Why was UnionBank (UBP) removed from the Philippine Stock Exchange index (PSEi)?

In a circular released after-market on September 28, 2023, the Philippine Stock Exchange (PSE) announced the removal of Union Bank of the Philippines (UBP) from the PSE index (PSEi), the Financials index, and the newly-created PSE MidCap and Dividend Yield indices. 

According to the PSE, the move came after a certain number of shares was reclassified from “public” to “non-public”, causing UBP’s public float to fall below the 20% requirement for index inclusion.

While the number of shares and its ownership was not disclosed in the circular, we can assume that the reclassification involved the 18.74% stake held by Social Security System (SSS). With the reclassification, UBP’s public float would have fallen from 35.63% to 16.89%, enough for it to be booted out of the PSEi.

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Changing the rules of the game following the recent MPI-GSIS drama

UBP has been reporting the SSS stake as “public” since shares held by pension funds were previously classified as such. However, amendments made to the minimum public ownership (MPO) rule issued by the PSE on August 25, 2023 stated that:

…the following are considered public shares:

…
c. Common shares held by Funds, including government-run funds such as the Social Security System (SSS) and the Government Service Insurance System (GSIS), regardless of the amount of shareholdings, unless the Fund has a Board seat in the company;”

Since SSS holds two board seats in UBP, occupied by SSS President CEO Rolando Macasaet and SSS Commissioner Robert Joseph M. De Claro, the state pension fund’s stake has been reclassified as non-public.

We assume that this was brought about when GSIS wrote to the Exchange that its newly-acquired 11.98% stake in MPI should be considered non-public, as the PSE circular stated that the reclassification was “consistent with the treatment of such shares that are similar in nature”.

UBP out of PSEi, NIKL in

Nickel Asia Corp. (NIKL) has replaced UBP on the PSEi beginning October 4, 2023 (Wednesday).

Lucio Co’s liquor distribution company, The Keepers Holdings, Inc. (KEEPR), will replace UBP on the MidCap index while Universal Robina Corp. (URC) will replace it on the Dividend Yield index. There will be no replacement to UBP on the Financials sectoral index.

What does it mean for UBP and NIKL?

Removal from both the benchmark and sectoral indices would further deprive UBP of liquidity. As it stands, it already has the lowest 30-day average value turnover out of the 30 PSEi companies, and we expect this to deteriorate further after the rebalancing exercise. 

Inclusion in the index would be a boon to NIKL, and the inflow of funds could be the catalyst to break it out of its slump. We currently have a BUY rating on NIKL based on consensus Target Price of P7.60. 

UBP’s exit could also drive the market higher, as NIKL’s float-weighted market capitalization is around 1/3 of UBP’s, which would result in an upweight for all the other index constituents. The biggest gainers would likely be the index heavyweights, such as SM, BDO, SMPH, BPI, and ICT.

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