Readers write or comment to seek some clarifications on certain issues that I take up in this space. It is seldom that they suggest topics for Due Diligencer. But when they do, I could not ignore their suggestions. I did, in fact, admit to Karl, a reader of The Manila Times, that I was not in a position to analyze the possible effects of the Greek financial crisis simply because I am not an expert on the subject.
Then came another reader who asked: “Can you tell us what’s going on with SMC?”
The acronym stands for San Miguel Corp. The question came from Teddy Sevilla, also a reader of The Manila Times. To be frank with him, I am also wondering what could be happening inside San Miguel that the public ought to know. It seems, though, that every event affecting SMC has been disclosed thru postings on the website of the Philippine Stock Exchange (PSE).
Like the rest of the public, I also rely on filings for information although sometimes I ask some sources for crucial data about listed companies. In the case of SMC, I must admit I have long ago lost my “inside connections” within the company.
Yet, if only readers of The Manila Times would review SMC’s disclosures over the years, they would see where San Miguel could be going. There is no other way for the company to go but expand. I did not say “up” to refer to the direction that the company’s stocks would take.
Going back to Sevilla’s poser as to what’s going on with SMC, I suggest that he review the company’s capital stock. When he emailed me that “I have seen my investment in SMC plunge to less than half at today’s valuations,” I could only sympathize with him but not with Ramon Ang, who is SMC vice chairman, president and chief operating officer.
Back in July 2013, Ang bought, in a series of transactions, 3.4 million SMC shares at an average price of P86.19 each. At SMC’s closing price of P60 on July 20, 2015, he lost an average of P26.19 per share, or P88.96 million. That’s a huge paper loss if he is still holding those shares.
But I do not pity him because he could potentially cover said paper loss from his pay and perks as one of SMC’s highest-paid executives, whose compensation as a group would amount this year to P334.3 million, which could even go higher than the P389.6 million and P362.1 million that he and the other top execs received in 2014 and 2013, respectively.
If you go by the history of SMC’s capital-raising activities, you would not invest in SMC common shares unless, of course, you happen to be a company insider and exposed to the stock for loyalty. As investors, you do not go by the brand but by fundamentals, the most basic of which are contained in financial filings.
Consider this: Has anyone ever read the composition of SMC’s outstanding capital stock? Perhaps the company did not mean what it actually said in a PE posting on July 20 but which sent the wrong message to the public: That it had 2.4 billion outstanding common shares and “amount of debt outstanding” consisting of SMCP1, 279.4 million shares; SMC2A, 721 million shares; SMC2B, 90.4 million shares; and SMC2C, 255.5 million shares.
Again, I have to assure the public that SMC did not mean the way I interpret the contents of its disclosure.
Then you turn to SMC’s first-quarter financial report, which would tell you that the company valued its preferred shares at P10.2 billion. If you are a CPA or a lawyer who specializes in equities, you may not agree with me that preferred shares are wrongly classified as a form of ownership. To me, they are debts and as such should be defined as liabilities.
As liabilities, why are preferred shares reported in financial statements under equity? Doesn’t SMC pay interest on them but, like other issuers of preferred shares, consider said payments as dividends?
Yes, it is dividend because the classification allows SMC to source the money from retained earnings, the reason why the company has so many kinds of preferred shares in its outstanding capital stock. More on this in another piece.