IT is not my habit to interview my ‘inside’ sources when I write about listed companies because I don’t want Due Diligencer to be influenced by self-serving company statements. No, I don’t hate insiders. Rather, I rely mostly on filings posted on the website of the Philippine Stock Exchange (PSE) to avoid any suspicion of premature disclosure of material information.
Last Tuesday, I made a very rare exception. I agreed to meet with Dave Fuentebella, a member of the nine-man board and chief finance officer of Max’s Group Inc., at the food chain’s headquarters on the 11th floor of Ecoplaza Building somewhere along Chino Roces Avenue Extension in Makati City.
There was nothing secret about the meeting, or interview, because there were other parties in the venue present in the boardroom. Paul Cheah was one of them, who, as Max’s compliance manager, may be more “popular” than Fuentebella, to the members of the five-person regulatory body of the Securities and Exchange Commission (SEC).
The liaison man
Cheah’s “popularity” is understandable. SEC officials learn much about listed stocks by meeting with compliance officers, who liaison with them and other regulatory agencies on company issues—and perhaps, non-issues, too.
Of course, Max’s—which is growing fast because of its acquisitions, the biggest of which is the Pancake group—is more popular, and more famous, than either Fuentebella or Cheah, not necessarily because it is much older than either of them. Max’s has been known to Filipinos since 1945 when it first sold a whole fried chicken at P5. That’s 70 years ago! How time flies, especially given the inflation factor, which has caused the price of the same fried chicken soar even higher.
Today, Max’s is no longer just about fried chickens or camote fries. It also sells pancakes baked by Pancake House Inc., in which it owns 233.15 million shares, or 89.95 percent. In a posting on the website of the PSE, Max’s told the public that it bought out the Lorenzos of their majority holdings in Pancake using funds that it borrowed from the Bank of the Philippine Islands (BPI). The loan, according to the same filing, is “partially secured by PHI shares” bought by Max’s. While the amount of the BPI loan was not disclosed, the shares were at P15 each, and for that Max’s needed P3.5 billion to pay for 233.15 million Pancake shares.
How does Max’s fare with the public? The stock is doing well on the market. The company incurred a net loss of P31.36 million in the first nine months of 2014 and yet, its stock kept trading at slightly above P30, putting it ahead by P15 per share.
Paying debt with new loan
The public has something to learn from Max’s way of paying its debt. The company borrowed P923 million from Banco de Oro “to prepay the outstanding balance of P801.1 million that it owed MBTC and FMIC.” The acronyms stand for Metropolitan Bank and Trust Co. and First Metro Investment Corp.
Individual borrowers could adopt Max’s way of refinancing debts: borrow from another bank at a lower interest rate and prepay an older debt they owe another bank that charges them 11.5 percent interest on, say a P5 million housing loan. Apparently, the original lending bank either refuses to adjust the interest rate that has gone down to 6.5 percent when it had agreed to adjust said interest rate after two years, based on prevailing charges.
Would the bank really remind borrowers about the interest on their loan when the interest rate goes down?
I don’t think so. A bank would not hurt its profitability by telling its borrowers that it was time for them to pay a lower interest rate on their loans. A bank, especially when its shares are listed, would always love to please its stockholders at the expense of borrowers. Imagine how much it would make on a savings deposit that earns only 0.3 percent per annum, or maybe even less, but lends to it at 11.5 percent?
Asking or requesting a bank to adjust the rate as promised would be like asking for the moon. A borrower would be discouraged by so many impositions, such as payment of documentary stamp tax of P16,864; P3,000 processing fee and a further P3,000 as appraisal fee. In addition, he or she would be required to shoulder a notarial fee of P200. All these charges would amount to P23,064.
Perhaps, the Bangko Sentral ng Pilipinas must strictly monitor banks’ charges on individual borrowers and penalize those that do not comply with the loan agreements, such as the adjustment of interest rates when they go up or down.
Incidentally, banks would only adjust interest rates when doing so would enhance, not reduce, their profitability.