Declaring dividend on future retained earnings


AFTER only three months in the market as a listed company, SBS Philippines Corp. appears to be in need already of regulatory intervention from the Securities and Exchange Commission and the Philippine Stock Exchange. With the company’s share price hitting a high of P7.63, it may be time for both the SEC and PSE to undertake a parallel review of the company’s financials to see if the stock’s market price is justifiable going by its quarterly earnings.

On Nov. 16, SBS, which sold 420 million shares at P2.75 each to the public, opened at P5.80, which was its high for the day, then fell to a session low of P5.50 and closed at P5.57.

Sometime ago, I wrote about SBS’s use of proceeds from its initial public offering and suggested that the practice of tapping the public for funds to pay debts should be stopped.

I even mentioned BDO Unibank as the company’s principal creditor. Perhaps, had it not been for its IPO, SBS would have ended up as a subsidiary of the SM group of companies controlled by businessman Henry Sy, Sr. and his family. To turn it into a unit, the Sys could opt for the conversion of their loans to equity.

As of Dec. 31, 2014, the company reported loans payable of P1.16 billion in a financial filing. The amount of loans payable fell to only P505 million as of Sept. 30, 2015. Where did SBS get the money to pay for its debts? Certainly, it obtained the funds from the public.

Market performance

For the information of readers of The Manila Times, quarterly financial filings are not audited. I am making this clear so that public investors who trade in SBS shares would not blame Punongbayan & Araullo, which is the company’s external auditor, for whatever errors, omissions or misstatements are perceived to have been committed by SBS in reporting its quarterly financial statements.

At this point, I have yet to fully understand the implications of certain feedbacks from the public on SBS’s quarterly postings. I am giving the company the benefit of the doubt that it has not been misstating its quarterly financial filing to please the public. For this reason, I am requesting the PSE’s market watchers and the SEC’s examiners who are assigned to audit individual companies, whether listed or not, to take a closer look at SBS to see if anything is remiss with the insiders’ accounting entries.

For instance, one investor’s query that begs an immediate answer from the PSE and SEC is this: Is SBS overstating its expenses, particularly the “cost of goods sold” in a particular quarterly period to make the comparable three-month performance in the succeeding year attractive to investors?

Since the SEC has at its disposal all the files of private companies including listed companies, it can easily access SBS’s audited financial reports in previous years. This is only a suggestion and is not meant to preempt SEC examiners on what they intend to do with the company’s corporate files. As for SBS’s quarterly filings, they can access, which could provide them the numbers they need for their audit review.

Here is a suggestion to the PSE and SEC: Please include in your review of SBS’s quarterly financial performance the company’s offering prospectus.


Will SEC officials please explain to the public the commission’s rule or policy on the declaration of dividends? If I recall correctly, a company is allowed to distribute dividends as approved by the board when it has enough retained earnings to cover them.

If SEC examiners would look at SBS’s nine-month financial report, which, of course, is not audited, they would find some entries that may be questionable if they were to go by the rule on dividends.

As reported, SBS had retained earnings of P117.37 million as of Dec. 31, 2014 and P127.77 million as of Sept. 30, 2015. Under liabilities is an entry on “dividends payable” amounting to P265.49 million “based on the financial results as of 31 December 2013” and “which were paid to the stockholders on 25 March 2015.”

By the way, will the Sytengcos, who are SBS’s majority owners, disclose to the public where the company got the money to pay them dividends of P365.49 million, including the P100 million in dividends they paid themselves on March 5, 2015? SBS had net profit of only P72.51 million and retained earnings of only P89.89 million from January to June 2015.

To satisfy the curiosity of public investors who are turned off by SBS’s omissions of certain disclosures, the company should also post on the PSE website its financial performance from January to March 2015. Since it was able to disclose to the public its financials for the first nine months of 2015, perhaps it could also provide the public a separate financial report for the first three months of 2015.


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