Why CAT does not increase outstanding capital stock



BEING among the public investors who trade shares listed on the Philippine Stock Exchange (PSE), have you ever wondered when was the last time a listed company increased the number of its outstanding common shares?

The poser above is meant to follow up on the previous Due Diligence on voting preferred shares which, however, focused more on why public investors are limited to owning only common shares and are not allowed to buy or subscribe to voting preferred shares.

To illustrate: The authorized capital stock of Central Azucarera de Tarlac Inc. (market symbol: CAT) consists of 400 million common shares. Of the company’s authorized capital stock, 282,538,760 common shares are outstanding. The company, previously controlled by the Cojuangco family of the former casual chief occupant of Malacañang, reported on the PSE website that it had issued a total of 282,545,960 common shares which were all listed.

(Note. The change in par value to P10 from P1 increased 10 times CAT’s authorized capital stock and the outstanding common shares from 40 million shares and 28,253,876 shares, respectively.)

CAT also posted on the same website a “free float level” of 11.84 percent. The percentage refers to ownership of CAT common shares by public investors who may either be Filipinos or foreigners. Ironically, foreigners may own more CAT common shares, that is, up to a maximum of 40 percent of outstanding, than Filipinos.

Majority holdings
The change in CAT’s majority ownership and control may remain a big question mark for public investors, which is not a poser for Due Diligencer to resolve.

Rather, as I have written only recently in this space, it is up to the Securities and Exchange Commission (SEC) to identify the beneficial owners of common shares held by PCD Nominee Corp. but which acts only as record stockholder. I did not name any particular listed stock so as not to preempt the regulatory authority, which happens to be the SEC. (Read also “Who bought 482,680 CAT shares sold by CAT Resources?” published on September 1, 2015.)

Let me go back to CAT’s entries on the PSE website.

As reported on the PSE website, the number of CAT’s authorized capital stock now consists of 400 million common shares as a result of the reduction of the par value to P1 per share from P10.

As of March 16, 2015, CAT Resources owned 20,654,594 CAT common shares, or 73.1 percent. More than a year after, or as of Oct. 31, 2016, it reduced its holdings to 20,171,814 common shares at P1 each, which was adjusted to 201,718,140 common shares, or 71.4 percent, at a higher par value of P10.

Re-computed, the percentage equivalent of 201,718,140 should be 71.395 percent and that of 206,545,940 should be 73.102 percent. The re-computation is based on 282,538,760 outstanding common shares listed in a CAT public ownership report as of October 31, 2016.

Again, note how CAT Resources “lost” 4,827,800 common shares from March 16, 2015. In a Due Diligencer on Sept. 1, 2015, I asked for the identity of the buyer/buyers of 482,680 CAT shares that CAT Resources sold. The poser was intended for SEC, which, incidentally, failed to provide the public the answer.

Regulatory authorities like SEC officials may not be expected to respond to my query. How about answering for the sake of the public investors who may be interested to monitor the movements of CAT shares? Don’t they have the right to information about listed stocks that only the SEC, as a regulatory authority, can ably provide them?

Due Diligencer has been perceived – and rightly so – to be pro-public investors who may not enjoy the privilege of getting the attention of the SEC as some listed companies do. As a matter of fact, its siding more with the public is meant to neutralize the influence of majority stockholders on the commission.

Common shares only
Going back to the poser in the first paragraph, I can only speculate why certain listed companies maintain their outstanding common shares unchanged for a long period. Instead of increasing the number of their common shares, some of them resort to issuing preferred shares, which, strictly speaking, are liabilities but are not treated as such in financial filings.

For example, Central Azucarera de Tarlac, which does not have other classes of shares such as preferred shares, has long maintained its outstanding common shares at 28,253,876 with P1 par value, or 282,538,760 at a higher par value of P10. This was despite the company’s authorized capital of 40 million common shares, or as adjusted, 400 million common shares, that give it more than an elbow room for additional issuances.

Why does CAT remain “undercapitalized” with only 28,253,876 outstanding common shares, equivalent to 70.635 percent of its 40-million authorized capital stock?

The 10-percent minimum public ownership rule maybe the culprit: It is not easy to find among the public the more trustworthy who would vote with the majority stockholders or owners on every self-serving issue taken up inside the boardroom. Need I say more?



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