‘Unusual’ relationship among subsidiaries

Emeterio Sd. Perez

Emeterio Sd. Perez

IT’S time to accommodate the readers of The Manila Times who, from time to time, either email their thoughts on the topics taken up in this space or post them on this paper’s website.

In Due Diligencer’s previous piece, I purposely did not explain the sale by foreign investors of P39 billion worth of stocks for fear of causing panic among the public. Besides, I also did not want to speculate on the reason or reasons why foreigners decided to sell their holdings.

But then, Bob Warner, a regular reader, read that story and volunteered an analysis, which could be the best explanation for foreigners’ exit from the local stock market.

He wrote: “What caused foreign investors to pull out? “Quite simply, they anticipated a repeat of the 97’ Asian Flu, and didn’t want to get caught “holding the bag”, as it were, this time around.

“The Tom Yum Gong event began in Thailand 18 years ago. This time it began with China with some bad monetary policy decisions made by the PBC [People’s Bank of China], an unknown commodity.

“My friends who played the market here say they will wait until equity trading volatility settles down before jumping back in, but as it was foreign money lifting the market upward in the first place, relying on local investors to restore order may take a while.”

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Ben Hur Ong, on the other hand, wrote in connection with the “P0.80 per share dividend when the stock’s price was only P0.55 per share.” He was referring to a dividend disclosure posted Sept. 4 by STI Education Systems Holdings Inc. on the website of the Philippine Stock Exchange.

The postings need some clarification because of the confusion these filings could have triggered.

In the first place, the dividend was not P0.80 per share but “P0.08 per share or an aggregate amount of P250 million.” It was declared or approved by the board of “STI Education Services Group Inc. or STI ESG” and not by “STI Systems Education Holdings Inc.” or STI Holdings.

Let us establish the relationship between STI ESG and STI Holdings to clear up any confusion which may arise from the identification of the two companies in one posting. The public would perhaps conclude that STI ESG and STI Holdings are the same when they are not.

Here is what could be “unusual”—the relationship among subsidiaries belonging to a group of companies. In the case of A. Soriano Corp. (ASC), its wholly owned unit, Anscor Consolidated Corp. (ACC), owns more than 50 percent of its outstanding shares, which is ironic because ACC is an ASC unit.

A similar ownership structure exists between STI ESG and STI Holdings because while the former is 100-percent owned by the latter, it also holds STI Holdings shares.

As in ASC and ACC, STI ESG-held shares in STI Holdings are treated in STI Holdings’ financial filing as treasury shares. The latter said so in a filing under “Cost of Shares Held by a Subsidiary”: This account includes 502,308,895 STI Holdings shares owned by STI ESG as of March 31, 2015 and 2014 amounting to P500.00 million which are treated as treasury shares in the consolidated statements of financial position.”

Going back to Mr. Ong’s query, STI ESG was to distribute “P0.08” per share to holders of 3.08 billion STI ESG shares. In other words, the entire P250 million dividend payout would go to STI Holdings being the parent company of STI ESG.

On the other hand, the stock price of P0.55 that Mr. Ong cited was not that of the unlisted STI ESG but referred to the share price of STI Holdings, which is the one that is listed.

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By the way, while the stock price of a listed company should go up on the distribution of dividend, it does not necessarily follow that it has something to do with the amount of dividend either in cash or in stock.

Again, dividend expressed in percent may appear big when it is not. For instance, a 100 percent cash dividend would be based on par value, which more often than not would be P1. It is not based on the market price. Otherwise, a 100 percent cash dividend of Philippine Long Distance Telephone Co. would be P5 per share, which is the par value of PLDT common shares and not P2,444, which was PLDT’s closing price on Friday.

So next time you read a disclosure on dividend expressed in percent, be sure to consult PSE’s website for the stock’s par value.



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