DITO SRO: Everybody pay up, except Udenna
The actual amount raised by DITO CME's [DITO 6.23 4.88%] stock rights offering (SRO) will depend on the offer price; as of now, DITO’s offer price range is between P4.88/share and P6.88/share, but this will be decided on December 17th. Keep in mind: Dennis Uy's Udenna Corp is the majority shareholder of DITO CME, which indirectly is the majority shareholder of Dito Telecommunity. DITO is raising this money to push down to Dito Telecommunity.
♦The key dates: As mentioned, pricing will happen on Friday. The ex-date will be on December 20th, and the offer period will run for three weeks, from December 27th to January 18th, with listing of the SRO shares on January 26.
♦The price: We don’t know the final price yet, and the range provided (P4.88 to P6.88) is insanely wide, covering a continuum of value representing a 21.7% discount to DITO’s Friday close of P6.21/share to a 10.8% premium. Whatever the final price, DITO plans to adjust the number of shares sold to cap the proceeds at P8 billion.
♦The offer shares: DITO plans to sell up to 1,639,344,262 primary (new) common shares to shareholders, and interestingly, Udenna has “advised” DITO that it will not participate in the SRO to “provide maximum availability of Rights Shares to minority Eligible Shareholders, in order to provide maximum availability of Rights Shares to minority Eligible Shareholders.” That’s right, it’s so important to Udenna that they said it twice. The SRO offer shares represent an 11.7% increase in DITO’s outstanding shares.
♦The use of proceeds? Great question. The preliminary prospectus says that DITO will apply 80% of the proceeds (regardless of whether the price of the offer is P4.88 or P6.88) to “Dito Telecommunity Commercial Roll-Out”, which DITO defines as “additional capital” for Dito Telecommunity, that Dito Telecommunity can use for “capital expenditures required to support a successful commercial roll-out”. Shut up and take my money!
♦No entitlement ratio? Nope, not yet. For an SRO, the entitlement ratio is just as important as the price. This is the formula that shareholders can use to determine how many SRO shares they will be able to purchase. Unlike a follow-on offer, which accepts open requests for shares from anybody, in an SRO, only existing shareholders that own DITO shares before the ex-date (December 20th) will be allowed to purchase shares, and even then, the number of shares that each DITO shareholder can buy will be capped by their existing shareholdings according to some ratio that will be provided by DITO. Just as an example, if the entitlement ratio was 2 SRO shares for every 1 DITO share, that would allow DITO shareholders to buy 2 new shares for every single existing share that they own. Again, we don’t know the actual ratio yet: that 2:1 ratio was just to demonstrate how the formula would work.
♦Ok, but why no Udenna? Normally, SROs are issued as a discount as a reward to current shareholders, with the biggest beneficiary of that discount going to the majority shareholder/owner that is able to participate in the SRO just the same as any other shareholder. But here, DITO’s majority shareholder, Udenna, which owns 79.8% of DITO’s stock, has said that it will not participate. Why won’t Udenna take part? Do they lack the funding to participate? Do they lack conviction in the return on investment offered by the SRO? Or is it, as they say, just all about giving more shares to minority holders?
♦That’s a tricky ex-date: Normally, SRO buyers know the price of the SRO well ahead of the ex-date, which is the date that shareholders need to own the shares in question in order to participate in the SRO. In the Philippine Estates [PHES 0.48 2.02%] SRO, for example, the price was already set before the ex-date was even announced. Same goes for the SRO announced by AC Energy [ACEN 10.74 1.70%] last year. In this case, the ex-date is December 20, which means that someone wanting to take part in the SRO would need to own the stock on the day before the 20th; however, considering that the 20th is a Monday, that means that the last chance someone will have to buy DITO shares to take part would be Friday, December 17th... which is also the pricing date. Given that companies often report final pricing late in the day on the pricing date (or even the day after), that creates a situation where those looking to participate may have to buy DITO shares before the end of day on Friday without actually knowing the price of the SRO rights shares beforehand. Odd.
MB BOTTOM-LINE
As with anything DITO-related, this disclosure seems to raise more questions than it answers. Why did the disclosure spend more time talking about how the use of proceeds might be changed in the future than it did actually defining what the money would be used for? DITO is putting 80% of the proceeds to funding its “commercial roll-out”, but spends exactly one sentence describing what that means, and that sentence is a tautological disaster that boils down to explaining that it will use the proceeds to fund a commercial roll-out by using the money to fund a commercial roll-out.
DITO actually provides more detail on how it will use the remainder of the proceeds on working capital than it does on the crucially-important “commercial roll-out”. Why are investors expected to buy the stock before they know the SRO price? By nature of its status as the nation’s third telco, DITO is automatically “big news”; it enjoys strong political support, boasts of access to a great wealth of Chinese technical expertise, and rides a wave of sentiment that has millions hungry for a viable alternative to the duopoly of Globe [GLO 3366.00 1.64%] and SMART [TEL 1730.00 0.58%]. This should be a slam-dunk. Instead, investors keen to be a part of this story have been left in the dark by a management team that seems to avoid talking about Dito Telecommunity in its earnings reports, and are now expected to provide more money to the DITO team that seems intent on treating its subsidiary, Dito Telecommunity, like it’s just another simple shareholding. It’s not. Yet here we are, trying to read the health and direction of the country’s third telco from the tea leaves of its disclosures and rare public statements.
What does it say if it feels like we learn more about what’s happening with Dito Telecommunity from what isn’t being said?
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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