Boardroom spat

Two Singaporean investors of seafood processing giant Alliance Select Foods International, Inc. have filed a suit against members of the board of directors of seafood processing giant Alliance Select Foods International, Inc. seeking to prevent the P560-million investment of Strong Oak which has been paid in cash.

In a disclosure to the Philippine Stock Exchange last May 5, Alliance said that the new capital is intended “to significantly increase its plant utilization rates at its canned tuna facilities in General Santos” and that with the capital infusion “Alliance projects to boost its revenues and profits” for the company’s future growth prospects.

These intentions are now being stymied by Singaporean investors  Albert Hong and Hedy Chua, who claim that the capital infusion would dilute their interest in the company.

What is not being said is that based on the articles of incorporation of Alliance, “no stockholder of any class shall be entitled to any pre-emptive right to purchase, subscribe for, or receive any part of the shares of the corporation, whether issued from unissued capital stock or its treasury stock.”

This means that stockholders are prohibited from crying foul in case of capital dilution since they are not given first crack to purchase shares prior to being sold to third persons, commonly known as pre-emptive right.

If the Singaporeans had issues with the dilution of their ownership in Alliance, they could have very well infused the P560 million themselves, and yet they did not.

The Singaporeans’ attempt to block the capital infusion comes at the worst time possible for them. Hong previously complained in his letter dated June 15, 2014 that “the stock price of Alliance has declined to P0.93 on Dec. 13, 2013.” However, based on records of the PSE, on May 13, 2014, shares in Alliance hit a 2014 high of P1.60, or a 72 percent  increase. Alliance has also reported a profit of $817,347 for the first quarter of 2014 in its latest filing with the SEC. These appear to be some of the reasons for the interest of Strong Oak in the company.

It seems that the Singaporeans cannot make up their minds. On one hand, they complain when the stock prices are down. On the other hand, they complain when the shares rise by 72 percent. Observers say this flip-flopping cannot be tolerated since most of the shareholders in Alliance, including the investing public, are not complaining. Who in their right mind, and with the interest of the company in mind, would oppose a capital infusion of P560 million paid in cash?

The Singaporeans are claiming that the Strong Oak capital infusion of P560 million is suspicious and a “fly by night” operation since its paid-up capitalization is only P62,500.

However, Philippine laws do allow companies to have paid up capital of only 6.25 percent of the total capitalization. Companies are allowed to have only 25 percent  of authorized capital stock subscribed, of which at least 25 percent should  be paid up.

Harvest All Investment Limited and Victory Fund Limited, companies owned by the Singaporeans, appear to have even less capitalization when they entered into Alliance. Based on a 2011 prospectus, at the time of their entry into Alliance, “Harvest All is a Hong Kong-based investment holding company with an authorized, issued, and outstanding capital stock of HK$10,000” while “Victory Fund is a Hong Kong-based investment holding company with an authorized capital stock of HK$10,000 and issued and outstanding capital stock of HK$2.”

This means that the Harvest and Victory Fund only had approximately P56,500 and P11.30 capitalization when they purchased their shares in Alliance worth hundreds of millions. As many say, “he who is without fault should cast the first stone.”

Besides, there can be no concerns on Strong Oak fulfilling its obligations since at the time of its subscription, it had already deposited the cash for the purchase in an account in favor of Alliance. There is also of course the multi-billion assets of the beneficial owner of Strong Oak, Seawood Resources, Inc., a multibillion investment company.

The big chunk of shares bought in a private placement by Strong Oak represents 28.7 percent of Alliance’s total issued capital of 1.5 billion shares.

The new investor acquired the shares at P1.31 per share, a 3.3 percent premium over the 30-day volume weighted average from March 18 to May 2, 2014.

It’s really a puzzle why the Singaporeans are trying to bring down Alliance by raising non-issues.

Alliance produces over 200 metric tons of seafood daily and the entry of Strong Oak and possibly of other new investors would certainly allow it to extend its reach outside of Southeast Asia where it is already a seafood processing powerhouse.

Rajat Balain, Alliance’s corporate information officer, says the infusion of funds from Strong Oak will enable the company to generate greater income from its assets and significantly increase its plant utilization rates at its canned tuna facilities in General Santos City.

With more financial muscle, Alliance Select is poised to further strengthen its leadership role in the processed seafood sector in the coming years, thanks to sound management practices and a corporate vision anchored on innovation and change.

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