Philippine Stock Exchange Inc. hopeful on talks for merger with PDS

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The Philippine Stock Exchange Inc. (PSE) is aiming to wrap up negotiations with shareholders of the Philippine Dealing System Holdings Corp. (PDS Group) within the first half of the year, paving the way for the long-awaited integration of the local bourse with the fixed income exchange to finally happen this 2024.

In an interview, PSE president and CEO Ramon Monzon told The STAR he is hopeful the valuation work by the parties involved would be done by May.

'I don't think it's going to take me one month to negotiate,' Monzon said.

'That's why I'm hoping by the third quarter this can be implemented. Hopefully, we can finish all the negotiations by the second quarter,' he said.

The PSE intends to acquire up to 100 percent of the PDS Group, the operator of the Philippine Dealing and Exchange Corp. (PDEx), the country's sole fixed-income exchange, as part of its goal to integrate the two exchanges.

It currently owns 20.98 percent of the issued and outstanding capital stock of the PDS Group.

Other PDS stockholders include the Bankers Association of the Philippines (BAP) with more than 28 percent, Singapore Exchange Ltd. with 20 percent, Tata Consultancy Services Asia with eight percent, Whistler Technologies Services Inc. with eight percent and San Miguel Corp. with four percent, among others.

'In 2017, what happened was negotiations came first with the sellers. So sales agreement came first between PSE and the sellers. They agreed on the price, only not to get the regulatory approval,' Monzon said.

'So now that I am doing it, I reversed the process. I said I don't want to negotiate with anybody if I do not have regulatory approval because I am going to waste their time and I am going to waste my time,' he said.

In December last year, the Securities and Exchange Commission (SEC) approved the PSE's application for exemptive relief in its acquisition of additional shares in the PDS Group.

The commission en banc allowed the PSE to exceed the mandatory limit of 20 percent on ownership and voting rights in an exchange by an individual or an industry, granting it leeway to own up to 100 percent of the PDS Group, subject to certain conditions.

Monzon said upon securing the regulatory approval from the SEC, the PSE started to engage the shareholders of PDS.

'Why has it not moved? Two things. Number one, of course all the shareholders are hiring their own valuation providers. They will sell so they want to have a feel on the price they should be selling,' he said.

'Number two, PDS is owned by about 23 or 25 banks and what happened is that these banks have power of attorney given to BAP. In short, they speak for the banks. So what had happened is the power of attorney of the BAP from the banks, most of them have expired so they're renewing it now. I don't want to negotiate with 23, 24 banks so I am waiting for BAP to finish the process. Then of course BAP also I'm sure hired their own valuation provider,' Monzon said.

Monzon said what is important at present is for the valuation work to be completed.

'And then it's not hard to negotiate. I mean it's either you want to sell to me or you don't want to sell to me,' he said.

'I have a price. I know what I want to offer, but I also have a walk away price. If it's too high, I'll walk away,' Monzon said.

The PSE said the resulting integration of the country's equity and fixed-income exchanges would allow for the delivery of more efficient and more types of products, services and better risk management systems for financial services.

China Bank Capital Corp. managing director Juan Paolo Colet told The STAR that an integrated bourse would enable the PSE to offer efficient listing and trading solutions across a variety of securities, including equities, bonds and eventually options.

'Hopefully the integration leads to a deeper and more active secondary market for bonds and other fixed income instruments,' Colet said.

The integration is also seen as a welcome development by market analysts.

'Regarding the proposed merger between PSE and PDEx, we see it as a strategic step toward expanding investor outreach, particularly among retail participants. Also, since the market landscape would broaden, more companies would be able to raise more funds,' Claire Alviar of Philstocks Financial said.

'Furthermore, we anticipate that the accessibility and efficiency of purchasing bonds would mirror the experience observed in equity markets, potentially reducing complexity and enhancing convenience for investors,' she said.