Philippines trails ASEAN neighbors in capital market viability

December 12, 2024 | 12:00am

MANILA, Philippines —  The Philippines may be one of the fastest growing economies in Asia, but the country is lagging behind regional peers in terms of overall viability of its capital market, according to a report.

In a study conducted by the Organization for Economic Cooperation and Development (OECD), the Philippines was flagged for multiple issues that hinder its capital market from progressing.

For one, the OECD said the country charges one of the highest listing fees in Southeast Asia, and this is hindering investors, especially small and medium enterprises (SMEs), from going public.

“Regarding smaller firms, the SME Board only has 10 companies and the private equity market is nascent. Listing fees are relatively high and the fee structure is more complex than in the peer countries,” the report said.

When compared, an initial public offering (IPO) filed in the Philippines would cost 0.10 percent of the market capitalization of the company. It would require less in Singapore (0.06 percent) and Thailand (0.05 percent), and the least in Indonesia and Malaysia, both 0.01 percent.

When the underwriting fees, legal fees and post-listing costs are included, an IPO would demand as much as six percent of the amount issued by a company, which the OECD considers high.

The OECD also said there is a need for Philippine regulators to deepen the investor base to raise the value of the capital market, scoring the lack of institutional investors as a result of economic and trading restrictions.

“Institutional investors remain small, with assets in pension funds, insurance corporations and in investment funds representing only 18.6 percent of the gross domestic product,” the OECD report said.

The OECD said it is high time for the Philippines to scrap the investment floors for its state-run insurers. Further, the OECD proposed relaxing the restrictions on pension funds when investing in corporate bonds and equities.

The OECD called for the legislation of the Passive Income and Financial Intermediary Taxation Act, which was initially proposed in the previous administration. The measure seeks to impose a unified rate of 15 percent on capital gains and eliminate business tax for all investment vehicles.

The OECD believes the Philippines has the capacity to expand its capital market given that its economy is expected to grow between 6.5 and eight percent until 2028.

However, the OECD said the country has to work on closing the investment gap by undertaking immediate reforms, from the government level, to the regulatory side.