DITO SRO: Everybody pay up, except Udenna

The precise amount raised by DITO CME’s [DITO 6.23 4.88 percent] stock rights offering (SRO) will be determined by the offer price; as of present, DITO’s offer price range is P4.88/share to P6.88/share, but this will be determined on December 17th. Remember that Dennis Uy’s Udenna Corp is the majority stakeholder of DITO CME, which is the dominant shareholder of Dito Telecommunity indirectly. DITO is gathering funds to send to Dito Telecommunity.

  • The Key Dates: As previously stated, pricing will take place on Friday. The ex-date will be December 20th, and the offer period will last three weeks, from December 27th to January 18th, with the SRO shares being listed on January 26th.
  • The price: We don’t know the final price yet, but the range provided (P4.88 to P6.88) is absurdly broad, representing a value spectrum ranging from a 21.7 percent discount to DITO’s Friday close of P6.21/share to a 10.8 percent premium. Whatever the ultimate price, DITO intends to alter the number of shares sold in order to keep the revenues under P8 billion.
  • The offer shares: DITO intends to sell up to 1,639,344,262 main (new) common shares to shareholders, and, interestingly, Udenna has “advised” DITO that it will not participate in the SRO in order to “ensure maximum availability of Rights Shares to minority Eligible Shareholders.” That’s true, they repeated it twice since it’s so crucial to Udenna. DITO’s outstanding shares have increased by 11.7 percent as a result of the SRO offer shares.
  • The use of proceeds? That’s an excellent question. According to the preliminary prospectus, DITO will apply 80 percent of the proceeds (regardless of whether the offer price is P4.88 or P6.88) to “Dito Telecommunity Commercial Roll-Out,” which DITO defines as “additional capital” for Dito Telecommunity to use for “capital expenditures required to support a successful commercial roll-out.” Take my money and shut up!
  • No entitlement ratio? No, it hasn’t happened yet. The entitlement ratio is equally as crucial as the price for an SRO. This is the calculation that shareholders can use to figure out how many SRO shares they can buy. In contrast to a follow-on offer, which accepts open requests for shares from anyone, an SRO allows only existing shareholders who own DITO shares before the ex-date (December 20th) 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 DITO will provide. For example, if the entitlement ratio was 2 SRO shares for every 1 DITO share, DITO shareholders would be able to purchase two new shares for every existing share they held. Again, we don’t know the exact ratio: the 2:1 ratio was only used to explain how the formula might operate.
  • Ok, but why no Udenna? Typically, SROs are given at a discount as a reward to present shareholders, with the majority shareholder/owner benefiting the most from the discount because he or she can participate in the SRO just like any other shareholder. However, Udenna, DITO’s biggest shareholder, has stated that it will not participate. Udenna holds 79.8 percent of DITO’s stock. Why is Udenna refusing to participate? Are they unable to participate due to a lack of funds? Do they have doubts about the SRO’s return on investment? Is it, as some claim, simply a matter of distributing more shares to minority shareholders?
  • That’s a tricky ex-date: Typically, SRO buyers are aware of the SRO’s pricing well in advance of the ex-date, which is the day on which shareholders must acquire the shares in question in order to participate in the SRO. For example, in the Philippine Estates [PHES 0.48 2.02 percent] SRO, the price was already decided before the ex-date was announced. The same can be said for AC Energy’s [ACEN 10.74 1.70 percent] SRO announced last year. In this case, the ex-date is December 20, which means that anyone wanting to participate in the SRO would need to own the stock on the day before the 20th; however, because the 20th is a Monday, the last chance to buy DITO shares to participate is Friday, December 17th… which is also the pricing date. Given that firms frequently publish final pricing late in the day on the pricing date (or even the next day), investors looking to participate may be forced to buy DITO shares before the end of the day on Friday without knowing the price of the SRO rights shares beforehand. Odd.

MB BOTTOM-LINE

This declaration, like anything DITO-related, appears to create more issues than it answers. Why did the disclosure spend more time discussing how the use of revenues might be altered in the future than it did outlining what the money would be used for? DITO will use 80 percent of the proceeds to fund its “commercial roll-out,” but only spends one sentence explaining 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 spending the money on a commercial roll-out.

DITO actually goes into greater detail on how it will spend the remaining proceeds on working capital than it does about the key “commercial roll-out.” Why should investors buy the shares before they know the SRO price? DITO is automatically “big news” due to its status as the country’s third telco; it enjoys strong political support, has access to a 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 percent] and SMART [TEL 1730.00 0.58 percent]. This should be a no-brainer. Instead, investors who want to be a part of this story have been left in the dark by a management team that appears to avoid discussing Dito Telecommunity in its earnings reports, and are now expected to provide more money to the DITO team that appears to treat its subsidiary, Dito Telecommunity, as if it were just another simple shareholding. It isn’t. Nonetheless, here we are, attempting to decipher the health and direction of the country’s third telecom from the tea leaves of its disclosures and rare public pronouncements.

What does it mean if it appears that we learn more about what’s going on with Dito Telecommunity from what isn’t said?

Via: Philstar

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