Tantocos diversify old Rustan’s to SSI Group

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Emeterio Sd. Perez

Emeterio Sd. Perez

SSI Group Inc. became a public company only in November this year. In the first nine months, it reported consolidated net income of P673.6 million, up 49.3 percent from P451.2 million in the same period last year.

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Net sales increased 15.6 percent to P10 billion from P8.7 billion in 2013. Gross profit during the two comparable periods amounted to P5.56 billion and P4.33 billion.

With this laudable financial performance, the public has something to look forward to—such as dividend payments in the form of either cash or stocks. But this financial windfall may not easily happen as SSI Group had to pile up more retained earnings to be able to pay handsome dividends.

Due Diligencer decided it was time to do a profile on the company, which may be one of the listed stocks worth watching for its retained earnings or surplus.

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The Tantocos took SSI Group Inc. public in November via the sale of 993.9 million shares, which represent 30 percent of 3.3 billion outstanding shares of the family-owned holding company.

The three letters in the corporate name stand for Store Specialists Inc. which, along with 16 others, is a subsidiary of SSI Group. All these units, according to a filing, “are in retail business and hold exclusive distributorship of certain brands.”

At the price of P7.50 per share, the initial public offering grossed P7.5 billion. Such was the huge proceeds from the public sale of a company’s shares but it did not all end up with the company. Most of the proceeds of the share sale, that is, P5.2 billion or 70 percent, went to SSI Group. But where did the remaining P2.2 billion, or 30 percent, go?

Before Due Diligencer presents the results of a series of computations, here is a clarification. This piece is not intended to put the Tantocos in a bad light or to infer that they took advantage of the public. Far from it. As a matter of fact, the public investors should be happy to have shared from SSI Group’s profits, if indeed the company is not only listed but also public.

The public only has the filings to examine if they want to know how SSI Group became a listed company. In one of these postings, the company disclosed the composition of the offered shares as follows: 695.7 million primary shares; 168.5 million secondary shares; and 129.6 million overallotment shares. All these shares were sold at P7.50 each.

As defined, primary shares are part of the unissued shares of a company’s capital stock while secondary shares are owned by existing stockholders. Overallotment shares are generally and should be intended to fill up the need for more shares when the IPO allocations fail to meet demand.

As the selling stockholders, the Tantocos not only sold 168.5 million shares they owned but also availed themselves of the overallotment shares. At P7.50 each, they grossed a total of P2.2 billion from the sale of 298.15 million shares. If they paid at the par value of P1 per share, then the family could have generated for themselves gross profit of P1.9 billion.

Close to P2 billion in profits represented what should be the goodwill that the present generation of Tantocos deserved in sharing with the public the ownership of their retail chain and the stores’ profitability. As of Sept. 30, 2014, SSI Group reported retained earnings of P2.8 billion.

Ownership profile
Perhaps the older folks, including this writer, would still associate Rustan’s with the big brands, meaning it sells only branded products. Many of them, if not all of them, knew Rustan’s as a combination of two family names, which are Rustia and Tantoco. But to Starbucks’ young patrons, who take too long to finish sipping their cup of coffee, Rustan’s may not ring a bell either as a corporate name or as a chain of department stores.

There is one reason for starting the profile of SSI Group Inc. with Rustan’s. If this old exclusive brand store is a creation of the old Tantocos, then SSI belongs to the new and younger set of the old family. As Casual Clothing Specialists Inc., SSI Group was only a subsidiary of Store Specialists Inc.

Then the Tantocos implemented a restructuring of the store group that effectively reversed the corporate chart of the family’s businesses. SSI the parent became the subsidiary, while Casual Clothing Specialists, renamed as SSI Group, then an SSI unit, assumed the role of a holding company.

Then the family decided to sell shares to outsiders. In the beginning, they were reported to have unloaded 993.86 million shares, equivalent to close to 30 percent of outstanding shares.

For a listed company to also qualify as public, at least 10 percent of its outstanding shares should be owned by the public. SSI Group must be “more” than public because it has topped the requirement by 20 percent.

This is how it happened: As a group, the Tantocos own 220.1 million SSI shares, or 6.6 percent, while their holding companies control 2.2 billion SSI shares, or 66.6 percent. With their total holdings of 2.4 billion, they control 72.8 percent.

By the way, the computations of the ownership profile of SSI Group that would tend to show the public owning 27.1 percent were based only on available disclosures posted on the website of the Philippine Stock Exchange. As of yesterday, the company had yet to file its list of top 100 stockholders and public ownership report.

esdperez@gmail.com

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