IF a small stockholder, who is among the much abused public, wants to take part in the election of the members of the board of a listed company, he or she has to buy common shares on the open market at the prevailing price.
Let us take Globe Telecom Inc. as an example. The company is listed on the Philippine Stock Exchange because its common shares are openly traded. It has 132.72 million outstanding common shares, of which 132.068 million are listed.
Given that Globe is listed but may not necessarily be public, only its common shares, and not its voting preferred shares, are available for acquisition through the PSE facilities. On Friday, trading on Globe common shares closed at P1,602 apiece. This means it costs that much for a stockholder just to cast a single vote for his choice of nominees to the board of that company.
Expensive, isn’t it? As a matter of fact, Globe’s common shares are very expensive for small investors to buy and hold for dividends.
Recently, Globe sold 20 million preferred shares at P500 each against par value at P50. It reported that after the offering, PCD Nominee Corp. became a holder of 19.888 million for Filipinos and 110,710 for foreigners. Don’t these preferred stocks cost much less than common shares? Of course they do because they are non-voting, unlike common shares.
Due Diligencer did some computations that showed these new issuances, in an exercise that is actually a form of public borrowing, boosted the outstanding capital stock of the telecom unit of the Ayala group to 311.197 million shares. The total includes 132.682 million common shares with par value of P50 per share and 158.515 million voting preferred shares with par value of P5 per share.
What do these numbers mean to the public? Have they, for instance, bothered to look at how and why they bought non-voting preferred shares at P500 when these were initially valued at P50 per share? Perhaps, they did not even examine – or failed to examine – if the par value matters at all.
Incidentally, to Due Diligencer, in the case of Globe, par value does not mean anything at all. I think a stock corporation incorporates the par value in its authorized capital stock only to determine the minimum selling price of its shares and to be able to estimate how much it would make when it sells at premium over par.
I am making this analysis to show how some listed companies take advantage of the public when they need to raise money for, say expansion. It is even worse when they use the proceeds from their stock offerings to pay maturing debts that otherwise they won’t be able to pay with their internal funds.
Let us take another look at the numbers under Globe’s latest offering. As disclosed, the company sold to the public 20 million non-voting preferred shares at P500 each against par value of P50. What is the purpose of the par value here when the public is made to pay P500 per share?
Certainly, the public expects Globe’s non-voting preferred shares to make good in the market when the shares are finally listed and traded. Why should they invest P10 billion in the shares if they are going to lose money? The amount represents the gross proceeds Globe raised from the sale of 20 million non-voting preferred shares.
At this point, I hope the public is aware of Globe’s previous sales or offerings of shares. If the individual public investors have knowledge of such information, then they must have noticed that of the 250 million voting preferred shares authorized for issuance, the company grossed P792.575 million from the issue of 158.515 million shares. Try dividing P792.575 million by 158.515 million and you will arrive at P5. The quotient represents the price per share when Globe sold these voting preferred shares.
Again, the same annual report showed that as of end-2013, Globe has issued 132.596 million common shares, from which it grossed P6.630 billion, computed only on par value of P50 per share.
What does the pricing of Globe’s preferred shares mean to the public?
Here is the answer to which Globe might not agree: When it sells preferred shares – and voting at that – to insiders, it sells them for less, which is at par value. But when it wants to tap outsiders for money, it makes them pay as much premium as possible. Anyway, it is listing such non-voting preferred shares and it is up to the market to determine their value, but has reserved voting preferred shares exclusively for the majority owners. (More on this in my next column).