FIRST Pacific Co. Ltd. belongs to the Salim group of Indonesia but is based in Hong Kong . Despite being a foreign conglomerate, it dominates various industries in the Philippines such as telecommunications, electricity and water delivery. It also has major exposure in infrastructure as operator of the North Luzon Expressway.
As a major investor, First Pacific has not much to offer in terms of foreign capital inflow because it operates on borrowings. The Philippine Long Distance Telephone Co. (PLDT), which the Indonesians own in partnership with the NTT Group of Japan, spent P6.26 billion in financing costs in 2015, an increase of 17.6 percent from P5.32 billion in 2014.
With its consistent profitability, PLDT is able to pay such financing costs and may even afford to borrow more. In clarifying a report written by Louella Desiderio in The Philippine Star, it confirmed the paper’s story that “we may need [an]additional P5 billion to P7 billion of loans in the second half of the year.”
Due Diligencer is focusing on PLDT as First Pacific’s showcase in how to go into business in the Philippines with less capital while repatriating more in the form of dividend to its stockholders in Hong Kong if not in Indonesia.
For public consumption
As one of the most profitable companies listed on the Philippine Stock Exchange, PLDT is compliant with the rule on retained earnings.
Said rule, implemented by the Securities and Exchange Commission, prohibits a company from maintaining in its books retained earnings in excess of 100 percent of the value of its paid-up capital. Whether this should be based on a par or market value, the distinction is not a matter for Due Diligencer to discuss in this piece.
The few public investors who own PLDT common shares are, perhaps, fully satisfied with the dividend due from the common shares they hold. But do they know how the Philippines’ largest telecommunications group raises the money to pay them?
It can be assumed that the NTT Group, consisting of NTT Communications Corp. and NTT DoCoMo Inc., JG Summit Holdings Inc. and even the Social Security System (SSS) know that PLDT uses its profit only to “partially” meet its financial obligations, including those pertaining to dividends. The use of quotation marks is to emphasize that PLDT needs far more than annual net profits to stay generous with its money.
Because the public outside PLDT may not be well aware of the company’s financials, Due Diligencer pieced together some significant numbers contained in disclosures posted on the website of the Philippine Stock Exchange.
Profits vs borrowings
PLDT reported net income of P22 billion in 2015, down 35.2 percent from P34 billion in 2014. This came about despite an increase in revenue to P171.1 billion from P170.8 billion. The numbers were culled from a consolidated financial filing audited by SGV and Co.
Consolidated means the numbers included those of PLDT’s subsidiaries.
As reported in the second paragraph, PLDT’s “financing costs” amounted to P6.26 billion, or 28.3 percent of net income, in 2015 and P5.32 billion, or 15.7 percent of net income, in 2014. The company’s outstanding debt as of end-2015 totaled P160.9 billion.
Because it is profitable, PLDT is able to maintain in its book retained earnings of P6.2 billion as of Dec. 31, 2015 and P17.03 billion as of Dec. 31 2014. Why so small an amount of retained earnings when the company reported total net income of P56.16 billion in the last two years?
PLDT provided the answer in its own disclosure. “We were able to pay out approximately 100 percent of our core earnings for seven consecutive years from 2007 to 2013 and approximately 90 percent of our core earnings for 2014,” it said in a PSE posting. “In 2015, we are paying out dividends of approximately 75 percent of our core earnings.”
As a matter of fact, PLDT also disclosed the use of “free cash flow of P27.8 billion and net debt proceeds of P27.3 billion” for “cash dividend payments of P32.5 billion, consisting of final regular and special cash dividends in April 2015, and interim cash dividend in September 2015.”
By the way, PLDT is scheduled to pay dividend of P57 per common share on April 1. Again, to be able to pay its stockholders P12.3 billion due their holdings, it has to incur more debts. Of the total, P3.15 billion, or about $67 million at P47 to a US dollar, will go to First Pacific as indirect owner of 55.2 million common shares held by three subsidiaries.
ERRATUM. In last Monday’s Due Diligencer, I reported that businessman William Gatchalian owns Puregold Price Club Inc. and Cosco Capital Inc. I was wrong. Businessman Lucio Co and his family are the majority stockholders of both companies.
I am sorry for the error. I may still be in mourning over the death of a younger sister on March 2, two days before my birthday on March 3. But her passing is not an excuse for my serious reporting error.
Anita, who died of cancer, even invited me and another sister to celebrate our birthdays with her in her family’s house in Apalit during the celebration of her 62nd birthday on Oct. 29 last year.
At the last minute, I decided not to mark my 69th birthday with her at her house. Instead, I joined my Thursday MWF group’s regular weekly breakfast, this time held at a Pancake House branch along Tomas Morato in Quezon City. (The three letters stand for Media With Friends.)
I can only thank so much our relatives and friends for expressing their sympathy over the loss of a member of the family.