEs) in Silang, transform itself into a public company by selling some of its authorized shares and become listed companies at the Philippine Stock Exchange.
DEFINITION OF AN INITIAL PUBLIC OFFERING OR IPO

3. MOTIVATION OF WHY SMEs ARE GOING PUBLIC
FINANCING GROWTH AND EXPANSION
OWNERS CASHING OUT OWNERSHIP
WHEN STOCKMARKET AT PEAK, TAKE ADVANTAGE OF THE GOOD PRICE
PAYING EXISTING DEBTS
TO BE A LISTED COMPANY IS A PROMOTIONAL STRATEGY
OTHERS ________________________
MOTIVATION OF WHY SMEs ARE GOING PUBLIC

4. MAJOR PHASES IN THE IPO PROCESS
1st PHASE: CORPORATE CLEAN-UP AND RE-ORGANIZATION 2nd PHASE: HIRING PROFESSIONALS 3rd PHASE: DUE DILIGENCE AND DRAFTING 4th PHASE: PRICING THE COMPANY 5th PHASE: MARKETING EFFORT 6th PHASE: ADJUSTMENT (RE-ALLOCATION)
MAJOR PHASES IN THE IPO PROCESS

5. CORPORATE CLEAN-UP EXAMPLES
IMPLEMENTATION OF GOOD GOVERNANCE
COMPLIANCE OF ALL GOVERNMENT REGULATION AND DIRECTIVES (LOCAL and NATIONAL)
INSTALLATION OF ALL TECHNICAL SYSTEMS and PROCEDURES (ACCOUNTING, INFORMATION, etc.)
RATIONALIZATION/REORGANIZATION, INCL. SPINNING OFF CERTAIN DEPARTMENTS, UNITS or PRODUCTS
RESEARCH & DEVELOPMENT OF PRODUCT LINES
PROPER IMPLEMENTATION OF STRATEGIC PLANNING
IMPLEMENTATION OF PRUDENT TAX PLANNING SYSTEM COVERING EMPLOYEES, PROPERTIES, INCOME, etc.
PLANNING and IMPLEMENTING FAIR EMPLOYEES COMPENSATION
ETC.
CORPORATE CLEAN-UP EXAMPLES

6. ISSUER 
PROFESSIONALS:
Underwriter (FIRST APPOINTMENT), auditor, legal counsel, financial adviser, appraiser, notary, printing company, depository.
INVESTORS
HIRING PROFESSIONALS

7. LIST OF PHILIPPINE UNDERWRITERS
ABACUS CAPITAL
ATR-KIM ENG CAPITAL
BDO CAPITAL
BPI CAPITAL
CITICORP CAPITAL
FIRST METRO INVESTMENT
RCBC CAPITAL
STATE INVESTMENT TRUST
PENTACAPITAL
EBC INVESTMENT
AMALGAMATED INVEST
ING BARINGS
MULTINATIONAL INVEST
UNICAPITAL
SOURCE: I.H.A.P.
LIST OF PHILIPPINE UNDERWRITERS

8. DUE DILIGENCE AND DRAFTING
FOR THE MANAGING UNDERWRITER TO FULLY UNDERSTAND THE COMPANY’S BUSINESS, incl. THE FOLLOWING:
* PREPARATION OF PROSPECTUS(offering
memorandum in compliance with the
Securities Regulation Code)
* FILING LEGAL DOCUMENTS WITH THE
SECURITIES & EXCHANGE COMMISSION (SEC)
* OTHER RELATED DUE PROCESSES
DUE DILIGENCE AND DRAFTING

9. IN PRACTICE THE FOLLOWING ARE THE PRICING METHODS USED BY THE UNDERWRITERS: * A SIMPLE BOOK VALUE (NET WORTH) * A NET ASSETS VALUE (MARKET VALUE) * A SIMPLE PRICE-EARNING (P/E) * NET DISCOUNTED CASH FLOWS * DIVIDEND DISCOUNT MODEL
PRICING THE COMPANY

10. MARKETING EFFORTS THE PRE-MARKETING OF THE PROPOSED
COMPANY’S SHARES IS IMPORTANT!
(Especially by the managing underwriter)
Segmentation of the target investors
Target/positioning of segments with stronger purchasing power
Formulation of stock mixes: Promotion materials, distribution through selling agents, road shows, attractive price discount thru fees allocation, etc.
MARKETING EFFORTS

11. THE ACTUAL PRIMARY MARKET PROCESS
THE ACTUAL PRIMARY MARKET PROCESS REFERS TO THE ACTUAL SELLING OF SHARES FROM THE COMPANY’S AUTHORIZED CAPITAL (ranging from 1 to 3 weeks, depending how prepared is the underwriter in the pre-marketing period)
In selling, the underwriter/s is assisted by
the selling agents (brokers, members PSE)
The investors are normally the pension funds, insurance companies, investment houses, etc.
After selling, adjustment/re-allocation of shares is to be done among the underwriters
THE ACTUAL PRIMARY MARKET PROCESS

12. ADJUSTMENT (UNDERWRITTEN SHARES RE-ALLOCATION)
DUE TO THE DIFFERENT FORMULATION/IMPLEMENTATION AND EFFECTIVENESS OF THE MARKETING STRATEGIES OF THE INDIVIDUAL UNDERWRITER, *SOME OVER SUBSCRIBE THEIR PORTION *SOME UNDER SUBSCRIBE THEIR PORTION AN ADJUSTMENT (RE-ALLOCATION) OF AN UNDERWRITER’S PORTION IS NECESSARY
ADJUSTMENT (UNDERWRITTEN SHARES RE-ALLOCATION)

13. PROFILE OF AN UNDERWRITING BOOK
Underwriter Amount Actual Sale Under Over
( M I L L I O N P E S O S )
BPI Cap.*
JP Morgan
Abacus Cap
Total
* Manager
Under subscribed
Over subscribed
SELLING AGENTS: Stockbrokers and securities dealers (Members of the Philippine Stock Exchange or PSE)

14. PAYMENT OF UNDERWRITING FEE
All underwriters will receive the underwriting fee for guaranteeing the availability of the issue amount according to their respective portions.
PAYMENT OF UNDERWRITING FEE

15. PAYMENT OF MANAGEMENT FEE
The manager of the syndicate of underwriters will only receive this fee, without sharing it with the other underwriters. It is a fee for organizing and managing the issue, including preparing the prospectus and making the registration statement effective.
PAYMENT OF MANAGEMENT FEE

16. Selling fee
(0.75% to 1.25%)
Underwriters and selling agents that participate in the selling of the issue will receive this fee according to the amount of sales they make.
PAYMENT OF SELLING FEE

17. OTHER PROFESSIONAL FEES
IN ADDITION TO THE PHILIPPINE STOCK EXCHANGE FEES (P 20,000 non-refundable processing; P 50,000 fixed listing fee and annual listing maintenance between P 20,000-P 200,000 ,P 100 for every P 1 million market cap value) OTHER PROFESSIONAL FEES (auditor, legal counsel, notary, printer, etc.) ARE TO BE PAID IN ADVANCE BY THE COMPANY OR TO BE DEDUCTED FROM THE I.P.O. PROCEEDS. ALL THESE TOTAL FEES RANGED FR. 8% TO 12% FROM THE IPO AMOUNT, DEPENDING ON THE TOTAL AMOUNT RAISED BY THE SMEs.
OTHER PROFESSIONAL FEES

18. SOME FREQUENTLY ASKED QUESTIONS
When the primary market process led by the investment banks (underwriters) is over, are these underwriters still responsible for the trading of shares in the secondary market (Philippine Stock Exchange)?
Answer: Legally? ___ morally? ___.
Whom should the listed company consult when problem/s pertaining to the performance of the shares arise/s?
Answer: _ PSE _ Underwriter _ Consultant _ All
SOME FREQUENTLY ASKED QUESTIONS

19. SOME FREQUENTLY ASKED QUESTIONS
If the company’s shares doesn’t perform in the PSE, whom should it consult and what should it do?
WHOM: _ PSE _ Brokers _ Consultant _ All
WHAT TO DO: 1. Upgrade the performance of the company. 2. Ask the advices of brokers 3. Other
Will the company’s shares always be listed at the PSE?
Answer: If it doesn’t perform (no transaction, stagnant, etc), a possibility of DELISTING.
SOME FREQUENTLY ASKED QUESTIONS

20. For an IPO (equity financing), a company goes to an investment bank (underwriter) and not to a commercial bank for loan.
Depending on how the company manages its financing, equity can be a financing strategy with a cheaper cost.
The process of the primary market ranges from 2 to 3 months, relatively.
SUMMARY

21. GOD BLESS YOU