Holcim Philippines is listed but not public

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Emeterio Sd. Perez

Emeterio Sd. Perez

IT is time for the Securities and Exchange Commission to redefine the rule on minimum public ownership.

To justify this suggestion, Due Diligencer did some computations of the ownership profile of Holcim Philippines Inc. (HPI) and came out with the results that would qualify the cement maker as a listed company but not necessarily one that is public. Even its own ownership filings on which the computations were based shows why this is so.

As of April 16, 2014, Holcim listed four corporate stockholders. Two Filipino companies—Union Cement Corp., the majority stockholder, and Cemco Holdings Inc.—own 3.906 billion common shares, or 60.55 percent, and 456.690 million common shares, or 7.08 percent, respectively. The Dutch-owned Holderfin B.V. and Sumitomo Osaka Cement Co. Ltd. of Japan, hold 1.149 billion common shares, or 17.80 percent, and 594.953 million common shares, or 9.22 percent, respectively.

With their combined ownership of 6.107 billion common shares, the four stockholders control 94.65 percent of 6.452 billion outstanding common shares. As a result, the public stockholders, who should own at least 10 percent of outstanding common shares in listed companies, are left with only 345 million common shares, or 5.35 percent.


Different computation
Unfortunately, the 10-percent minimum public ownership as defined by the SEC is computed differently; that is, in favor of the majority owners.

To illustrate, the latest public ownership filing of Holcim listed only three “substantial/principal” stockholders with combined holdings equivalent to 85.43 percent of outstanding shares. These are Union Cement, the majority stockholder, with 60.55 percent; B.V. Holderfin, 17.80 percent; and Cemco Holdings, 7.08 percent.

In its own computations, HPI even topped the market’s required minimum public ownership of 10 percent. It claimed that of its 6.452 billion listed common shares, 940.087million, or 14.57 percent, are owned by the public, including Sumitomo’s 594.953 million common shares, or 9.22 percent.

Try deducting Sumitomo’s 9.22 percent from the HPI-defined public ownership’s 14.57 percent and you are back to 5.35 percent.

Here is the puzzle: Why did Holcim classify Cemco Holdings as one of three “principal/substantial” stockholders but not Sumitomo Osaka, which holds 9.22 percent, which is more than what Cemco owns?

Holcim’s generosity
The few investors who own common shares issued by Holcim Philippines Inc. (HPI) are lucky because they share from the company’s profits in the form of dividends, either in cash or in stock.

Dividends are declarable out of retained earnings, which represent a company’s net income.

HPI’s consistent profitability has enabled it to pile up retained earnings of P5.504 billion as of June 30, 2014 and P6.698 billion as of December 31, 2013. Note the difference of P1.194 billion, which represents the cash dividend that it had earlier distributed.

But the best news would come on July 9 when HPI pays its stockholders P0.70 per share dividend, the biggest since 2011, for a total of P4.516 billion, which will reduce the company’s retained earnings to P987.444 million.

HPI’s dividends in previous years were P0.40 per share for a total of P2.6 billion in 2011; P0.25 per share for a total of P1.60 billion in 2012; and P0.55 per share for a total of P3.5 billion in 2013.

HPI reported consolidated net profit of P3.322 billion in the first six months of 2014, up from P3.053 billion in the same period in 2013. In 2013, its net income increased 25.87 percent to P4.559 billion from P3.622 billion in 2012. In 2011, the company had net profit of P1.984 billion.

Executive compensation
If Holcim Philippines Inc. is generous in distributing dividends, it is more generous to the members of its management team. Who knows, its compensation estimate of its executive compensation could be on the low side such that, by the end of the year, its top five executives would have gotten P100 million or even more.

In 2013, the company paid its top five executives P94.162 million which consisted of salaries, P57.40 million; bonuses, P12.261 million; and benefits, P24.50 million. In its estimate, they will receive the same pays and perks this year.

In 2012, HPI’s five top officers got P58.925 million in salaries; P5.266 million in
bonuses; and P20.860 million in benefits for a total of P85.051 million. The other executive officers as a group unnamed received less than what the top five got: P64.232 million in 2013 and P58.516 million in 2012.

Holcim also extends the same generosity to the seven members of its board who were paid a total of P18.427 million, or P2.632 million each, in 2013 and a combined P16.567 million, or P2.367 million each, in 2012.

esdperez@gmail.com

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3 Comments

  1. Notwithstanding the market capitalization of P87.2 billion and public float of 14.57% the Holcim Philippines Inc (HLCM) share price movement and average volume traded remains trivial. These are the reasons most purpose driven investors never bought HLCM despite the favorable infrastructure spending and construction industry dynamics.

  2. Shareholders of “public” firms are exempt from the capital gains tax (CGT), which is 10% at the margin. This is a very big savings, and only requires the private firm to list 1/10th of the company. The owners can then sell more shares, already covered by the CGT exemption.

    However, listed firms not meeting the minimum public ownership (MPO) of 10% are not granted this privilege. I am not sure of the enforcement of this rule, since the shares continue to be listed on the PSE for some time. Do stockbrokers withhold CGT for noncompliant, but still listed, companies?

    And, as pointed out by Due Diligencer, there may be shares classified as public which are not.

    On the other hand, if an investment firm bought up a large pile of shares through the stock exchange, equivalent to even 10% or more of a company, aren’t those still publicly owned shares?

    With SEC already thinking of raising the MPO requirement to 15% and then 20%, our “public” companies better get their acts together.

  3. Shareholders of “public” firms are exempt from the capital gains tax (CGT), which is 10% at the margin. This is a very big savings, and only requires the private firm to list 1/10th of the company. The owners can then sell more shares, already covered by the CGT exemption.

    However, listed firms not meeting the minimum public ownership (MPO) of 10% are not granted this privilege. I am not sure of the enforcement of this rule, since the shares continue to be listed on the PSE for some time. Do stockbrokers withhold CGT for noncompliant, but still listed, companies?

    And, as pointed out by Due Diligencer, there may be shares classified as public which in fact may not be.

    On the other hand, if a stranger bought up a large chunk of public shares, equivalent to 5% or even 10% of a company, surely those are still considered publicly owned shares?

    With SEC already thinking of raising the MPO requirement to 15% and then 20%, our “public” companies better get their acts together.