THE Tantoco-owned SSI Group Inc. has successfully raised P5.2 billion from the sale of 695.7 million SSI shares at P7.50 per share.
For the Tantocos, who own the Rustan’s chain of department stores, the share offering proved even more profitable because they grossed P1.26 billion from the sale of 168.52 million SSI shares that they owned.
Minus their investments at P1 per share, their gross profit amounted to P1.09 billion, the goodwill value for nurturing the growth of their stores over several decades.
The Tantocos, particularly the younger generation of the family, should thank the public for their newly formed partnership with them. As a result of going public and listing its entire capital stock on the Philippine Stock Exchange, SSI Group became financially strong.
Hopefully, SSI Group sustains its growth following the IPO. The question is whether or not it expand its reach based on the company’s recent financial posting.
Big boost to equity
Financial postings show why the public deserve to be appreciated for buying the SSI Group’s 695.7 million primary shares and 168.5 million shares owned by the Tantocos. The IPO, for one, boosted the company’s equity by a huge 139 percent to P9.1 billion as of March 31, 2015 from only P3.8 billion as of Sept. 30, 2014.
How this happened is not difficult to understand. Among the more significant factors that contributed to SSI’s strong equity was the IPO, which created additional paid-in capital (APIC) of P4.05 billion.
As SSI Group’s majority stockholders, the Tantocos have increased their holdings without paying premium for their acquisitions. Premium here refers to the difference between the acquisition price and the par value.
By selling 168.5 million SSI Group shares which they bought at P1 par value, they scored more than P1 billion in profit, thanks to the public for patronizing the share sale.
On the other hand, in acquiring 864.2 million SSI shares at P7.50 each, the public paid a premium of P6.50 per share over the par value of P1. The resulting APIC boosted the company’s equity, which as of March 31, 2015, stood at P9.1 billion.
Irony in APIC
Not one of the members of the Tantoco family contributed to SSI Group’s more than P4.05 billion APIC. The equity boost came only after the IPO that was already reported in the company’s audited financial report as of Dec. 31, 2014. SSI Group made the share sale to the public in late 2014. It did not report any APIC in 2013.
As buyers of SSI Group’s IPO, are the public investors the only ones entitled to claim ownership of APIC?
No. Because APIC belongs to the company, it belongs to all the stockholders of SSI Group. It could not be exclusively owned by any group, even the investors who paid premium over par in buying into a company.
This means that if SSI Group were to distribute APIC as stock dividend, the public would be entitled only to the extent of their holdings. If they own until today 26 percent of SSI Group’s outstanding shares, then they would get only 26 percent of P4.05 billion, or P1.05 billion, while the rest — more than P3 billion — would go to the Tantocos who control 74 percent of SSI Group.
By the way, a company is no longer allowed to distribute APIC as stock dividend. The Securities and Exchange Commission has already changed the rule after reviewing the policies on dividend. Its five-person regulatory body decided it was time to end the practice. What the stockholders paid for in buying a company’s shares should not be returned to them, was how then SEC Chairperson Fe Barin justified her stand on the APIC-as-dividend issue.
More for dividend?
Has SSI Group become more dividend-conscious with the participation of the public in the ownership of its capital stock? It seems so. If the public were to look more closely and decipher the numbers reported by SSI Group, they would discover that the company’s priorities have changed.
In its audited financial statement for the year 2013, SSI Group reported P2.13 billion in retained earnings. Of the amount, P1.29 billion fell under “appropriated,” possibly for expansion, and only P838.6 million under “unappropriated.” The latter would possibly mean the company reserved it for distribution as dividend.
SSI Group reversed said allocations in 2014. Instead of getting the bigger part of the pie, “appropriated” was allocated only P510 million while “unappropriated” had P2.6 billion. If the latter amount, referring to “unappropriated,” was to be distributed as cash dividend, the distribution would go this way: At 74-26 percent ratio in favor of the majority stockholders, the Tantocos stand to receive P1.94 billion and the public, who hold 26 percent, would be entitled to dividend of P680.42 million.
Of course, a company does not declare its whole surplus as dividend. The computation presented here is only to show the sudden reversal of priorities in the allocations of retained earnings by SSI Group, which was unfair to investor stockholders who paid premium above par value in buying into a company.