• Debt-equity swap frees VMC from interest payment



    VICTORIAS Milling Corp. (VMC) is highly capitalized with a subscribed and paid-up capital of P2.91 mil-lion, computed at par value of P1 per share, and market value of P13.25 billion. As of Nov. 30, 2015, Victorias Milling had current assets of P2.9 billion against current liabilities of P581.44 million. Its total equity stood at P6.2 billion.

    In the three-month period ended Nov 30, 2015, the company reported consolidated net income of P292.2 million, up 9.7 percent from P266.3 million in the same period in 2014. This resulted from reve-nue of P1.4 billion, up slightly from P1.3 billion a year earlier. Minus cost of goods sold and services, the company generated gross profit of P859 million, up from P822 million previously.

    Victorias Milling swung back to profit following the conversion of unpaid debts to equity as part of the company’s rehabilitation plan, freeing it from paying interest. The corporate restructuring also enabled businessman Lucio Tan to gain majority control of the Negros-based sugar central and refinery which, before its fall, was described as the biggest of its kind in Asia.

    As of Nov. 30, 2015, Victorias Milling reported retained earnings of P1.87 billion.

    Gotianun vs. Tan
    An earlier Due Diligencer piece appeared in this space on Jan. 6, 2015. It was about the unsuccessful attempt of businessman Andrew Gotianun to convert his bank’s loan into VMC shares of stock.

    Until today, Mr. Tan and his group continue to resist Mr. Gotianun’s bid to become a VMC stockholder – and sit on the board — thru East West Banking Corp., which belongs to the group of companies that he and his family own.

    Last year’s Due Diligencer piece even drew a reminder from Gustavo Fernandes, a reader of The Ma-nila Times, who also included this column in his readings. In his comment, he wrote: “Don’t forget. MVP is also in VMC.” MVP stands for Manuel V. Pangilinan, chairman of the group of companies of the Indonesian-owned First Pacific Co. Ltd. which is based in Hong Kong.

    Lawyer Ray Espinosa is Mr. Pangilinan’s nominee to VMC’s board when the company holds its annual stockholders’ meeting on Feb. 2.
    From creditor to stockholder
    If Victorias Milling allowed Mr. Tan to convert the company’s debt to his companies into equity, why does it not give Mr. Gotianun the same privilege? Is it because the conversion of East West Bank’s P366.1 million loan to Victorias Milling, would effectively reduce Mr. Tan’s control thru Allied Bank and Philippine National Bank on the company’s 11-man board?

    The resulting triumvirate may not necessarily mean equal representation among Mr. Tan, Mr. Pangili-nan and Mr. Gotianun in the VMC’s11-person board. As in other stock corporations, one gets elected director based on the number of shares he or she owns and the proxies he or she obtains from other stockholders.

    The question that should be resolved is not how to divide the board, which is very easy to determine if one were to go by the numbers. At this point, Due Diligencer is presenting a computation that would include the number of VMC shares and their percentage equivalents based on the resulting outstand-ing capital stock.

    A financial posting showed the conversion of P615.8 million debt of Victorias Milling into VMC shares at the ratio of P1 to one share. Of P1.23 billion worth of convertible notes and accumulated interest, holders of P735 million in notes still await conversion.

    Victorias Milling did not say in the filing if the remaining P735 million as of August 2015 included the conversion of Mr. Gotianun’s P366.1 million loan, which would give East West Bank the equivalent of 366.1 million shares.

    As of yesterday, the website of the Philippine Stock Exchange showed that Victorias Milling had 2.9 billion outstanding shares, of which 2.25 billion are listed. The conversion into equity of the Gotianun bank’s P366.1 million loan into 366.1 million shares would represent 11.17 percent of the resulting out-standing shares of 3.3 billion.

    If Mr. Gotianun would be owning only 11.17 percent, why would Mr. Tan and Mr. Pangilinan continue to deny him the equivalent number of seats in the 11-person board? To get a board seat, one has to own 298 million VMC shares or has proxies to meet the number.

    Pay and perks
    The top five highest-paid executives of Victorias Milling are Anna Rosario V. Paner, managing director and chief executive officer; Eduardo V. Concepcion, president and chief operating officer; Teresita V. Ilagan, chief finance officer; and Eva A. Vicencio-Rodriguez, chief administrative officer.

    As a group, Victorias Milling paid them salary of P18.6 million in 2015 and P15.1 million in 2014 and bo-nus of P13.4 million and P6.9 million respectively.

    The five executives are not the only beneficiaries of the Tan-MVP-owned Victorias Milling. Here are some numbers to show VMC’s generosity: The chairman of the board gets P300,000 a month; treasur-er, P200,000 a month; and corporate secretary, P100,000 a month; each director, P10,000 per board meeting and P20,000 per committee meeting.

    The chairperson of committee meetings does not get fixed compensation but receives transportation allowance of P15,000 a month.

    By the way, if you are among the small stockholders of Victorias Milling who had bought VMC’s initial public offering (IPO) shares at P2 each, do you think you are lucky to remain holding them after three years? What a long time to wait for you to recoup your investments. VMC was last traded at P4.55 on Jan. 11.



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