Mermac and Mitsubishi hold 96.109% of AC voting preferred shares


STARTING today, dividend policies of listed companies will be a Due Diligencer regular item. How much, in the form of dividends, trickles down to public stockholders as partners of the majority owners?

To make this piece more reliable while informative, I am using only the disclosures posted on the website of the Philippine Stock Exchange (PSE). In my readings of disclosures, I discovered that some listed companies spell out in percent their dividends while others simply disclose their intention to distribute them.

Of course, the majority stockholders end up to be the luckiest recipients of dividends because they control most of the capital stock, starting with common shares. These stockholders and their allies also own most of the voting preferred shares and leave the non-voting preferred shares to the public.

I had written about the premiums that public stockholders are made to pay in order to invest in non-voting preferred shares. This time, I am writing this piece with focus more on dividend policies and whether listed companies religiously implement them.

Strictly speaking, preferred shares are liabilities. As such, their yield per share is expressed in percent, making their inclusion in a company’s capital stock ironic. It is this irony that sometimes hurts public investors, who trade in common shares but are deprived of their preemptive rights over the preferred shares, regardless of whether the issue comes with voting or non-voting rights.

Capital profile
The outstanding capital stock of Ayala Corp. (AC) consists of 619.611 million common shares; 20 million preferred B Series 1 shares; 27 million preferred B Series 2 shares and 200 million voting preferred shares.

“As a holding company, Ayala’s policy is to provide a fixed-rate, semi-annual cash dividend of P2.40 per share on common shares,” AC said in a PSE posting. “For voting preferred shares, the rate is 1.875% per annum. For non-voting Preferred B Series 1 and 2 shares, the dividends are given 5.25% and 5.575% per annum.”

In 2015, AC increased the dividend rate for common shares by 18.033 percent to P2.88 per semester, for a total of P5.76 per annum. That’s a 44-centavo increase every six months, or 88 centavos per year.

At P5.76 per share dividend, an investment of P659 in an AC common share would translate to a gross return of 0.844 percent. A P200 million placement in 200 million voting preferred shares, or P1 per share, earns 1.875 percent a year. In 2014, this totaled P3.75 million.

All these returns, either for common shares or preferred shares, are sourced to retained earnings available for dividends, which, as of Sept. 30, 2015, amounted to P32.456 billion.

Lucky stockholders
Of AC’s 200 million voting preferred shares, 192.218 million went to two major stockholders: Mermac Inc. got 159.577 million, or 79.789 percent, and Mitsubishi Corp. of Japan, 32.64 million, or 16.32 percent.

In an ownership filing, AC said “there are 1,007 registered holders of voting preferred shares as of Jan. 31, 2015.” Aside from Mermac, which is owned by the Zobels, and Mitsubishi, for a combined 96.109 percent of 200 million AC voting preferred shares, the other investors include company insiders, who hold 1.477 million voting preferred shares.

Leading the insiders are the Zobel brothers, Jaime Augusto, chairman and chief executive officer, and Fernando, vice chairman, president and chief operating officer, who hold 543,802 shares and 554,983 shares, respectively. The others are Delfin L. Lazaro, director, with 258,983 shares; Xavier P. Loinaz, independent director, 65,517 shares; and Solomon M. Hermosura, managing director, general counsel, corporate secretary, compliance officer and corporate governance group head, 53,583 shares. Merceditas S. Nolledo and Ariston Dela Rosa Estrada Jr., holding 84,996 shares and 84,396 shares, respectively, are former AC insiders.

The rest of 1,007 holders of AC voting preferred shares are not identified. Their voting preferred shares are lodged with foreign banks, among which are Deutsche Bank, which holds 1.561 million, separately from 111,385 shares; and Hongkong and Shanghai Banking Corp., with 170,064 shares; 169,803 shares; 73,272 shares; and 72,884 shares. Among local stockbrokers, Deutsche Regis Partners Inc. holds 137,372 shares; AB Capital Securities, 115,873 shares; BDO Securities, 115,794 shares; and Arisec Equities, 78,234 shares.

The question that even officials of the Securities and Exchange Commission refuse to answer is: Who are the direct owners of AC voting preferred shares held by CBNA, which stands for Citibank North America, and HSBC? Forget the full disclosure rule, which, anyway, does not cover the indirect stockholders of listed stocks.


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  1. As for your position that preferred shares are liabilities, the yields are fixed and guaranteed but they are expenses like light and water, but the shares not redeemable on maturity like bonds so there is no effect on the balance sheet. If there are voting rights- and this is the first time I heard of preferred shares with voting rights by the way- and there is failure to meet the dividends/yields, then theoretically the injured parties can take over the company. But the Ayalas are the preferred shareholders, so obviously they cannot/will not oust themselves. Perhaps this is the angle that needs serious study to find out if this arrangement is fair.