Non-listed subsidiaries and associates



SM Investments Corp. (SMIC), the listed holding company of businessman Henry Sy Sr. and his family, paid on May 25 a total cash dividend of P9.36 billion, which translates to P7.77 dividend per common share.

As of March 31, a public ownership report showed four members of the Sy family, who are also SMIC directors, owned 265.885 million common shares, or 22.073 percent. At P7.77 dividend per SMIC common share, they received P2.066 billion.

Of the P2.066-billion dividend, P37.093 million went to Sy Sr. for his direct holdings of 4.774 million common shares, or 0.40 percent; P665.331 million for Teresita’s 85.628 million common shares, or 7.11 percent; P681.356 million for Sy Jr.’s 87.691 common shares, or 7.28 percent; and P682.147 million for Harley’s 87.792 million common shares, or 7.29 percent.

SMIC can well afford to pay even more than P7.77 per common share in dividends if the market rules are strictly followed.

As of March 31—the end of the first quarter – SMIC reported P213.202 billion in retained earnings. Of the total, the company said it had set aside P36 billion for various projects, leaving it with an unrestricted surplus of P177.202 billion.

Four other members of the Sy family who are not directors directly owned 306.249 million SMIC common shares, or 25.424 percent. Their direct holdings and the cash dividends which the SMIC paid for were as follows: P297.459 million for Felicidad’s 38.283 million common shares, or 3.18 percent; P768.769 million for Hans’ 98.940 million common shares, or 8.21 percent; P768.769 million for Herbert’s 98.941 million common shares, or 8.21 percent; and P544.556 million for Elizabeth’s 70.084 million common shares, or 5.82 percent.

The P7.77 dividend paid by SMIC followed the company’s distribution of 50-percent stock on Aug. 18, 2016.

Whether it was only a coincidence or not, SMIC closed the session on Friday at P777, when the company’s cash dividend was P7.77 per share. The stock opened trading at P780 and averaged at P777.95 for the day, according to the market report posted on the website of the Philippine Stock Exchange.

SMIC hit a 30-day high of P800 and a month’s low of P705.

Debt payments
In its first quarter financial filing, SMIC explained that it used its appropriated retained earnings of P36 billion for “debt servicing.”

SMIC was referring to $400 million for “debt servicing” this year, or P18.8 billion, computed at an exchange rate of P47 to a US dollar. In addition, $180 million of long-term debt, which it said was equivalent to P8.2 billion, was also included in “debt servicing.” The appropriated P36 billion retained earnings also included new investments of P9 billion, which SMIC began in 2016, and are intended to last until 2020.

In an explanatory note, SMIC said: “Unappropriated retained earnings include the accumulated equity in net earnings of subsidiaries, associates and joint ventures amounting to P162.285 billion and P154.731 billion as of March 31, 2017 and Dec. 31, 2016, respectively, that is not available for distribution until such time that the Parent Company receives the dividends from the respective subsidiaries, associates and joint ventures.”

Due Diligencer’s take
Here is one problem that the Securities and Exchange Commission (SEC) may want to resolve for the sake of public investors: How could the regulatory authority impose the market rules on full disclosure if the subsidiaries and associates are not listed?

If these non-listed subsidiaries and associates would not be as transparent as their parent companies, it would be difficult for the SEC to go after them.

How could the SEC or the Philippine Stock Exchange require these non-listed entities to file their quarterly financials when regulators should and must treat them like other private companies?

These questions especially apply to subsidiaries of listed companies that are based in other countries, making it next to impossible to look into their financial performance in a given period. Being non-listed, they file only audited annual reports to the SEC in the country where they are based.

Hopefully, the SEC would make it easy for the public investors to analyze the listed stocks by enabling them to study the financial performance of non-listed subsidiaries. Does the SEC have the power to require these non-listed subsidiaries and associates to also file their quarterly financial reports? Just asking.


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