We should embrace change for constant improvement but there are some changes that create questions rather than answers. Confusion could lead to doubt and most investors demand an explanation from the Philippine Stock Exchange (PSE) when it announced its plan to ease the listing rules to allow more companies to go public and raise capital. For listing on the main board, the PSE proposed the removal of the P500 million minimum market capitalization and Earnings Before Interest, Taxation, Depreciation and Amortization (EBITDA) requirement and replace it with a 3-year cumulative net income. Moreover, the PSE proposed that companies should have a 3-year cumulative net income of at least P75 million, a net income of at least P50 million in the past year before listing, and a minimum total shareholders equity of at least P500 million. For listing on the emerging board, the PSE proposed the removal of the P100 million minimum authorized capital stock requirement and replace it with a P25 million paid-up capital. Moreover, the PSE proposed that companies should have a 3-year cumulative EBITDA of at least P15 million, a 3-year cumulative operating revenue of at least P150 million that increased by at least 20% in the past two years. The proposed amendments to the listing rules would encourage small companies with short operating history to list and increase the number of listed companies in the PSE. Compared to 932 in Bursa Malaysia, 724 in Stock Exchange of Thailand, 716 in Singapore Exchange Limited, 691 in Bursa Efek Indonesia, 380 in Ho Chi Minh Stock Exchange and 357 in Hanoi Stock Exchange, there are 272 listed companies in the PSE. For listing on the main board where most initial public offerings are listed, we are concerned that the removal of the minimum market capitalization and EBITDA requirement and replacing it with net income could encourage small companies with short operating history and unproven business models to go public and raise capital. Most investors are in favor of using EBITDA as a measure of business performance because it could show earnings before the influence of accounting. EBITDA is a dependable indicator of operational efficiency because it enables investors to focus on the core profitability without factoring capital expenditures. We believe that EBITDA is the preferable financial metric to use to evaluate whether small companies with short operating history and unproven business models deserve to gate crash into the roster of listed companies in the PSE.
