LET the public judge for themselves if they got a fair deal from Oriental Peninsula Resources Group Inc. when they bought shares the company sold to them under an initial public offering.
Oriental Peninsula, which carries the market symbol ORE, listed 1.45 billion shares on Dec. 19, 2007, representing its total issued and outstanding capital stock. The listed shares included 300 million IPO shares, which the company sold at P2.68 each.
In August 2007, Oriental Peninsula issued 752 million ORE shares at P1 each as payment for 2.54 million shares, owned by the majority stockholders of Citinickel Mines and Development Corp. With the share swap, Oriental Petroleum ended up owning 94 percent of Citinickel.
From the sale of 300 million ORE shares to the public, Oriental Peninsula grossed P804 million, for a total premium over the P1 par value of P504 million. In its financial filing, the company reported the premium, minus listing expenses, as additional paid-in capital (APIC) of P445 million.
The public should be asking why the price discrepancy? Why P2.68 per share for the public and P1 for corporate investors?
APIC as stock dividend
Under the rules on dividend implemented by the Securities and Exchange Commission, APIC used to be declarable as dividend, either in cash or in stock. The rules had changed under the SEC chairmanship of lawyer Fe Barin, who saw no justification in returning to stockholders in cash the amount they paid for their participation in the ownership of a company.
As a result, the SEC’s five-person regulatory body amended the rules. Instead of allowing a listed company to distribute APIC either as cash or stock dividend, Barin and company decided to limit the declaration of APIC only as stock dividend.
Going back to Oriental Peninsula, the public may wonder why the company’s APIC, which rightly belongs to them, should be shared with other stockholders when this is declared as stock dividend.
The rules may be disappointing. But to paraphrase the law, the rule is the rule and it applies to all stockholders. If ever the board of Oriental Peninsula approves the declaration of P445 million worth of APIC shares as stock dividend, the public would be entitled to only 10.4 percent, or P46.4 million, while the majority stockholders would receive P399 million.
By the way, as the rules provide, APIC is declarable as stock dividend but only in cases when a financially distressed company is undergoing capital restructuring and its APIC, if it has any, is used to wipe out its accumulated deficits.
Oriental Peninsula has been issuing shares to big investors but without premium over the P1 par value, apparently because the stock has not been doing well.
On Feb. 3, ORE opened trading at P1.19, which was also the stock’s session high, then fell to a low of P1.09 and closed at P1.11. It even fell to a month’s low of P0.81, despite its climb to a 30-day high of P1.45.
The public investors are the biggest losers with ORE price’s fall. Their acquisition at P2.68 per share translates to a loss of P1.68, or a total of P330 million; that is, if they have not yet sold their IPO shares.
Oriental Peninsula has 2.9 billion outstanding shares, of which 1.45 billion are listed. It claimed in its posting a free-float level or public ownership of 44.28 percent. Computed on market capitalization of P3.42 billion on Wednesday, the company’s public stockholders had a paper wealth of a combined P1.5 billion.
In the first three quarters of 2015, the net income of Oriental Peninsula dropped to P332.2 million from P998.46 million in the same period in 2014. This increased the company’s retained earnings to P3.1 billion. As of Sept. 30, 2015, it reported current assets of P2.07 billion against current liabilities of P70.9 million.
In a general information sheet (GIS) it submitted to the Securities and Exchange Commission, Oriental Peninsula listed 3.5 billion shares as its authorized capital stock, of which 2.9 billion shares are paid up as of December 2015.
Of its paid-up capital, 24 Filipino stockholders hold 2.34 billion shares, or 81.4 percent; five British investors hold 526 million shares, or 18.606 percent; and two other foreigners whose nationalities were not identified hold 10.58 million shares.
The same GIS listed Oriental Peninsula’s corporate stockholders, who bought ORE shares at P1 each, as follow: Redmont Consolidated Corp., 700 million shares, or 24.3 percent; Citimax Group Inc., 479.9 million shares, or 16.7 percent; Golden Spin Realty Inc., 422 million shares, or 14.7 percent; Suncorp Mines and Development Corp., 226.5 million shares, or 7.9 percent; Billion Apex Development Ltd., British Virgin Islands, 75 million shares, or 2.6 percent.
Fuying Holdings Ltd., BVI, Xinhua Development Ltd., and Yu Rong Ltd. hold 150,000 shares each, while Laguna Distillery Corp. owns 50,000 shares.
These corporate stockholders are lucky. Had they bought their ORE shares also at P2.68 as the public did, they would have been the biggest losers. As of Wednesday, however, they were still ahead by a few centavos on ORE’s close of P1.11.