HAVING listed 1.2 billion shares, representing its entire outstanding capital stock, on the Philippine Stock Exchange, SBS Philippines Corp. takes seriously the welfare of public investors. When one of them, a reader of
The Manila Times, questioned certain items in the company’s disclosures, the company immediately responded.
Due Diligencer is sharing the company’s letter in full for the sake of the public investors who may be owners of SBS shares:
Dear Mr. Perez:
We refer to the questions raised in your Manila Times column of 11 November 2016 concerning certain disclosures of SBS Philippines Corp. A shareholder has inquired about this and we share with you our response.
Use of proceeds from sale of investment assets
The company has not changed its plan to re-invest the cash proceeds from the sale of its properties for working capital and in value-creating investments. It is continuously exploring acquisition and investment opportunities that would add scale or value to the company and have the right price and return of capital. The target priority acquisitions will probably provide for similar or better returns relative to the properties sold, or involve related businesses that will complement the company’s growth targets and long-term goals.
However, to the extent that part of the sales proceeds is not immediately required, the company deemed it beneficial to use its excess cash to pay down its outstanding short-term bank liabilities that were used to finance its working capital requirements, to generate savings on finance charges as its bank loans commanded a higher interest rate compared with its depository placements. The company had earlier placed the excess funds from the sale in short-term money market bank deposits.
The debt reduction has generated savings of P37.5 million in finance charges as of the third quarter of 2016, compared with the previous year’s comparable period. Clearly, the debt payment proved to be a more productive use of the cash proceeds while the company continues its search for the right investment opportunity.
Meanwhile, in the press release on the 2016 half-year results it issued on 11 August 2016, the company highlighted the provisional use of the excess funds by stating that “the excess cash was used to reduce debt consisting mainly of short-term liabilities while the company evaluates its investment options in line with its growth strategy.”
Clearly, the repayment of the short-term loans was an interim measure for the better management of cash that was not immediately required. The description of these bank loans in terms of amounts, interest rates, and utilization for working capital requirements were specifically disclosed under Note 10 of the interim financial statements for the periods ended 30 June 2016 and 30 September 2016, which were released on 11 August 16 2016 and 10 November 2016, respectively. Such bank loans were obtained from Metrobank, Security Bank and BDO.
The company retains its financial flexibility as it has available significant omnibus credit lines to support and provide (and effectively restore) the funding or cash resources to provide the financial backing to carry out its investment ventures when the company has screened and identified specific acquisition targets to be pursued in earnest.
In sum, the use of sale proceeds to repay short-term loans was done with the intention to obtain the optimum benefit to the company by generating financial savings in the interim and improving net income. At the same time, the company evaluates the appropriateness of its investment options as high-quality acquisitions are neither common, nor do they occur regularly or predictably.
Meanwhile, given the availability of various credit facilities to the company and its strong economic cash flow, the management is confident it can readily meet the necessary funding to enable it to pursue its acquisition and investment strategy credibly and with a realistic chance of success in a competitive environment.
Share value profile
On certain statements made during the company’s IPO (initial public offering) listing in August 2015 regarding the IPO price level as being undervalued, we wish to highlight that since their trading debut in August 2015, our shares have continuously been trading at more than double its IPO price for the last 15 months. Meanwhile, the reference to the property profile of the company should be considered in the context of the desired value positions taking into account the supply constraint in sizeable urban landholdings, the properties’ underlying values and the eminent property demand in the locality.
We thank you for your interest in the company.
Very truly yours,
Regina Simona B. de Guzman
Investment Relations Officer
I thank SBS Philippines for its letter in which it explains the company’s financials and its cautious investment strategy. Its reactions to an email from depressed investor, or DI as I had named him, show its concern not only for its majority stockholders but, more importantly, for the public. I hope DI is reading this piece.