There were just four listings on the Philippines Stock Exchange last year, the largest worth only Ps12.9bn ($254.8m), according to Dealogic data. The exchange is well established and has a reputation for being well run, but bankers have long suffered from a depressing lack of supply. They finally got some good news at the start of the year.
The Philippine government announced in January that it would offer tax breaks to companies hoping to sell Reits in the domestic market, as well as allowing smaller public floats. That resurrected a Reit framework that has been unused since it was introduced in 2009.
Old hands could have been forgiven for thinking that would have had little impact in a market so long defined by periods of inactivity. But the deals are already starting to flow.
Just two weeks after the spruced-up Reit framework was announced, Ayala Land filed for a Reit IPO, finally moving ahead with a Ps14.4bn deal it has been mulling since the first half of 2019.
DoubleDragon Properties, another local developer, now plans to follow suit, according to press reports this week.
The move may be only the first step in developing Reits as an asset class in the country but it is clearly a big step. The government smartly reduced a contentious minimum public float, which has been lowered from two-thirds to one-third of outstanding capital required within three years of listing. It also announced that Reits will be exempt from the 12% value added tax, albeit based on certain conditions, as well as the 50% documentary stamp tax.
This is not just good news for developers. While Ayala Land and its peers are being given an easy way to raise capital, investors are being treated to a new product which offers a stable dividend income. The exchange, meanwhile, is getting a potential burst of activity.
It would foolish to get too excited. The Philippines has a long way to go before it challenges Singapore’s status as the Reit-listing hub in southeast Asia. But small changes make a big difference in small markets — and this could be the change the Philippines needs to bring its equity capital market up to speed.
The government deserves plaudits for the move. There are few regulatory changes that are a win-win for buyers and sellers. This is one of them.