Protect DITO minority investors, PSE urged

Stock market investors want the Philippine Stock Exchange (PSE) to take up the cudgels for minority shareholders who are seen to be at the losing end of the puzzling termination of Davao-based businessman Dennis Uy-led DITO CME Holdings’ P8-billion stock rights offering (SRO).

One of the ways the PSE can address grave shareholder concerns is to tighten the rules on the commitment of underwriters and the triggers for SRO termination, said veteran stock broker Joseph Roxas, president of Eagle Equities Inc. and a former PSE board member. DITO SME said over the weekend that it was postponing the fundraising exercise as “current market conditions are less than ideal to pursue the offering.” It has committed to refund all payments made by existing shareholders to take up additional shares.

But even if retail investors are reimbursed, they are likely to end up with losses as Dito’s price had already been adjusted down to factor in the effect of the stock rights offer. Prices may even further go down on negative sentiment.

A prolonged suspension of DITO in the stock market is also a key concern. It last closed at P5.09 each.

“We trust that our regulators will handle this development with the protection of those investors in mind, especially since there is a large number of minority shareholders that participated in the offering,” said Conrado Bate, president of COL Financial, the country’s leading online stock brokerage.

Trading suspension

“For now, we should wait for the decision of the regulators on this issue, but we hope that DITO and the PSE can resolve the suspension matter as soon as possible for the benefit of the shareholders impacted,” he said.

The PSE indefinitely halted trading on DITO shares starting 9 a.m. on Monday as it required the company to submit a full and comprehensive disclosure on why the stock rights offering was postponed.

But the local bourse said this “should not construed as an approval by the Exchange of the deferment of the offering,” adding that the trading halt was without prejudice to any regulatory action that it may pursue to protect the investing public.

One stock broker who spoke on condition of anonymity said given the impact of this SRO termination, somebody should be made liable for losses to be incurred by small investors.

In a separate interview, Eagle Equities’ Roxas said moving forward, if the PSE would like to encourage full SRO take-up, he said the local bourse should put in place rules to ensure firm underwriting commitment and to tighten the regulations on how issuers could invoke the termination clause.

Majority shareholder

“Usually the buck stops at the majority shareholder. With most SROs, the majority shareholder says if not taken by the minority I will take it all,” Roxas said.

But in this case, the prospectus stated that it was underwriter China Bank Capital, not Udenna, that had committed to take up any residual shares, after the rounds of offering to retail and institutional as well as controlling shareholders.

On the termination clause, Roxas said the PSE should ensure in the regulations that any SRO could not be terminated after the ex-rights or once shareholders have already purchased additional shares at the designated exercise price.

“Usually, termination clause is used when there’s a natural disaster, coup, war, invasion, Martial law, a US stock market crash—and not just for any reason,” Roxas said.

On why the SRO had flopped, Roxas said it was likely because the offering was priced too close to market price, unlike many of the past SROs that offered big discounts.

“So the public did not see any place to make money because they knew that on listing day, share price will immediately decline,” he said.

Asked about its course of action on this aborted equity deal, China Bank Capital said it would make an announcement soon. INQ