Investing in untraded stocks

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Emeterio Sd. Perez

FILSYN hopes financial recovery is still a possibility despite its hibernation for a long, long time. Recently, it obtained the approval of the Securities and Exchange Commission for the extension of its corporate franchise by another 50 years.

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The new 50-year corporate life should give a glimpse of hope to public stockholders on Filsyn’s possible recovery.

This development is good news to public investors who have Filsyn in their portfolios.

In its 2015 consolidated annual report, Filsyn said it had capital stock of P1,031,230,905. Its authorized capital stock was divided into 144 million shares Class A shares of which it had issued 123,747,707 shares, and 96 million Class B shares of which 82,498,474 shares were issued. The par value per share is P5.

“All shares of common stock have the same rights and privileges, except Class A common stock can be issued only to Filipino citizens or entities,” Filsyn said. “The total number of issued Class B shares should not exceed the total number of Class A shares.”

Putting it another way, foreigners cannot own more than 40 percent of Filsyn’s outstanding capital stock. This is the reason the company’s Class B shares represent 40 percent of outstanding capital.

Losing investors

As Filsyn continued to report losses that had accumulated to a deficit of P1.763 billion as of Sept. 30, 2016, the foreigners, being among the principal stockholders, were the biggest losers.

The list of Filsyn’s top 100 stockholders as of Dec. 31, 2016 showed that foreigners, listed under “others,” owned 65.578 million common shares, equivalent to 31.796 percent.

They are Far Eastern Investment Holding Ltd. which had 45.066 million common shares or 21.85 percent, and Waldorf Services B.V. which had 20.513 million common shares or 9.946 percent.

At least two government agencies also lost in investments in Filsyn shares. These are the Development Bank of the Philippines, which owns 10.256 million common shares or 4.973 percent, and the National Development Co., which owns 6.824 million common shares or 3.304 percent.

At P5 par value, the holdings of the company’s two foreign corporate stockholders were worth P327.89 million. With their Filsyn shares now worthless, they can only wait for the company’s recovery since trading on the company’s shares is suspended.

Investors’ vigilance

Filysn is an example of a listed company in which public investors are heavily exposed. Unluckily, they are caught in the dilemma of whether or not they could recoup their losses even if the trading suspension on the company’s listed shares is lifted by regulators.

Let the public investors look closely at Filsyn’s financials. By reviewing the company’s disclosures, they would perhaps learn a lesson or two in their choice of listed stocks.

How did Filsyn fall? This is the question that public investors should answer before they invest in any of the 300 or so listed stocks.

Sometimes, if not often, a number of public investors blindly follow their emotion. It’s simply a hunch that sometimes influences investors in their selection of stocks. Ironically, some forget to include quarterly financial filings and annual reports in their reading habits.

Suspended stocks

The subtitle may be misleading. It is not the stock itself that is suspended but the trading on a company’s listed shares.

In its daily market reports, the Philippine Stock Exchange regularly informs public investors about suspended stocks. The affected public investors may not worry much about such suspension but about getting back their money.

The majority stockholders or the owners may not have been caught unawares by a suspension order by the stock exchange. The public investors are bound to suffer more. In the first place, big market players may have been made aware by their own sources of an impending sanction against a listed company.

How about the innocent public investors? Chances are they are never privy to anything taken up inside the boardrooms. Guts alone would not have alerted them about regulatory sanctions on the stocks in which they have placed their money.

It pays to know the agenda or market issues taken up by the SEC’s five-person regulatory body. Doesn’t it?

esdperez@gmail.com

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