In a previous piece, Due Diligencer found it necessary to introduce ISM Communications Corp. to the readers of The Manila Times to apprise them about the company. This time, I am responding to a letter from a reader, Karl Salud, who wants to know in particular why ISM did not invest the money it raised from the sale of 358.108 million of its common shares at P1 each. It is important to retrieve some filings ISM posted on the website of the Philippine Stock Exchange for Due Diligencer to answer Karl’s query properly.
In its own postings, ISM mentioned the sale of its common shares. On April 16, 2016, it said, ISM’s board approved the sale of “358,108,078 treasury shares to its existing shareholders at a ratio of 1:2 at a price of P1 per share.”
What could have puzzled the public investor is what ISM gave as justification for the resale of treasury shares:
Back in 2016, the company said it “intends to increase its cash reserves in preparation for certain investment opportunities currently being evaluated by management.” Given that the 358.108 million common shares were part of the shares bought back by the company from the public, ISM said, “this corporate action (resale of treasury shares) is not a stock rights offer but a sale of treasury shares to existing stockholders.”
Not stock rights offer
Let me try to explain the difference between a stock rights offer and a sale of treasury shares.
In selling back its treasury shares to existing stockholders, ISM did what other listed companies usually do with reacquired shares: sell them back to stockholders. But while other listed companies sell such shares at a profit, ISM did the opposite. It unloaded its treasury shares at a loss of 52 centavos per share. At Friday’s closing price of P1.45 per ISM share, each existing stockholder was already ahead by 45 centavos.
ISM was correct when it clarified that the sale of treasury shares is not a stock rights offer. But it stopped short of explaining what it meant for shareholders, which would have made them, including Karl, understand the reason for the sale, or reissuance, of treasury shares.
Had it been a stock rights offer, ISM could have issued new shares from its remaining 883.731 million unissued shares out of the 2.8 billion shares of authorized capital stock. The company had originally issued 1.916 billion shares.
On the other hand, ISM sold 358.108 million shares that it had bought back on the open market. They were among the company’s 1.916 billion issued shares, which ISM could have retired but, instead, were sold as treasury shares to raise money for “certain investment opportunities.”
In its own filing ISM said, of the authorized capital stock, it had issued 1,916,269,341 as of Dec. 31, 2016. The remaining 883,730,659 shares are available for issuance.
Investing in what?
Going back to Karl’s question on where ISM put the money it raised from the sale of 358.108 million shares at P1 each, ISM management should explain to the public what was not stated clearly in the company’s filings.
Directing the public to read financial postings may not be enough for them to fully understand so many technical terms. Why can’t the company make it easier for the public, including Due Diligencer, to translate the footnotes to the CPA’s financial entries into layman’s language? By doing so, there would be no misunderstanding between ISM’s managers and their public stockholders.
What are these “certain investment opportunities” that ISM has long been studying since January 2016?
Anyone could invest in securities other than listed shares, just as he could also make a five-year or shorter time deposit in a bank that he owns. No one would doubt the integrity of ISM’s investment decisions. Nevertheless, Karl is right in asking why it takes the company too long to explain what investment opportunities the company is looking at for more than P358 million.
In the meantime, I suggest that Karl and the others who may have invested in ISM shares to read the company’s filings and the footnotes that explain certain accounting entries.
To the owners and managers of listed companies: Why can’t you express your appreciation of your public stockholders by making your financial postings easily understandable? Just asking.
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On a personal note, I appeal to Helen Paner, who is a director of Pag-IBIG Fund based in Makati City, to hold in abeyance her plan to sue my wife and possibly me for non-payment of the monthly dues for two home aides from January to June 2015. I don’t want my wife to suspect that I misspent the money amounting to P2,880. To set the record straight, I will send Ms. Paner the receipts of payments I made through an accredited Bayad Center. More on this in another column.