For some, any move that insulates the Manila Electric Company (Meralco) from the claws and clutches of political infestation is an occasion for flaring tinderbox tempers. For that matter, given last years insidious squabbles within the Meralco board, any that fortifies the existing equity configuration, one decidedly beneficial both to the greater capital market and the institutional fortitude and corporate independence of critical enterprises, inflames dormant pesky passions.
Damning intra-corporate credit extended internally among shareholders packaged with requisite unanimity agreements as well as a limited call option, one vocal critic described the internal loan as an “attempt to defraud the investing public”. Seething, the same likened the debt to “a clear case of large-scale estafa” – a patently criminal act.
In commercial parlance, such drool and venom spitted and spewn on efforts to solidify Meralco’s existing equity base are as colorful as cusses come. Note verbiage ranging from “circumvention”, “skirting”, “shortchanging”, “loophole”, and “duplicity” employed to prick and puncture legitimate capital processes.
The ranting, raving and even the threats of suits to coerce resultant tenders reappear like persistent gadflies. Never mind that no predicate tender exists much less a sale evidenced by transferred ownership of shares that compel subsequent tenders.
Against such acrimonious political polemic there is nothing illegal in the debt and limited warrant route recently taken to protect the integrity of investments in Meralco.
It is not uncommon to take the debt route where acquisition involves underlying control and corporate stability. After all, corporate peace is just as important. Possession is less important than solidity and steadfast capital bases. In an essential utility the criticality of the latter cannot be overemphasized given insidious hostile infestation had once shaken both corporate rafters and the general economy.
On the Securities and Exchange Commission tender requisites, where a tender for ownership in excess of 35% is made within a 12-month period, when no tenders exist, no subsequent tenders are required. To understand that we need to appreciate the logic of ownership at one end, and control at the other.
A tender is defined as “a broad solicitation to purchase a substantial percentage of a company’s registered shares for a limited period of time. The offer is at a fixed price, usually at a premium over the current market price contingent on shareholders tendering a fixed number of their shares.”
A purchase must exist. Without ownership transfers, no act can be considered a tender to either purchase or a contingent tender to sell.
Two things are important.
One, creeping acquisition is delineated within a 12 month period. To deny creeping acquisition would be to emasculate the capital markets by denying investors who want to infuse capital into a listed company.
Two, without the exercise of a call option ownership is NOT transferred. Thus no sale can be consummated forcing subsequent tenders. Shares subject of a loan transaction do not belong to the creditor unless requisite conditions kick in or a loan call demands payment. On the latter, to compel subsequent tenders the transfer of shares must be consummated within a 12-month period from the original build-up net of acquisitions in the open market.
Is the route chosen a slip through regulatory loopholes? Worse, is the move detrimental to shareholders and the capital markets in general? The answer to both is no. specially when the total volume shorn of open market purchases might be substantially below the requisite threshold.
Ownership does not necessarily imply control and vice versa. It would be folly to indiscriminately equate one with the other as is wantonly understood. Here is where most misconceptions from the generally un-initiated fester and where, by simplistically labeling the recent Meralco transaction as a basic “sale”, the tagging indicates a profound lack of understanding of capital market complexities.
One, the debt route prevents speculative pricing from affecting equity fortification. The prospect of a bidding war is detrimental as values escalate based on artificial forces. A prospective call option grants effective purchase rights but not expensive obligations until values reflect true worth.
Two, the debt route does not involve the bourse. Moreover, depending on the loan rates against costs of equity, Meralco’s resulting lower weighted average cost of capital should redound to its consuming public.
Because the debt route is non-invasive, it results in a more stable utility and this distinct benefit permeates to minority investors as much as it flows directly to the public. The conditionalities appended to the call option strengthen stability within capital structures, preventing hostile attacks. Thus, political risks diminish greatly and Meralco becomes more attractive both to investors and creditors including those left holding minimal but consequently better earning shares.
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Dean,
Curious. Do you own shares of any Filipino companies? I thought about making investments but when I studied the financials of a few companies, like PLDT, I came to the conclusion that these companies are operated like personal fiefdoms and little guys like me would likely get taken to the cleaners, an American expression describing a condition akin to having one’s wallet vacuumed. I feel more confident investing in Chinese companies.
Joe
Dear Joe,
Yes. From the time that I had allocations prior to IPOs when I was still an investment banker. These include Jollibee, San Miguel and ABS-CBN. But I’ve also lost big-time. When I say big-time, those are in amounts that could have bought a nice house in the villages in Makati.
One should not be passive investors simply waiting for dividends. I actively traded and had a monitor right on top of my desk that was directly linked to at least three traders in real time. It was nerve wracking, but the minute-by-minute peaks and lows was where money was to be had.
Dean
Dean of the major so called publicly listed companies in the Philippines most especially those in the main indexes, what is the percentage of the free floating common shares of each?
If this is not available where can we get this information?
That information would and could go along way in determining the true state of market pricing in the equity market in the Philippines.
Look at Meralco the big boys own huge blocks of shares. The little guy has no chance.
Now the GSIS that uses the pension funds of government employees should be banned from investing in the equity markets here and abroad.
It should simply invest in government debt paper.
The most insidious form of graft in this country is allowing the government access to entitlement taxes which are the source of the funds of SSS, GSIS, Pag-Ibig and PhilHealth.
Financial markets are for those who are professionally competent either at the retail or wholesale level. Not counting the dirigist economies in Europe, The U.S. and Canada do not allow their government run pension funds to invest in equity markets. The Social Security trust funds are simply lent to the Federal Government.
Trading in the financial markets is completely based on an individuals appetite for risk taking. Public funds should not be used in the casino economy.
Getting IPO allocations before IPO’s are sold is a perfect example. Favored groups take the bulk of the “fresh cut” The drum beating and limited number available for the general public will tend to cause prices to rise. Holding on too long will create paper loses. By the time the general public gets in it is the time to sell.
I personally prefer the forex markets here. Simply guess the correct fixed band that the BSP is working on and you can almost time the interventions of Rey Tetangco. Watch the prices of the oil futures and you can almost see the moves Tetangco allowing the peso to gain a little. There are a few long term futures contracts going out 5-7 years at $100 a barrel for WTI already. Plus we save on our dollar based interest payments leaving more money to steal by the government.
Increasing physical demand (mainly from Asia) plus declining production from old established oil wells will force Asian economies to allow their currencies to gain versus the dollar. Otherwise bubbles will be created in the asset markets.
Dean,
Yieeeeee, you Day Trader you!!!! I suppose you don’t have to be smarter than the WHOLE market to make money, just smarter than most. I don’t have the, ummm . . . courage . . . for your style of investing.
I don’t want to sit around and wait for dividends, exactly, but I want to be confident that I can hold and grow as the company grows. The reason China makes sense is, okay, the government has a hand in everything, but, bottom line, they want the investors to invest, so they assure a measure of stability and growth so that investors achieve their goals. In the Philippines, it seems to me the company moguls run everything and they have no such need or desire to operate for the benefit of the broad range of investors. Knee-jerk management is not consistent management, for sure. Good for day traders, but not for me.
Joe
The fat man is obviously still chafing from his loss
Well, what do you expect?
With very weak regulators/regulatory regime, everyone plays their own ‘shell game’ with, to borrow one of benign0′s triad mantra, impunity.
People see politicians gaming the elections courtesy of COMELEC, litigants bidding for winning decisions in the courts, corporations conning SEC, SP01 etc.
Call it system failure, market failure, or regulatory failure, can you then blame Mang Pandoy for extracting his ‘pound of flesh’?
systems are made up of processes and people to execute the process as provided in the system.
the symbiosis is such that a breakdown in one is reflected in the opposing symbiont.
I dont believe that energy companies will be here for a long time.
Our present sources of energy business will be like the Silk Trade of China. You can see the Caravan Inns along the Silk Trade routes now, abandoned and forgotten.
It is because mankind needs a new form of energy in order for its civilization to survive. The new energy will be pollution free, and available readily. Not monopolized by certain countries.
In the 18th century. Who would think of nuclear reactors, computers, internets, information technology, and our trip to the Moon and Mars…
Dear Hyden,
I worked for two American energy companies in Manila. The first was Enron. We made our money and I was pirated long before they entered Chapter 11 in the States.
The second company was Ogden Energy, a generator out of New Jersey. Ogden turned into Covanta Energy a few months after I left. And exactly a quarter after Enron closed (it was December I remember, because some of the girls I knew from the company posed for the holiday issue of Playboy), Ogden followed suit on April Fools Day.
Mirant, a succesor of Southern Energy and Mission Energy that operated the dams that overflowed recently have both left the country. Mirant was bought by Marubeni and Tokyo Electric.
All four were American. All were either coal or bunker-fired generators.
Meralco is a utility. Its affiliated generators are indigenous gas-fired, hydroelectric or renewable. It is likely to stay albeit with new owners. Union Fenosa, a Spanish partner of the Lopezes has divested and the Lopezes, while still in control, are in the minority now.
As you predict, the landscape is quickly changing. Alas, not always for the better.
As MB hints at, the fat man is in the picture.
Dean
Dear Dean de la Paz:
I am not a Prophet. But, I am a good student of History. It is what I see in the future. Our sources of energy is like a shoe that does not fit us anymore. It has created too many problems: political, social and economic. It has created wars,
conflicts, cartels, greeds and religious extremism.
There is a source of energy. Better than nuclear and electrical
energies. It is the energy of this Universe. It is the Creative Force of this Universe. We have not known it yet.
Same as we have known the Newtonian Physics. The Newtonian
Physics was incomplete. So, the Atomic Physics by Albert
Einstein had to complete it.
Dean:
I have some associates who are in town to discuss wind turbine acquisitions.
Am aware NPC has already identified Ilocos Norte and some other spots as viable for windfarms.
Has this project pushed through?
Also
I have a couple of friends who’d like to be in on the action.
Having said that, I’d like to take the discussion offline and discuss business matters in greater detail.
You can provide an email address where I can reach you – or you can email me here
On plain view, I don’t see that simply how that so-called intra-corporate credit extended INTERNALLY among shareholders would be tantamount to a large scale estafa or such an internal loan an attempt to defraud the investing public.
Such scheme of things is well within the bounds of shareholders being part of the ownership on the one hand and their corporate managers being part of the control on the other. Just a simple case of symbiotic relationship I would suppose to at least reflect the semblance or resemblance of the integrity of the corporate capital base, just maybe – assuming that indeed it is meant to solidify Meralco’s existing equity base.
Sale or no sale, the debt route as they call it that is not, I think intended to wreak havoc to a viable corporation like Meralco unless by too much political infestation of an interventionist government, Meralco does nothing but refund to end-users awesome tons of money – each and every time.
Sometimes, Meralco is a highly viable corporate business operating against the better interests of a very large population of end-users since it collects 15% of systems loss from a consuming public solely dependent upon this giant corporate monopoly.
Maybe indeed, extending credit is a short-lived ritual of “sharing the loot” as Meralco continues to rake profits from an equally profiting government ‘clearinghouse’, call it that. Infestation is always symptomatic of a zealous or jealous government wanting to get its share of the profits.
……..well just formed a group on face/book …they did an over charging again….april 2010…dont know any thing about corporations..but i know our past bill was 6000 last month and the new bill is 9000….thats all i know and feel…