DFNN moves to wipe out capital deficit

Technology provider DFNN Inc. has unveiled a plan to pursue an equity restructuring to wipe out capital deficit of over P600 million.

In a disclosure to the Philippine Stock Exchange, DFNN said the restructuring would wipe out P601.99 million in retained deficit as of end 2016.

Asked how the deficit will be wiped out, DFNN president and chief executive officer Ramon Garcia Jr. said: “We will be applying the additional paid-in capital. This is by means of a process recognized by the SEC (Securities and Exchange Commission) and PSE (Philippine Stock Exchange) called equity restructuring.”

“This is a clarification to the methodology to be used as approved by our shareholders directing the board to wipe out the deficit and, thus, pave the way for the declaration of dividends at the appropriate time,” he said.

Advance paid-in capital is the value of the shares of the company above what they issued .  It is often included in the contributed surplus account in the equity section of a company’s balance sheet.

At present, DFNN is valued by the market at P2.1 billion.

In December, a P310-million arbitral award to DFNN—which won a legal dispute with state-controlled Philippine Charity Sweepstakes Office (PCSO) over “illegal” termination of a lotto equipment leasing deal—became final and executory.

The disputed equipment lease agreement was executed by the parties in 2003 under the Arroyo administration, providing for the exclusive lease from DFNN all the hardware, software, and knowhow to design and develop a system that would allow the processing of bets from personal communication device users nationwide.

In 2005, prior to the commercial operation of the system, DFNN was informed of the PCSO’s decision to terminate the deal, after which PCSO began negotiating with third parties to carry out the project.

DFNN brought the case to court and obtained a favorable ruling but the arbitral award was at first too meager at only P27 million in liquidated damages. Finding the damage award insufficient, DFNN filed a petition to correct the computation of damages and increase the award by 11 times to over P310 million.