IT is seldom that Due Diligencer seeks makes any suggestion to the Securities and Exchange Commission (SEC). And when it does, its only intention is to make the public investors, who trade on listed stocks, aware that there is a government watchdog to turn to for redress when they feel that they are being taken for a ride by the majority or controlling stockholders of public companies.
The SEC has five top officials who make up its five-person regulatory body. As the securities industry regulator, it is tasked to watch for omissions and errors in the filings of companies whose shares are listed at the Philippine Stock Exchange (PSE). Its officials’ vigilance could be a big help in going after listed companies that intentionally hide or omit material information that affects the prices of their listed shares.
If, however, you were to analyze certain filings, you would notice some omissions that do not necessarily violate the disclosure rules. For example, if a company has been piling up losses year after year and could not explain its huge accumulated deficits, would it be guilty of nondisclosure of material facts? Definitely, it could not be accused of any offense.
In the previous piece, Due Diligencer questioned the way MRC Allied Inc. has been reporting its executive compensation, and this column described the filing as puzzling. This time, this column is not raising any issue surrounding the pays and perks of Benjamin Bitanga, chairman, president and chief executive officer, and his fellow executives. Instead, this follow-up piece is about the company’s failure to recover from its unprofitable operations that by December 31, 2012, MRC reported deficits of P1.2 billion, which increased to P1.299 billion by September 30, 2013.
Where did Bitanga and his fellow executives go wrong that MRC continues to suffer losses? Since they are not expected to provide the answer, Due Diligencer is suggesting that the SEC look into MRC’s financials. The call does not mean it doubts the audited financial reports of the company or its nine-month financial filing for 2013. No. This column only realized after going over MRC’s certain transactions that to better inform the public on what’s really happening to the company, the SEC should intervene and assert its regulatory powers by reviewing the company’s financial performance reports.
What really went wrong inside the company that its small stockholders may already be losing hope that they would ever recover their original investment of P3 per share in MRC’s initial public offering or IPO in 1995? MRC is now trading below P1 per share. From a year high of P0.138, it has dropped to a P0.070 on January 8, 2014.
Should the SEC listen to the suggestion, then its examiners should look into the conversion of MRC’s debts into equity, to determine if this should come ahead of the proposed reduction in the par value of capital stock to P0.10 from P0.20. Then, they could also reexamine MRC’s overpayment by P156.1 million of its obligations via “transfer of real estate projects with carrying value of P278.4 million to Asian Appraisal Holdings Inc. in full settlement P122.30-million obligations in 2002.”
The big puzzle though is this: How can Asian Appraisal pay the overpayment to it by MRC of P156.1 million when it is also “in financial difficulty” as MRC said in its filing. The SEC should now require MRC to produce the board approval of the “overpayment” to see who voted for it and who did not. If Benjamin Bitanga, MRC chairman, president and chief executive officer, led the “yes” votes, then the SEC should either require Bitanga to explain his role in Asian Appraisal Holdings having been chairman and president of Asian Appraisal Co. (The filing was did not say if Asian Appraisal Co. is the same as Asian Appraisal Holdings Inc. (If it is, Due Diligencer probably missed it.)
Perhaps, in the process of SEC’s reaudit, the regulator’s examiners would find out what went wrong with MRC. Should it be placed under a rehabilitation receiver to prevent its farther fall by stopping the payments of its burgeoning liabilities? The problem is who would seek the receivership for MRC without any opposition from big insiders such as the Bitanga group.
With or without receivership, Bitanga should to tell the public the timetable he and his team of managers need to bring MRC back to profitability.
Meanwhile, the SEC should not approve any change in MRC’s capital stock that would allow Bitanga and his group to totally control the company via the conversion of MRC’s P877.73-million liabilities to Menlo Capital Corp. into equity equivalent to 51.54 percent of the resulting outstanding capital stock.