• How NextGenesis took over a bank and lost

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    Emeterio Sd. Perez

    NEXTGENESIS Corp. took over Asia Trust Development Bank Inc. in 2013 and inherited the latter’s financial burden. It is now undergoing equity restructuring or quasi-reorganization.

    As early as Feb. 27, 2013, the stockholders of NextGenesis approved in a meeting the reduction of its authorized capital to P128 million from P2 billion.

    The capital restructuring was not easy for the stockholders of NextGenesis. The public particularly got hurt because they were forced to give up part of the value of their holdings to save an ailing company.

    As the process required, all stockholders of NextGenesis were to give P9.36 per share of their holdings, or a huge loss of 93.6 percent.

    Try subtracting P0.64 per share from P10 and you get what you think at first was all what you lost. You similarly lost 93.6 percent or P6.552 for every share that you bought at P7 per share when NextGenesis was last traded on Nov. 4, 2010.

    Getting hurt

    Public stockholders had to contend with a company that had piled up a deficit of more than P1.1 billion as of Dec. 31, 2016.

    A list of stockholders showed the Social Security System as the single biggest stockholder of NextGenesis. As of June 30, 2016, it owned 19.896 million shares, or 19.13 percent. At P7 per share, its holdings had a market value of P139.272 million. At a par value of P0.64, this dropped to P12.733 million.

    Translated further, SSS’s share in the deficit amounted to P210.494 million. As principal stockholder, it could not have unloaded even if it wanted to without “rocking the boat,” so to speak.

    Because of its accumulated deficit, NextGenesis had to undertake a quasi-reorganization that involved a decrease in authorized capital and reduction of its par value to P0.64 from P10 per share.

    Equity restructuring

    The reduction in par value of NextGenesis’ capital stock to P0.64 from P10 per share resulted in a reduction surplus of P973,563,786. The amount, along with additional paid-in capital (APIC) of P125,671,515, was used to wipe out the company’s deficit of P1,099,235,301.

    The question that may be asked is how NextGenesis arrived at P973,563,786 as reduction surplus.
    Here was how it worked: its original par value of P10, multiplied by 104,013,225 outstanding shares, equals P1,040,132,250.

    When NextGenesis restructured its capital, it reduced its par value to P0.64. Thus, P0.64 multiplied by 104,013,225 equals P66,568,464, which, when subtracted from P1,040,132,250, equals P973,563,786.

    The amount of P973,563,786 is called reduction surplus, which when added to APIC of P143,018,392, equals P1,116,582,178. Since NextGenesis had a deficit of only P1,099,235,301, it would leave the company with a remaining APIC of P17,346,877,

    Wiping out the deficit

    What NextGenesis did was to cut its par value to P0.64 from P10 so that it would have just enough reduction surplus of P973,563,786 plus APIC to erase its deficit. Incidentally, it used only P125,671,515 of P143,018,392 APIC.

    Had it decreased the par value to P5 and not P0.64, the result would have been computed as follows: P5 x 104,013,225 = P520,066,125, which, when subtracted from P1,040,132,225, would result in a reduction surplus of P520,066,125.

    A P520,066,125 reduction surplus plus P143,018,392 APIC = P663,084,517, which would only reduce NextGenesis’ P1,099,235,301 deficit to P436,150,784.

    On the other hand, had NextGenesis adopted a new par value of P0.50, it would have created a reduction surplus of P988,125,637. Add to this its P143,018,392 APIC, the total would be P1,131,144,029, which, when applied to the P1,099,235,301 deficit, equals a surplus of P31,908.728.

    NextGenesis did what other financially distressed companies had done: Reduce its authorized capital to P128 million from P2 billion and decreasing the par value of common shares to P0.64 from P10.

    New investors?

    Of its 128 million authorized capital stock, NextGenesis still has 23,986,775 unissued shares, equivalent to 18.74 percent. What will it do with them? Will new investors take the risk of putting in fresh money?

    So far, NextGenesis had nothing yet to show for what it intends to do with these unissued shares. The company’s filing as of May 17 showed only “amendments to Articles of Incorporation” to reflect the changes in its authorized capital to P128 million from P2 billion.

    On May 16, NextGenesis reported a “quasi-reorganization” on the website of the Philippine Stock Exchange after it filed the previous day a financial disclosure, its unaudited quarterly report.

    As in the past years, the financial filing of NextGenesis brought bad news to public investors. The company reported a slight increase in its deficit as of March 31 to P1,101,020,826, from P1,099,235,301 as of June 30, 2016.

    From January to March, NextGenesis did not make any income but reported operating expenses of P1,785,525, which it said represented “loss before income tax.” Will the quasi-reorganization succeed in putting NextGenesis back to profitability? Just asking.

    esdperez@gmail.com

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