PAL, the airline, keeps flying high

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Emeterio Sd. Perez

PAL Holdings Inc., a listed company that belongs to the group of companies of businessman Lucio C. Tan, has 24,836,567,685 issued common shares, of which 55,589 are treasury shares. In a public ownership report (POR) on June 30, it reported 24,836,512,096 outstanding common shares.

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In the same posting on the website of the Philippine Stock Exchange (PSE), it listed the public as holders of 2,539,223,866 common shares, or 10.224 percent of the total. Tan and 10 other members of the 11-person board owned a combined 8,000 PAL common shares.

Apparently, PAL Holdings had credited Trustmark Holdings Inc., its principal stockholder which Tan also owns, with 22,297,280,230 common shares, or 89.776 percent of the total.

Thus, Trustmark-owned 22,297,280,230 PAL common shares plus the publicly held 2,539,223,866 common shares equal to 24,836,504,096 PAL common shares. That figure, plus 8,000 shares directly owned by 11 insiders, equal to 24,836,512,096 outstanding PAL common shares.

In an annual filing as of Dec. 31, 2016, PAL Holdings had authorized capital stock of 30 billion shares, with par value of P1 per share. As of March 31, it had accumulated a deficit of P18.822 billion, up from P17.757 billion as of Dec. 31, 2016.

Quasi-reorganization

PAL Holdings has long been undergoing quasi-reorganization, primarily wiping out its deficit that had widened to P18.822 billion as of March 31, and still widening.

The rehabilitation of PAL Holdings required a drastic reduction in the par value of its capital stock, which would result in a reduction surplus. As in other companies subjected to rehabilitation, the process would require the sacrifice of stockholders because of the reduction of the par value of their holdings.

By adopting a par value of 45 centavos, PAL Holdings’ authorized capital stock of 30 billion shares with par value of P1 will be reduced to P13.5 billion.

Due Diligencer is not using PAL Holdings’ quasi-reorganization data. Instead, the analysis is based on the company’s PSE posting in which it listed 24,836,512,096 outstanding common shares, which, when multiplied by the proposed new par value of 45 centavos, would be equal to a reduction surplus of P11,176,430,443.

The reduction surplus of P11,176,430,443 plus additional paid-in capital or APIC of P7,308,860,000 would give PAL Holdings P18,485,290,443 that it could use to reduce its deficit of P18,821,939,000 as of March 31.The process would leave PAL Holdings a deficit of P336,648,557.

As of March 31, PAL Holdings said it still had “subscription receivable amounting to P1.81 billion,” which would be more than enough to cover the company’s remaining deficit of P336,648,557.

Receivership

The above presentation is not intended to preempt PAL Holdings in undertaking it rehabilitation. This is the reason Due Diligencer used the numbers listed on the PSE website and the data the company used in its unaudited first-quarter financial filing.

Rehabilitation is only part of the entire process of reviving financially distressed companies, whether or not their shares are listed.

Time was when receivership was under the jurisdiction of the Securities and Exchange Commission. In 2001, the amended securities law took away certain functions of the commission and transferred them to regular courts.

Rehabilitation only followed the suspension of payments. This meant that a group of stockholders had the option of petitioning the SEC that it be allowed to suspend payments of liabilities.

Only when the SEC decided to grant the petition would the hearing officers, who used to act as judges, form a receivership committee. This committee would determine the feasibility of either putting a company back to life or ordering a liquidation.

Due Diligencer’s take

PAL Holdings has only one subsidiary in Philippine Airlines Inc., which, in turn, owns a number of units. It asked the SEC that it be placed under receivership and eventually under rehabilitation in 1998, after it failed to pay debts that amounted to more than $2 billion.

In 2007, it sought an exit from receivership and opted to undertake its own rehabilitation. Lawyer Perfecto R. Yasay Jr. was then the SEC chairman.

Is PAL Holdings on its way to financial recovery?

As of March 31, PAL Holdings had total current assets of P30.146 billion against total current liabilities of P64.225 billion. As of Dec. 31, 2016, it had current assets of P29.545 billion against current liabilities of P59.244 billion.

The company reported net loss of P1.157 billion in the first quarter of 2017 against net profit of P2.98 billion in the same three-month period in 2016. This translates to loss per share of P0.05 in the first quarter this year and earning per share of P0.13 in the comparable first quarter of 2016.

PAL Holdings recorded such net profits on revenues that increased to P33.326 billion in the first quarter of 2017 from P29.124 billion in the same period in 2016.

With Kapitan Lucio manning the cockpit, there could still be hope for PAL Holdings’ public stockholders to recoup their investments. In fairness to him, he inherited a losing airline from the government, which used to own PAL.

esdperez@gmail.com

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