IN FAIRNESS to Globe Telecommunications Inc., it is not the only company to have issued preferred shares priced differently and sold at much lower prices to insiders. Philippine Long Distance Telephone Co. (PLDT) adopted a similar strategy to comply with the 40-percent ceiling on foreign ownership of public utility companies, with PLDT Beneficial Trust Fund (PBTF) the lone beneficiary of the generosity of the company’s 13-member board controlled by Indonesian-owned First Pacific Co. Ltd.
Through First Pacific, the Indonesians own 55.2 million shares, or 25.6 percent, of PLDT’s common shares. Despite this “minority” ownership, they control the board.
The story behind PBTF’s acquisition of PLDT’s 150 million voting preferred shares at P1 each is retold here so that the public could better appreciate Globe Telecom’s own issuance of voting preferred shares. In a sense, both companies took the only option available to them to comply with the constitutional limit on foreign ownership.
That best option was the issuance of voting preferred shares.
Back to Globe Telecom. The company’s latest ownership filing listed Ayala Corp. (AC) as a minority stockholder with 40.3 million common shares, or 30.4 percent, and Singapore Telecom International with 62.6 million shares, or 47.2 percent. This should already put Globe in violation of the 40-percent limit on foreign ownership.
Globe Telecom, however, has always been compliant with the ownership law. By issuing 158.5 million voting preferred shares to Asiacom Philippines Inc., it effectively diluted SingTel’s ownership to 21.5 percent from 47.2 percent. The dilution was a result of the issuance of 291.2 million new outstanding voting shares, divided into 132.7 million common shares and 158.5 million voting preferred shares.
How could the issuance of voting preferred shares to Asiacom be disadvantageous to the few public stockholders of Globe Telecom?
It is easy to decipher the answer from Globe Telecom’s filings posted on the website of the Philippine Stock Exchange. Remember the company’s issuance of 20 million non-voting preferred shares? The public paid P500 per share against the par value of P50. Public investors were among the buyers of the P10-billion preferred shares offering at such an offer price, which they hoped would surge upon listing so that they could make profit.
As public investors, they are not privy to the goings-on inside the boardroom of Globe Telecom Inc. Were they aware, or made aware, of the company’s much earlier float of 158.5 million preferred shares, or 54.4 percent of outstanding voting shares? These preferred shares are not only voting but were “issued at P5 par” or sold at P5 each, while the public paid P500 for each of the company’s non-voting preferred shares.
As disclosed in a filing, Asiacom was the only subscriber to these voting preferred shares that not only entitled it to vote for the members of the board but, more importantly, to enjoy the benefits attached to owning them such as a “dividend rate to be determined by the board.”
But the most attractive feature of the Asiacom-held voting preferred shares is the convertibility of one preferred share to one common share “starting at the end of the 10th year of the issue date at a price to be determined by the Globe Telecom’s BOD (board of directors) at the time of issue, which shall not be less than the market price of the common shares less the par value of the preferred shares.”
Sorry to disappoint the public but only Globe Telecom could clearly explain this particular feature of its voting preferred shares that it exclusively issued to the majority stockholders. (I will try to compute the conversion in a future Due Diligencer piece.) This is the reason why the previous piece that appeared on Monday in this space began with a big IF, that is, IF you the public would want to vote during the stockholders’ meeting of Globe Telecom, you have to buy common shares at market price, which was at P1,602 on Friday last week.
While you had to dig deep into your pocket to actively participate in the annual meeting or special stockholders’ meeting of Globe Telecom, Asiacom paid only P5 per voting preferred share, paying a total of P792.6 million for 158.5 million shares. At P1,630 per share, which was the stock’s closing price on Monday, Globe Telecom’s outstanding common shares had a market value of P216.3 billion. Voting has become less expensive for Asiacom owners.
Yet, the Zobels and the Singaporean-owned SingTel had easy access to Globe Telecom’s voting preferred shares that are also convertible to common shares. At today’s market price, Asiacom’s 158.5 million voting preferred shares are definitely worth much more than its issue price of P5 per share.
The majority stockholders must feel blessed being insiders. And the public would not mind this at all, just as PLDT’s issuance of 150 million voting preferred shares seems not to have mattered at all to businessman John Gokongwei Jr.
JG Summit owns 17.3 million PLDT common shares equivalent to 13 percent of outstanding common shares. Their holdings were effectively diluted to 5.9 percent, computed on 291.2 million outstanding voting shares, including 158.5 million voting preferred shares that were issued to PLDT’s trust fund at the par value of P1, with nothing left for the public and the Gokongweis.