BIZ BUZZ: Trading phantom stocks
On the suspicious trading of unissued and unlisted shares of Beloy family-led Abra Mining and Industrial Corp. (AR), corporate regulators are now focusing their probe on two persons who had lodged a multitude of AR shares that way exceeded the actual shares listed on the Philippine Stock Exchange (PSE).
Trading on AR had been indefinitely suspended by the PSE since March 4 after regulators discovered that the company had about 258.96 billion shares lodged with the Philippine Depository & Trust Corp. (PDTC) versus only about 72.95 billion shares listed on the local bourse.
Under the rules, only securities approved for listing should be lodged with PDTC for trading. Furthermore, all fully paid issued and outstanding shares should be applied for listing.
So how did this happen? The weakest link could be traced to the transfer agent-PDTC route, PSE president Ramon Monzon explained on Friday.
For an investor holding a stock certificate and wishing to trade the shares, he or she has to go to a stock broker, who is supposed to conduct a due diligence on the authenticity of ownership and documentation. The broker must then endorse the shares to the transfer agent, who in turn is supposed to check that the shares are not fictitious and are PSE-listed before lodging at the PDTC.
“That’s where the failure happened,” Monzon said, noting that five brokers had been investigated in relation to AR transactions dating back from 2019.
Monzon estimated that more than 120 billion AR shares had been lodged by those two individuals and related companies. The brokers endorsed these to the transfer agent, which then gave PDTC the go-signal to lodge the shares, eventually paving the way for the trading of those shares.
The transfer agent, as an extension of the corporate secretary of the issuing corporation, is supposed to have the pertinent information, and thereby has the sole authority and duty to certify that each share meets PDTC’s and the PSE’s respective requirements for lodgment.
“So the investigation is now focusing on these individuals who lodged the shares,” Monzon said.
The Securities and Exchange Commission is now doing the primary investigation, having the jurisdiction to do so.
“We are now requiring PDTC that before they lodge any certificate, they have to check with PSE if those shares are listed or not,” Monzon said.
Furthermore, the PSE added to its disclosure rules a requirement for all listed companies to disclose all their outstanding and listed shares alongside all subscribed and certificated shares.
Hydroelectric power play
It is a problem that has been years in the making. But last month, the dispute between the power generation firm of the Aboitiz group and the Kankana-ey tribe of Benguet finally came to a head.
The immediate effect was the shutdown of three power plants of Hydroelectric Development Corp. (Hedcor) located in Bakun, Benguet province last June 30 after both parties failed to resolve their differences over the compensation that the Aboitizes would pay to the tribe for the continued use of their ancestral domain.
Biz Buzz hears that, for many years, Aboitiz used to pay the Kankana-ey regular royalties of anywhere between P2 million and P5 million annually for the right to operate the power plants on their tribal lands. All was well under this arrangement.
According to a local source, however, Aboitiz reduced this payment in 2018 after the existing 25-year operating contract expired. The new royalty fee was cut to a maximum of P500,000, with the company saying that the reduced power output of the aging Bakun hydroelectric power plants (commissioned in the early 1970s) no longer justified such high “rental” fees.
This was when the trouble started, with the tribal elders feeling that the conglomerate was profiting from their resources while giving them peanuts in return.
To cut a long story short, both parties failed to reach an agreement and the Kankana-ey tribe withdrew their consent, which is a requirement of the law for any company to operate in ancestral domains of indigenous peoples.
With the tribe’s approval being withdrawn, the National Commission on Indigenous Peoples (NCIP) had no choice but to issue a cease and desist order on the hydro facility.
Now this is where it gets interesting. The Department of Energy under Secretary Alfonso Cusi has reportedly come to the defense of Hedcor, saying the electricity produced by the facility (the closure order covered three plants producing a combined 12.4 megawatts) is necessary to ease the power shortage in Luzon.
But the Kankana-ey aren’t buying this explanation, with one representative telling Biz Buzz: “We’re not stupid. Bakun is just a small plant.”
Now, we hear that the regional head of the NCIP that issued the closure order for the Hedcor plant is feeling the heat from influential parties and may even lose his job for advocating the side of the tribal leaders.
It will be interesting to see whether this dispute can be resolved when the fighting parties meet today to try to resolve their differences. The question is: Who will prevail? Abangan!
—Daxim L. Lucas INQ
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