FGen’s P4.373-B profit from sale of treasury shares

Emeterio Sd. Perez

Emeterio Sd. Perez

THAT First Gen Corp. is grossing P7.5 billion from the sale of 297.03 million common shares at P25.25 each is a welcome news for its stockholders, and the public investors.

But the proceeds of P7.5 billion from the stock offering is only one good news because there are two others that the public investors may be more interested to know although these would not directly benefit them.

First, FGen is selling 279.407 million treasury shares, which it has acquired when the market was down, or when the stock’s price was still low.

Here are some numbers that would give one an idea how FGen would make not only P7.5 billion from the offering but much, much more, or 58.307 percent more:

As of Sept. 30, 2014, FGen reported $72.239 million, as “cost of common stock held in treasury.” A footnote to the company’s quarterly financial filing as of Sept. 30, 2014, showed it had a total of 331.031 million treasury shares.

FGen uses the US dollar as functional currency. Since its financial filings are in dollar, one has to convert $72.239-million cost of treasury shares into peso to easily relate the sale of shares to FGen’s fund-raising activity which uses peso.

At the exchange rate of P44 to a US dollar, FGen must have spent P3.179 billion in buying back a total of 331.031 million treasury shares it reported in its 2014 third quarter financial filing. This would translate to the company’s acquisition price of P9.60 per share.

The results of the computation should tell the public that FGen is selling its treasury shares at a huge gain of P15.65 per share (P25.25 selling price minus P9.60 acquisition price per treasury share) for a total of P4.373 billion (P15.65 times 279.407M).

Again, this means FGen would be making a total of P11.872 billion (P7.5B plus P4.372B).
But if one wants to directly do the computation using the dollar as FGen’s functional currency, he or she would arrive at the same price per share of P9.60. ($72.239M divided by 331.031M treasury shares equals 0.218 cent times P44 equals P9.60).

The other news is good only for the Lopezes, who are the majority owners of both FGen and First Philippine Holdings Corp.: On Jan. 19, FGen opened at P26.20, hit a high of P26.40, dropped to a low of P25.50 and closed at P25.50. The following day when the company’s board approved the issuance of common shares, FGen even closed lower at P26, but rose to P26.50 and ended the week at P29.25, P4 higher that the offering price of P25.25.

First Holdings, which already owns 2.228 billion FGen shares, or 66.2 percent, is buying 17.623 million new FGen shares. At the stock’s four-peso-rise on Friday, FPHC would be ahead by P70.492 million, though only in paper.

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Ben Hur Ong, who described himself in an email as “a retired senior citizen” who gave his email address as snrctzn@gmail.com, sent Due Diligencer the following e-mail:
I have always appreciated your column, not only for the information you give your readers but also for writing in terms that the ordinary reader can understand.

By the way, I would like to call to your kind attention the present practice of brokers that leaves much to be desired.  I refer to their failure to send their clients regular statements of account, at least on a quarterly basis.

Is this sanctioned by PSE (Philippine Stock Exchange) and SEC (Securities and Exchange Commission? Does it violate existing policies, rules and regulations of these two offices?

I will appreciate it if you can deal with this issue in your column.

(By way of comparison, brokers dealing in the New York Stock Exchange regularly sends their clients every quarter and end of the year their statements of accounts even if no trade was made during the entire period.)

Mr. Ong has raised a good point. Paging Teresita Herbosa, and Hans Sicat, SEC Chairperson, and PSE president, respectively.



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