When will the Maharlika open the gates for investors?
The current weakness in the developed world capital markets has resulted in capital looking for more secure and profitable havens. Asia is likely to be the beneficiary of this financial crisis; however the competition for capital among the Asian nations is going to be challenging. You then have to ask yourself, how each Asian market will compete to attract this capital; the answer lies in those markets that exhibit higher levels of transparency and integrity.
Most regulators of the emerging markets do realise they need to be able to implement new rules that encourage transparency among the Public Listed Companies. However, in some countries there is a clear gap between what the rules say and implementation of these rules. In some of the other emerging economies, the regulators are attempting to raise the standards of transparency but face headwinds to implement these new rules, as there are various parties with vested interests who prefer to keep the rules opaque.
Seeking to be one of the main recipients of this anticipated international capital flow, the Philippine Government is focused on promoting the Philippines as a prime investment destination. The Philippine Stock Exchange (PSE) with the support of the Institute of Corporate Directors and with the guidance of the IFC Global Corporate Governance Forum put together a plan for implementing a special listing segment for companies to voluntarily adopt and commit to higher standards of corporate governance. This special listing segment is the Maharlika Board.
The Maharlika Board is the first of its kind in Asia and draws off the Novo Mercado in Brazil. In 2000, the Novo Mercado (launched by BM&F BOVESPA, Brazil’s Stock Exchange) transformed the ailing Brazil stock exchange into one of the world’s most robust capital markets.
The Philippine economy is gaining recognition that it is a hidden gem within the Asian economies. This English speaking, 100 million population economy receives nearly $1.5 billion in capital inflows per month (from their overseas workers) is sitting on one of the largest mineral deposits in East Asia, and is rapidly becoming a preferred tourist destination. Tourist dollars and BPO outsourcing deals are flowing in at a heightened pace.
Foreign investors are keen to invest and deploy capital into the stock market there but have been frustrated with the very short trading hours. This issue has since been addressed and the PSE will now be trading for longer hours starting 2012. The launch of the Maharlika Board has naturally attracted interest as foreign investors want to invest in more transparently-run companies. One of the main concerns has been the enormous family control of large conglomerates that offer little protection to minority shareholders.
A handful of the family run conglomerates are interested in attracting a larger institutional shareholder base and understand the need for more transparency and the adoption of international corporate governance practices. They do understand they cannot adopt their own standards of corporate governance practices as this would be almost adopting your own accounting standards. If you want international capital, you need to play by international capital rules. This is especially so in a region where international capital has many choices.
With the benefits of recent political changes and the Philippine government’s avowedly strong stance on a more transparent and accountable environment on a number of fronts, the implementation of the Maharlika Board had been eagerly anticipated by the international markets. It is disappointing therefore, that its introduction has been occasioned by delays that are not entirely clear to investors keen to look at the Philippines with renewed interest.
The Maharlika Board, given its innovation in the Asia region where stock exchanges such as Singapore have shown marked vigour in strengthening their corporate governance rules, offers a step change in the public listed company sector of the Philippine capital market. Alongside the reforms promulgated in 2011 to improve corporate governance among the government controlled companies, the introduction of the Maharlika Board provides a unique opportunity in an uncertain economic environment, occasioned by events in the capital markets of Western Europe and North America that the Philippines is indeed open for business.
According to the Barclays Capital Equity Gilt Study 2011, the Philippines falls into the category of “other well-managed emerging markets” in a region that is expected to account for half of the global GDP growth in 2011, and is very much now the engine room of the global economy. The Maharlika Board would provide a strong statement of the Philippine market’s commitment to corporate governance standards and would potentially define its new found categorisation.
It surely would be of considerable interest to investors confident of the merits of investing in companies defined by the higher standards of the Maharlika Board, while providing access to new and emerging businesses in the Philippines that would have the opportunity of accessing international capital in an environment of renewed optimism.