PSE should not have allowed Calata IPO

When I first read in 2012 that a company called Calata Corp. was on the verge of making an IPO (initial public offering) of stock, I developed a feeling that there was something wrong somewhere. The feeling was reinforced by the media stories that pushed the line that Calata Corp. was the No. 1 company in the field of distribution of agricultural supplies.

What in the world is Calata Corp. and who is Joseph Calata, billed as the company’s chief executive officer? Perhaps I had been careless in my monitoring of business-world developments, but I had never heard of that person or his company. It was the first time that I had been stumped by the identities and situations of a domestic businessman and his corporation.

But the thing that clinched my feeling that things were not quite right was the claim, blithely echoed by the business media, that Calata Corp. was the largest distributor of agricultural supplies in this country. How did that come about, I asked myself. Did that happen while we were all asleep?

The first indication that my feelings of disquiet about Calata Corp. were probably not misplaced was the market behavior of Calata Corp.’s stock in the days immediately following the IPO. From an offering price of – if my memory serves – P6 per share, the Calata stock zoomed to a peak figure of just over P100 per share very shortly after the IPO before setting back to the IPO price just as shortly thereafter. I realize that the relative narrowness of the Philippine stock market makes stock manipulation an ever-present possibility, but the behavior of Calata Corp.’s stock over so short a period was a real phenomenon. Not bad for a company and a stock that many knowledgeable Filipinos had not heard of!

The maintenance of stability and integrity in the capital market is the responsibility of the Securities and Exchange Commission and the Philippine Stock Exchange, and an investigation into the Calata stock’s market behavior was initiated by the SEC and the PSE in the wake of the suspicious quick run-up and even quicker rundown of that stock. All that came out of the investigation was that a number of brokerage houses and employees were meted out fines and reprimanded.

Had the Calata affair happened in the US or some other major country, the retribution would have been far more severe, given the clear signs of conspiracy and manipulation. But, then, as they say derisively, this is the Philippines. Slaps on the wrist are the norm in most such instances.

Truth to tell, PSE dropped the ball at the very start. Adjudging a company to be in generally sound condition is not the same thing as giving it the go signal to offer stock to the public. Only the seasoned and financially solid companies should – nay, must – be allowed to make an IPO. Calata Corp. should not have been allowed access to the PSE listed-stocks board at the time that it was allowed.

Which brings me to the second indication of possible trouble with Calata stock down the road. Calata Corp.’s capital structure left much to be desired. It was, in my view at least, inadequately capitalized for a company that was about to make an IPO. As the Bureau of Internal Revenue indicated in its announcement of a tax-evasion charge against him, in his income tax return for the year covered by the charge sheet, Joseph Calata declared equity of P600,000 in Calata Corp. To any financial analyst, that is not adequate for a public stock offering intended to raise an enormous amount of money from the investing public.

Many investors are gullible and vulnerable to extravagant marketing claims. It is for this reason that the SEC and the PSE were established. They are mandated to keep companies and stock brokerages honest and watchful for the interest of the investing public.

The BIR is asking Joseph Calata to pay P140 million representing unpaid back taxes, only two years after his company’s IPO. How is the investing public likely to regard Calata Corp. stock in the wake of the BIR’s action? Had the PSE done a better job of due diligence on Joseph Calata and his corporation, his tax-paying habits would have been brought to light.

And so I say again, PSE should not have allowed Calata Corp. to do an IPO. PSE dropped the ball in that instance.

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