Pressure on DITO Telecom to deliver

The cancellation of the P8-billion stock rights offering (SRO) of DITO CME Holdings Corp., the majority stockholder of DITO Telecommunity, due to weak demand from institutional investors gave a black eye to the company, its underwriters and the Philippine Stock Exchange (PSE).

The proceeds from the SRO were meant to provide additional funding to DITO Telecommunity to enable it to meet its rollout commitment to the government by 2024.

Recall that DITO Telecommunity was organized with the open backing of President Duterte to break the hold of Globe Telecom and PLDT Inc. in the country’s telecom industry.

The failure or refusal, depending on how you look at it, of the underwriters to pick up the unsubscribed shares raised questions about the seriousness of their promise to provide that financial cushion.

The PSE, a self-regulatory organization (which means it has the power to adopt its own regulations and standards with minimum supervision from the Securities and Exchange Commission) was caught flatfooted by the cancellation.

Since that action was unprecedented and no provisions had been made in its “Listing and Disclosure Rules” on the management of an incident of that nature, the PSE had to content itself with suspending (and later restoring) the trading of DITO CME’s stocks.

It was a slap on the wrist that made PSE’s much-ballyhooed strict regulatory authority over listed companies look puny.

In light of that anemic response, the stockholders who felt shortchanged by DITO CME’s action had been left to fend for themselves in recovering their placements under such terms and conditions that DITO CME may decide to impose for that purpose.

With the P8-billion funding infusion through the SRO off the table, the ability of DITO Telecommunity to deliver on schedule its promise to give the public the kind of service that Globe Telecom and PLDT Inc. have supposedly failed to provide has been put in serious doubt.

To make up for this unexpected shortfall, DITO CME said it has secured long-term debt arrangements with various foreign lenders.

The specific reference to foreign lenders gives the impression that securing credit facilities from local banks would not be feasible because either it is already highly leveraged or it may breach the “single borrower’s limit” rule that banks are obliged to strictly observe.

Although the identities of the foreign lenders were not disclosed, there is a strong possibility they are based in or have links to China considering that state-owned China Telecom Corp. is DITO Telecommunity’s technical partner and second biggest stockholder.

Besides, non-Chinese or Western financial institutions may not be too keen on investing in the Philippine mobile telephone business in light of its minimal revenue potential and the dominance of the existing telecom operators.

Note that it took more than three years to negotiate and enter into funding arrangements for four (out of 26) infrastructure projects the Philippine government asked China to provide financial assistance to.

It would be wishful thinking therefore to expect that China-based banks, especially those owned directly or indirectly by the Chinese government, would rush the processing of DITO CME’s financing request.

In addition, with the forthcoming elections in May, those banks may adopt a wait-and-see attitude before entering into loan negotiations.

There is no assurance the incoming administration would adopt the Duterte administration’s almost “reverential” attitude toward China. If at all, those banks would want to make sure their loans can be scrupulously paid and that they will not be throwing good money after bad.

The pressure is on DITO CME to secure additional funding for DITO Telecommunity at the earliest time possible, otherwise if the latter fails to meet its rollout commitment on time it would lose its franchise and, worse, forfeit its multibillion peso performance bond.

That would be tragic to the development of healthy competition in the telecom industry. INQ

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