Don’t get deprived of your pre-emptive rights

Emeterio Sd. Perez

Emeterio Sd. Perez

WHAT are public companies for if they deny their investors pre-emptive rights? If this anomalous practice goes on, what could possibly happen to the 10-percent minimum public ownership (MMPO) rule that listed companies are required to follow?

If officials of the Securities and Exchange Commission (SEC) and the monitoring team of the Philippine Stock Exchange (PSE) don’t watch out, they may someday end up with less responsibility such as that of an overseeing body.

Again, if buying out the individual investors of their already limited holdings negates the purpose of the 10-percent MMPO rule, what do you think would be the impact on the same rule when public stockholders are deprived of their pre-emptive rights over additional issuances of shares?

Controlling stockholders usually turn to outsiders to become their co-owners but only for their own convenience. Without them, their businesses won’t qualify to become public companies that would entitle them to pay much less in taxes whenever they issue additional shares.

Just how much money does a listed company raise by tapping the participation of the public in a capital-raising exercise? To know the answer, let us look at Petron Corp.

Capital profile
Petron has had outstanding capital stock that consisted of 9.375 billion common shares with par value of P1; 100 million preferred shares; 7,122,320 preferred Series 2A (PRF2A); and 2,877,680 preferred Series 2B (PRF2B).

At one time or another, Petron issued 100 million preferred shares at P100 per share against par value of P1, resulting in an additional paid-in capital (APIC) of P9.764 billion.

When APIC, which refers to the premium over par value in the sale of shares, and P9.375 billion, which represents the value of outstanding shares, are added up, they would total P19.139 billion. Add to this P10 billion, which is the peso equivalent of 100 million shares at P100 each – that would be P29.139 billion.

That’s not all. Remember the 10 million preferred shares divided into 7,122,320 PRF2A and 2,877,680 PRF2B? At an issue price of P1,000 each, their value would amount to P10 billion.

In capital stock alone, Petron has been worth – again at one time or another – P39.139 billion.

If Petron is billed as “more public than others,” there is a reason for this: Not only are its common shares public; it has also made its preferred shares public by allowing them to subscribe to the preferred shares which earn dividends.

When Petron issued 10 million preferred shares, it paid the holders dividends at rates of 6.3 percent for PRF2A and 6.8583 percent for PRF2B. These dividends are payable on Feb 3, May 3, Aug 3, and Nov 3 of each year. Earlier, it paid subscribers to its 100 million preferred shares as much as 9.5 percent.

Do you know how much Petron paid its stockholders for their common shares? It’s P0.05 per share on April 23, 2014. This is what you earn per year for holding on to your Petron common shares, although their paper value is determined by market forces. On March 18, it peaked at P10.40 and closed trading at P10.04. It reached a 52-week high of P14.18 and dropped to a year’s low of P9.

Now you know why listed companies in which you own shares, even if only a few common shares, should not deprive you of your pre-emptive rights. Without them, your earnings, as in the case of Petron, would be limited to dividends due your common share holdings, which are usually minimal. Besides, where does a company source its dividends? From its retained earnings, of course, which should have been exclusively distributed as dividends to owners of common shares.

So next time you invest in a listed stock, be sure to ask the issuers how much of their outstanding capital stock is in preferred shares. If they do have that, follow up your query with another: Will I be entitled to such shares in your future issuances?


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