Dito CME risks backlash from small but loyal investors

When Davao-based tycoon Dennis A. Uy’s DITO CME Holdings Corp. announced the sudden cancellation of its P8-billion stock rights offering, few were more disappointed than its loyal base of retail investors.

As they witnessed the unprecedented event over the span of a weekend, sentiments morphed from disbelief to panic over the fate of their hard-earned money.

Other stockholders, like Joseph Bautista, mostly felt betrayed—by the company and the investor protection rules he assumed were inviolable.

“I’m very disappointed. I honestly feel cheated. I made my investment decision based on something I thought was firmly governed by rules, but apparently not,” Bautista told the Inquirer in an interview.

“It makes me question now if there’s really enough protection for the investing public,” he added.

An active full-time trader and investor for the past three years, Bautista started buying shares of DITO CME last year in preparation for the rights offering, which allowed existing stockholders to buy more shares at a discounted price of P4.88 each.

For Bautista, DITO CME was a proxy bet on its unit DITO Telecommunity, the Uy-China Telecom startup that is taking on industry giants PLDT Inc. and Globe Telecom.

“I invested in the company because I’m excited about the third telco and the growth of 5G technology in the country,” he added.

It later became clear the offer suffered from weak demand, especially from larger institutional investors.

In a series of rare weekend disclosures from Jan. 29-30, Dito CME announced the cancellation and deferral of the rights offer due to “less than ideal market conditions and other perceived risks.” This was decided past the Jan. 25 extended offer deadline, and after payments from stockholders had been made.

On Monday, the PSE halted trading of Dito CME shares but announced later in the day the suspension would be lifted on Feb. 2 after the company provided details on the cancellation and the refund of payments up to Feb. 3.

The rights offer would help fund Uy’s counterpart equity contribution in Dito Telecommunity. Apart from this, Dito Telecommunity can tap loan commitments from foreign lenders worth over $4 billion, Dito CME said.

Another puzzling aspect of the debacle was the failure of Uy’s indebted flagship holding company, Udenna Corp., and sole underwriter, Sy-led China Bank Capital Corp., to honor pledges and obligations strictly outlined in the offer prospectus to buy unsubscribed shares.

After all, the participation of principal shareholders in a rights offering sends a strong signal to investors that the owners believe in the company’s prospects.

In its follow-up disclosure on Monday, Dito CME said those commitments became “moot” after they decided to defer the rights offering.

In an interview with the Inquirer, PSE president Ramon S. Monzon expressed disappointment at the failure of established investor protection mechanisms, including the underwriter commitments that have become a standard feature in similar fundraising deals.

He said the PSE had received numerous complaints from investors. However, he conceded there was little they could do to stop the share issuer from withdrawing the offer.

Minority investors also realized financial losses because of the downward price adjustment to Dito CME’s share price in consideration of the rights offering.

Another trader told the Inquirer they should be compensated after selling their Dito CME shares at a loss on the expectation they could avail themselves of the discounted rights offer price.

Dito CME shares closed at P5.08 apiece on Friday. This was slightly lower from the previous day and a fraction of its P19 per share record high on Feb. 23, during the speculation-fueled rally before Dito Telecommunity’s commercial launch in March.

For now, Bautista was hoping the regulators would “do what is fair.”

“I also expect the PSE to update and tighten their rules, otherwise the investing public will always be on the losing end,” he said.