CORNERSTONE agreements should be signed on or before the pricing of an initial public offering (IPO), according to the second version of a draft memorandum circular (MC) released by the Securities and Exchange Commission (SEC).
“The allocation to a cornerstone investor shall be guaranteed in a cornerstone agreement which must be signed at the latest on or prior to the pricing event of the IPO,” the commission said.
The draft MC also said that IPO shares are no longer subject to a 30-day lock-up period starting from the listing date. The corporate regulator issued the second draft MC on Feb. 16 for public comments. The first draft MC was released for public scrutiny on Jan. 19.
The SEC’s draft MC contains proposed guidelines for cornerstone investors in IPOs. Cornerstone investors are those who have pre-committed to subscribe to a company’s shares ahead of the listing.
In the previous draft, cornerstone agreements should be signed at the latest prior to the submission of the issuer’s preliminary prospectus to the commission while IPO shares placed are subject to a lock-up period of 30 days starting from listing date.
China Bank Capital Corp. Managing Director Juan Paolo E. Colet said the changes to the proposed guidelines “are a huge improvement.”
“They give more flexibility to the cornerstone investment process and are more attuned with market realities. It will make it easier to bring in cornerstone investors to IPOs,” Mr. Colet said in a Viber message.
AP Securities, Inc. Senior Research Analyst Alfred Benjamin R. Garcia said in a Viber message that the changes are welcome and a “positive move” on the SEC’s side.
“The previous deadline of getting it done before the submission of the preliminary prospectus is too early as a lot could happen in between the submission of the preliminary prospectus and the actual listing, which may include the postponement of the IPO,” Mr. Garcia said.
“Getting it done just before pricing would allow for cornerstone investors more time to negotiate the best price for them, which would also be a positive for retail investors as they would have to be offered the same price,” he added.
He added that the removal of the lock-up period will encourage more cornerstone investors to participate.
“At least it would give them more flexibility to exit their investment if it meets their selling criteria,” Mr. Garcia said.
“We also like that it seeks to protect the right of minority shareholders to have equal access to information and to the same price as cornerstone investors to build the confidence of retail investors that they are not getting the losing end of a bargain. Hopefully, this will help towards reinvigorating the local IPO market,” he said.
The SEC said that comments on the second draft could be submitted until Feb. 26. — Revin Mikhael D. Ochave