• Megawide rights offering to benefit public stockholders

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    Emeterio Sd. Perez

    Emeterio Sd. Perez

    In a previous piece titled “Osmena’s sin of omission,” Due Diligencer listed the Cosiquiens as the majority stockholders of Megawide Construction Corp. and the SM group, which is controlled by businessman Henry Sy Sr. and his family, which, as minority stockholder, holds a significant stake in the company.

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    As a listed company, Megawide has a wider ownership base. A recent ownership filing showed the public investors as holders of 417.620 million shares, or 25.32 percent. This ownership profile makes the company more public than others.

    Then, if you would go over Megawide’s filings posted on the website of the Philippine Stock Exchange, you would learn that the Government Service Insurance System (GSIS), the state-owned insurer of all government workers including senators and members of the House of Representatives, is, like the SM group, also a significant stockholder of the construction company. GSIS, according to a recent posting, owns 33.829 million Megawide shares, or 7.975 percent.

    Perhaps Sen. Sergio Osmena 3rd has not been fully informed about Megawide. When he underestimated the company’s financial capacity to finance a P14-billion-plus government infrastructure project, he did not consider the SM group, one of the country’s biggest conglomerates, as a financial backer that could attract lenders should Megawide need to raise funds. He also failed to consider the role of the public in a listed company’s capital-raising exercise.

    In a way, the Osmena exposé could also be a blessing in disguise. First, it could be an eye-opener for the Cosiquiens and the Sys, who prefer to borrow instead of raising capital via stock offering. What are listed and public companies for if their majority and controlling stockholders would rather go to the bank for loans instead of tapping the public for additional capital? Since Megawide does not have enough retained earnings— P2.688 billion as of Sept. 30, 2013 —to turn into capital that would be enough for a multibillion-peso project, why not make a stock rights offer instead of distributing stock dividends?

    Then here is another strategy: The SM group could invest more in Megawide via a stock rights offering in which public stockholders can participate. But this could cost the Cosiquiens their 57-percent majority control of company. If they—the Cosiquiens—are unable to pay for their allocations and the Sys exercise their option to buy their partners’ shares, then that would reverse the ownership participation in Megawide.

    Don’t even ask if the Sys have enough funds for a takeover. Definitely they have more than enough money for any potential conquest. As of Sept. 30, 2013, SM Investments Corp. alone, their listed flagship, reported in a consolidated financial filing retained earnings of P111.920 billion.

    Let us do some computations. If Megawide were to increase its capital to raise say, P14 billion, it needs to sell 1.17 billion new shares at P12 per share. If the Cosiquiens own 57 percent, this means they need P7.98 billion to retain their majority ownership of the company.

    In the meantime forget the Sys, who prefer to remain passive stockholders by allowing their venture partners to dominate the board and management of Megawide. After all, the Cosiquiens are doing well in running Megawide. In the first nine months of 2013, the company’s net profit increased 55.21 percent to P983.245 million from P633.495 million in the same period in 2012, on the back of a 28.71 percent rise in revenue to P7.217 billion from P5.607 billion.

    esdperez@gmail.com

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