Philippine Business Magazine: Volume 8 No. 4 - Capital Markets
Wizard on Board
SMEs can now raise capital through the stock market
By Tina Arceo-Dumlao

Alberto Hermoso Jr. says being listed imposes discipline on the way people do their business

With the way share prices have been going down since the start of the year, it was an accepted fact that no company in its right mind would brave the market and sell shares to the public through an Initial Public Offering.

But one company did. Software development firm SQL Wizard Inc. not only became the first company to issue shares this year when it debuted at the Philippine Stock Exchange on 19 July, it was also the first company to trade its shares through the so-called third board or the board for small and medium enterprises of the stock exchange.

It braved the market and came out a winner. Its shares were fully subscribed on the first day of offering. Share prices likewise rose by 84 centavos to P2.60 per share on the first day alone from an offer price of P1.75 per share. Trading was even frozen at one time during the two-hour session as share prices rose by 50%, the trading limit imposed by the PSE.

SQL Wizard Managing Director Alberto Hermoso Jr. says in an interview that they were confident the listing would be successful despite lackluster trading activity. He believes the market for good issues was still there, although players were a lot more cautious and careful with their investments. The fact that four million new common shares issued by SQL Wizard were snapped up by investors indicated there was an appetite for smaller capitalized firms with good potential.

Software Outfit
SQL Wizard’s prospectus on the offer shows the company is mainly a software development outfit. It was incorporated on 28 November 1996 by a group led by two former executives of Oracle Philippines. SQL Wizard got its name from SQL — Structured Query Language — the industry standard language in relational database management whose development has been greatly influenced by Oracle.

SQL Wizard is the first Oracle-certified Solution Partner in the country. As such, it gets the highest priority in selling and servicing accounts not directly managed by Oracle. Of the hundreds of corporations using Oracle in the Philippines, 22 accounts are directly managed by Oracle, leaving companies like SQL Wizard with a lot of room to acquire software development or maintenance contracts.

As an Oracle partner, SQL Wizard offers training services to the local Oracle customer base, provides consulting services to Oracle customers for project management, design and development of applications, and application and database tuning. It also develops packaged application systems and resells Oracle software.

SQL Wizard started operations in January 1997 with only two employees and the two founders. It signed a consulting agreement with Siemens Nixdorf as a subcontractor in a Bayantel project. By end-1999, it had 21 employees after more contracts for training and consulting came in.

Starting this year, it streamlined its operations by organizing the consulting line into three main groups: business intelligence and database administration, customer development and e-commerce, and implementation and support.

Fresh Capital
Hermoso says SQL Wizard is bent on strengthening its operations further to make the company more profitable. The bulk of the P6-million IPO proceeds will go to product development.

A portion of the proceeds will cover research and training costs for development of new business initiatives. The strategy is to develop and design systems for various industries that will allow the transformation of operating data into decision support structures.

“The long-term strategy is to customize the software so that it can be used across industries. The idea is to transform ourselves from a company that customizes the requirements of one industry into a software house,” Hermoso explains. With the funds in place, Hermoso expressed confidence that SQL Wizard will not only be able to do good business in the Philippines but also extend the reach of its expertise across other countries, especially in Europe and in the United States. “We want to be the best at what we do. SQL Wizard is a niche player but we want to be the best in that niche. This will be our edge against competitors,” Hermoso adds.

Funds for SMEs
Hermoso says listing SQL Wizard shares on the stock exchange is a big step in that direction of keeping the company ahead of the pack. “When you are listed, it imposes discipline on the way you do your business and this is important. It also provides an alternative source of funding for small and medium-scale enterprises like us,” Hermoso explains.

The Philippine Stock Exchange set up the SME board to provide funding access to SMEs. It gives an avenue for companies with authorized capitalization of at least P20 million to P100 million to raise capital through the exchange. A three-year profitability record, however, is a requisite.

No less than President Gloria Macapagal-Arroyo as well as Finance Secretary Jose Isidro Camacho were on hand to witness the opening of the SME board on 19 July 2001. Secretary Camacho lauded PSE’s efforts to help SMEs access bigger funds. He stressed that SMEs should be nurtured considering that the sector employs 67% of the labor force and accounts for 33% of GDP.