Melco’s quasi-reorganization
Credit to Author: EMETERIO SD. PEREZ| Date: Tue, 14 May 2019 16:29:56 +0000
Melco Resorts and Entertainment (Philippines) Corp. (MRP) has 5,687,270,800 outstanding common shares. It also classified them as issued. They are all listed on the Philippine Stock Exchange (PSE).
Unfortunately for the public, only 2.06 percent represents the company’s free-float level. When computed, 2.06 percent equals 117,157,778 common shares. It placed at 100 percent foreign ownership, which means foreigners could own Melco’s entire outstanding capital stock, which could either be common or preferred.
A public ownership report (POR) identifies MCO (Philippines) Investments Ltd. as direct holder of 5,396,393,164 MRP common shares, or 95.06 percent of 5,687,270,800 outstanding common shares.
But a computation showed a different result. Instead of 95.06 percent, MCO’s ownership was equivalent to 94.885 percent. Melco, however, was correct when it said in the POR that the public stockholders owned 117,031,067 MRP common shares, or 2.06 percent as of April 30, 2019.
With its public stockholders owning less than 10 percent, Melco is not compliant with the rule imposed on listed companies by the Securities and Exchange Commission (SEC).
Quasi-reorganization
Melco’s nine-man board met on April 24, 2019 and approved the company’s “equity restructuring” that is intended to “eliminate the Corporation’s accumulated deficit.”
In short, Melco is undergoing “quasi-reorganization”. As of May 7, 2019, it reported 5.9 billion shares as its authorized capital stock of which 5,687,270 shares are outstanding. Of the consolidated deficit of P16.463 billion, P134.567 million “is the deficit of the Corporation at the company level.”
Consolidated deficit refers to Melco’s own deficit and that of its subsidiaries totaling P16.463 billion. In its filing, Melco said its additional paid-in capital of P22,259,788,014 would be applied only to its deficit amounting to P134,567,233 as of Dec. 31, 2018. The application to Melco’s deficit would leave the company with P22,125,220,781 APIC.
By the way, APIC refers to a stockholder’s payment of shares, which may either be common or preferred, in excess of par value. In turn, par value represents the initial price per share of a company’s authorized and outstanding capital stock.
In most cases, the public stockholders of a listed company bear the burden of paying more for the shares issued to them while the existing stockholders usually pay for their holdings at par value.
Amended disclosure
In an amended filing dated April 24, 2019, Melco said its board approved the increase in the par value of its common shares to P500,000 from P1. As “rationale for the change in par value of the issuer’s shares,” it said the move, in effect, was intended to “decrease the number of the Company’s shareholders.”
A POR as of April 30, 2019 showed “no limit” to Melco’s foreign ownership, which has reached 99.58 percent of 5,687,270,800 outstanding common shares.
When computed, 99.58 percent equals 5,663,384,262 common shares, leaving the public with 117,031,067 MRP common shares, or 2.0577 percent.
As a rule, Melco’s public stockholders should own a minimum of 10 percent of outstanding shares. Since they hold only 2.0577 percent of outstanding, they probably don’t care about the 10-percent minimum public ownership rule.
This is why trading on Melco’s common shares remains suspended since Dec. 10, 2018 when the company’s stock opened trading at P7.25, hit a high of P7.28, fell to a low of P7.25 and closed the session at P7.25. Its common shares peaked at a month’s high of P7.29 and dropped to a low of P6.50, which was higher than its 52-week low of P5.02. The stock hit a year high of P7.70.
Due Diligencer’s take
Regulatory authorities such as the Securities and Exchange Commission (SEC) should review the composition of the board of directors of listed companies. It is their task to see to it that the public investors elect their own directors who would protect their interest as investors.
Public investors enable family-owned companies to list either their common or preferred shares on the Philippine Stock Exchange (PSE). This being the case, the SEC should see to it that public investors are represented in the board by encouraging them to elect their own directors.
Due Diligencer’s suggestion is for the SEC’s five-person commission to allow the public to either see or have a glimpse of the boardrooms of listed companies.
After all, what’s the use of “being public” if these outsiders could not elect their own directors?
If Melco persists in remaining listed, it should sell more common shares to the public. Otherwise, it would be time for it to delist its common shares. After all, more than 5.687 million MRP common shares are deemed listed even if trading on them remains suspended.
The best suggestion, perhaps, is for Melco to either follow the 10-percent minimum public ownership rule or leave the exchange for good.
By the way, shouldn’t the SEC review the ownership of listed companies through their boards to determine their compliance with the public ownership rule? Just asking.
Email: esdperez@gmail.com
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