CASE STUDY

CHAPTER 1

1.) The Directors of Hybrid Corporation want to modernize its plant and machinery by making a
public issue of shares. They wish to approach the stock exchange, while the finance manager prefers to
approach a consultant for the new public issue of shares.

A.) Would it be better to approach directly the stock exchange or approach a consultant for the new
public shares? Why?

I think it would be better to approach a financial consultant before issuing new public shares to
make wise decisions. Consultant helps to plan and discuss marketing strategies to sell share-based
securities. They can also facilitate the selling of shares especially when the company is new to the
industry.

There are different types of consultants but the company should specifically hire a financial planner
because they provide advice aimed at helping to enhance wealth and plan for the future. Some have the
certified financial planner certification, while others hold the chartered financial consultant certification.
They form strategy creation, diversification and asset-allocation planning to improve overall financial
situation of the company. A contract containing consulting agreement between the company and the
consultant shall be created.

The following are the professional body in the Philippines related to financial consulation needed by the
company:

Registered Financial Planner

It is a professional designation awarded by the Registered Financial Planners Philippines. It is the

premiere professional body of financial planners in the Philippines. RFP Philippines promotes the value
of financial planning and advances the financial planning profession.

Minimum Requirements for Registered Financial Planner

1. Education

Take an education program about the following: Behavioral Financial Planning, Financial Planning
Process, Investment Planning, Time Value of Money, Tax Planning, Estate Planning, Insurance Planning,
and Financial Planning Practice.

2. Examination

Once the education program is completed you can take the RFP® Exam.

3. Experience
In order to obtain the RFP® certification, you need to have at least two (2) years of financial planning-
related experience. This experience can be obtained before writing the RFP® Exam.

4. Ethics

Once you become a RFP® professional, you must attest that you have complied with the RFP® Code of
Ethics and have met the annual Continuing Education requirements each year. The RFP® designation
must also be renewed annually.

https://rfp.ph/

Registered Financial Consultant

It is a professional designation awarded by the International Association of Registered Financial

Consultants to those financial advisors who can meet the high standards of education, experience and
integrity required of all its members.

Minimum Requirements for Registered Financial Consultants

1. Experience

Minimum of four years experience as a full-time practitioner or educator in the field of financial planning
or financial services.

2. Education

A baccalaureate or graduate degree in financial planning services such as economics, accounting,

business, statistics and finance; or have earned a respected professional degree or designation; or
completed an approved curriculum at an accredited institution or qualified association.

3. Examination

Must have completed a comprehensive written examination.

4. Licensing

Meet local licensing requirements for all products offered. A non-licensed fee-only planner or trust
officer submits information on the RIA or ARIA or conduct procedures.

5. Integrity

A clean record of personal and business integrity with no suspensions or revocation of any professional
licenses.
6. Ethics

Subscribe and continually adhere to the RFC Code of Ethics.

7. Continuing Education

Complete 40 hours per year of Professional CE in personal finance and professional practice
management.

8. Ethics CE

Complete an approved curriculum on operational ethics and standards of conduct.

9. Compliance

Provide annual assurance of continued compliance and operation.

10. Plan Writing Capacity

Can produce a high-quality comprehensive personal financial plan in accordance with the Financial
Planning Process.

http://www.iarfcphilippines.org/

B.) What are the different methods which the company may adopt for the new public issue of shares?
Discuss each.

The company can make a new public issue of shares through public offering. Public offering is a
great way to offer a sale to the general public. Since the company will be issuing new shares, they will
undergo initial public offering wherein their shares will be disclosed to the public for the very first time.

A corporation must first apply for a license with the Philippine Securities and Exchange Commission in
order to trade stocks publicly. Once the SEC grants a license, the corporation must comply with the
criteria set by the Philippine Stock Exchange to become publicly listed.

The Philippine Stock Exchange is consists of two boards: the Main board and the Small Medium and
Emerging (SME) Board. Corporations listed under the main board are required to have an authorized
capital stock of at least five hundred million pesos, while corporations that seek to be listed on the SME
Board are required to have an authorized capital stock of going public at least PhP 100 million, at least
25% of which is subscribed and fully paid.

General Criteria to be publicly listed in the Philippine Stock Exchange:

1. Positive Stockholder’s Equity in the fiscal year immediately preceding the filing of its application;

2. Operating history of the corporation: 3 years prior to its listing;

3. All subscribed shares of the same type and class applied for shall be paid in full;

4. Minimum offering to the public for initial listing are as follows:

5. When required by PSE, the corporation shall engage the services of an independent appraiser
accredited by the SEC to determine the value of its assets;

6. The Corporation shall have an investor relation program. Such program shall include, at the minimum,
a corporate website which contains, the following information:

a. Corporation information

b. Corporation news

c. Financial report

d. Disclosures

e. Investor FAQs

f. Investor Contact

g. Stock Information

Specific Criteria to be publicly listed in Philippine Stock Exchange for Main Board:

a. The applicant should have a cumulative consolidated earnings before interest, taxes, depreciation
and amortization (EBITDA), excluding non-recurring items, of at least PhP 50M for three (3) full fiscal
years immediately preceding the application for listing;

b. The applicant should have a minimum EBITDA of PhP 10M for each of the 3 fiscal years; c. The
applicant must be engaged in materially the same business/es and must have a proven track record of
management throughout the 3 years prior to the application.This admits of the following exceptions:

1) if the applicant has been operating for at least 10 years and has a cumulative EBITDA of at least PhP
50M for at least two of the three fiscal years prior to the application;

2) the applicant is a newly formed holding company which uses the operational track record of its
subsidiary.

d. The applicant must have a minimum authorized capital stock of PhP 500M, with at least 25% being
subscribed and fully paid. The minimum Market Capitalization is PhP 500M.
e. Upon listing, the minimum number of shareholders should at least be 1,000 with each owning stocks
equivalent to at least one board lot.

f. No divestment of shares in operating subsidiary;

g. No secondary offering for companies invoking exemption of track record.

h. Lock-up Requirements: The applicant shall cause its existing shareholders who own at least 10% of the
issued and outstanding shares to refrain from selling, assigning or disposing the shares for a period of
180 days after listing if track record requirement is met; otherwise, 365 days.

In case, there is an issuance/transfer within 180 days prior to the offering period and transaction price is
lower, all shares shall be subject to a lock up period of 365 days.This lock-up shall be stated in the AOI of
the applicant.

Specific Criteria to be publicly listed in Philippine Stock Exchange for SME Board:

a. The applicant should have a cumulative EBITDA, excluding non-recurring items, of at least PhP 15M
for three (3) full fiscal years immediately preceding the application for listing;

b. The applicant must have a positive EBITDA, generated in at least two of the last 3 fiscal years,
including the fiscal year immediately preceding application;

c. The applicant must be engaged in materially the same business and must have a proven track record
of management throughout the last 3 years prior to the application;The Applicant Company shall
demonstrate its stable financial condition and prospects for continuing growth by providing a business
plan indicating the steps that have been taken and to be undertaken in order to advance its business
over a period of five (5) years.

d. The applicant must have a minimum authorized capital stock of PhP 100M, with at least 25% being
subscribed and fully paid.

e. Upon listing, the minimum number of shareholders should at least be 200 with each owning stocks
equivalent to at least one board lot.

f. No holding, portfolio and passive income companies;

g. No change in the primary purpose and/or secondary purpose for a period of 7 years following its
listing;

h. No offering of secondary securities for companies exempt from track record and operating history
requirements;

i. Lock-up Requirements: The applicant shall cause its existing shareholders to refrain from selling,
assigning or disposing the shares for a period of: 1 year after listing.
In case, there is an issuance/transfer within 6 months prior to the start of the offering and transaction
price is lower, all shares shall be subject to a lock up period of 1 year.This lock-up shall be stated in the
AOI of the applicant.

The advantage of getting a corporation publicly listed is a good way to raise capital for the company and
the beneficial rate of stock transaction tax wherein it is 0.5% of the gross selling price of the stock
compared to 5-10% rate of capital gains tax imposed on shares not listed with the PSE. It is also used by
corporations to gain publicity for its company.

Process of Initial Public Offering

The process of initial public offering consist of selecting a bank, due diligence and filings, pricing,
stabilization, and transition that could be completed for 6 months to 1 year.

The first step in the IPO process is to choose an investment bank to advise the company on its IPO and
to provide underwriting services. The criteria when selecting an investment bank are the reputation or
credit rating, quality of research, industry expertise, distribution of securities either to institutional or
individual investors, and prior relationship with the investment bank.

The second step is due diligence and regulatory filings. The underwriting arrangement available for the
issuing company are firm commitment, best effort agreement,or syndicate of underwriters. The
invtment bank shall draft the following: (1) engagement letter containing the reimbursement clause and
underwriting discount, (2) letter of intent, (3) underwriting agreement, (4) registration statment
containing prospectus and private filings, and (5) red herring document.

The third step is pricing where the issuing company and the underwriter decide the offer price and the
precise number of shares to be sold before the effective date. The factors that affect the offering price
are the success/failure of the road shows, company’s goal, and condition of the market economy.

The fourth step is stabilization where the underwriter has to provide analyst recommendations, after-
market stabilization and create a market for the stock issued for a short period of time. It is carried out
to stabilize the order of imbalances by purchasing shares at the offering price or below it. The
underwriter has the freedom to trade and influence the price of the issue as prohibitions against price
manipulation are suspended.

The Last step is the transition to market competition, starts 25 days after the initial public offering, once
the “quiet period” mandated by the Securities and Exchange Commission ends. The underwriters can
provide estimates regarding the earning and valuation of the company from the issuance of new shares
in the public market.

CHAPTER 2
1.) Gabriel won a cash prize of Php20,000 in the National Level Robotics Competition. On the
advice of his father, he visits a nearby bank to open a Fixed deposit account in his name with
the prize money. His sister Heart accompanied him to the bank. On reaching the bank, he
notices big banners which are placed within the premises containing information about the
various arrangements through which corporates may raise their capital through the bank. Being
finance graduate, Heart explains to Gabriel that banks play the role of the financial
intermediary by helping in the process of channelizing the savings of the households into the
most profitable business ventures.

A.) Aside from the bank, suggest other financial intermediaries that help in the process of
channelizing the savings of the households into the most productive to use.

Other financial intermediaries that help in the process of channelizing the savings of the
households into the most productive to use are investment intermediaries more specifically the
asset management firms.

B.) Identify the functions of those financial intermediaries that you will be suggesting.
Asset management firms are the regulated investment companies, exchange traded
funds, hedge funds and separately managed accounts are organizations whose primary
objective is to maximize return from investments in various financial instruments to add value
for the investors.