PSE: Dito minority investors to be hurt by cancellation of P8 billion rights offer

Dito CME Holdings Corp.’s aborted P8 billion rights offer sent shockwaves across the local financial community, leaving ordinary stock market investors worried over the outcome ahead of the opening of trading on Monday.

Philippine Stock Exchange (PSE) president Ramon S. Monzon was among those demanding answers.

In an interview with the Inquirer, Monzon expressed concerns on the decision of Davao-based tycoon Dennis A. Uy’s Dito CME, the holding company of telco challenger Dito Telecommunity, to cancel and defer the multibillion stock rights offering.

The unraveling of the offer, which was poorly received by the market despite running for nearly one month, was a first in recent PSE memory, Monzon said.

He said the cancellation hurts minority investors and would potentially cast doubts on future firm underwriting commitments that deal brokers make.

“If this is allowed to happen again it’s going to make a mockery of this firm underwriting concept,” Monzon said on Saturday.

A standard feature in PSE fundraising documents, firm underwriting refers to the underwriter’s commitment to buy up shares that were unsubscribed. This was meant to protect investors because the underwriter would act as a final backstop and ensure the offer is successful.

Sy-led China Bank Capital Corp. was the sole underwriter of Dito CME’s stock rights offering, a type of fundraising that allows a company to raise money from current stockholders.

In Dito CME’s prospectus, Sy-owned China Bank Capital stated it will firmly underwrite the rights offer and “purchase the unsubscribed rights shares pursuant to its firm underwriting commitment.”

“That is exactly the role of the underwriter,” said Monzon, who was holding talks with Dito CME on Saturday on the implications of unwinding the transaction after payments were made by minority stockholders.

In the end, it appeared Dito CME exercised a provision in the prospectus stating it could withdraw the offer at any time. The only prerequisite action was to make the necessary disclosures to the PSE and Securities and Exchange Commission (SEC), the document showed.

A troubling sign for investors was the failure of Dito CME’s controlling shareholder, Uy’s flagship conglomerate Udenna Corp., to step in and save the deal.

In the prospectus, Udenna had pledged to China Bank Capital it would take up all the offer shares that were unsubscribed “to ensure the offer shares are fully subscribed”. The only condition was that Udenna’s ownership would not violate the minimum public ownership level of Dito CME.

Udenna’s assets span energy, logistics, telecommunications, property, infrastructure, and restaurants.

It launched an aggressive debt-fuelled acquisition spree during the administration of President Duterte, which counts Uy as as prominent campaign donor.

Nikkei Asia reported earlier this month that Udenna’s assets jumped from P31 billion in 2015 to P310 billion in 2020. During the same period, debts surged from P22 billion to P255 billion.

According to the report, losses in 2020 hit P8.6 billion from a P3.3 billion in 2019 as it joined other business groups similarly hit by the COVID-19 pandemic.

Monzon conceded there was little the PSE could do to prevent the share issuer from scuttling a deal. He noted that affected investors could lodge complaints before the SEC.

He also explained a number minority stockholders likely incurred an “actual loss” if they sold Dito CME shares after the price was adjusted lower after the Dec. 20, 2021 ex-rights date.

“This is not a theoretical loss. There is an actual loss to investors who sold after the ex-rights date because they have sold at a lower price,” Monzon said.

He added the PSE has already received several complaints over the weekend.

The Inquirer learned of the cancellation and deferral of the stock rights deal on Friday evening. Last Jan. 13, Dito CME sought an extension to the offer deadline by a week to Jan. 25, saying it needed more time because of the recent COVID-19 surge.

The cancellation was made public on Jan. 29 after the PSE published Dito CME’s notice  stating it would postpone the offer due “less than ideal” market conditions. Dito CME said it would also refund subscription payments.

Based on Dito CME’s prospectus, 80 percent of the proceeds from the rights offering will be used to bankroll the ongoing network rollout of Dito Telecommunity. It said the rest will be used for general corporate purposes.