PLDT down 17% after budget probe
Overrun tally close to 2020-2021 income
PLDT Inc, the largest Philippine phone company, slumped the most on record with almost 62 billion pesos (38.9 billion baht) in market value wiped out as investors punished the stock amid questions over its corporate governance and fiscal control following a 48 billion peso four-year capital spending overrun.
The stock plunged more than 19% to 1,192 pesos, its steepest loss ever based on prices going back to January 1990 as investors dumped the shares. The company’s US-traded depositary receipts dropped 2.4% on Friday, when PLDT announced the budget irregularity from 2019 through 2022 when it spent 379 billion pesos to bulk up its network for broadband and data to stave off rival Globe Telecom Inc.
The spending probe casts a stain on the finances and governance of PLDT, which is among the nation’s most widely held stocks by foreign investors. It also raised questions about the management of PLDT Chairman Manuel Pangilinan, 76, who was also president and CEO until June 2021.
“The core issue here and the primary reason PLDT is getting sold down is corporate governance,” said Manny Cruz, strategist at Papa Securities. “The overrun is quite a substantial amount and it went on for years. That raises questions on how that could have happened to a blue chip company.”
The budget overrun is almost equivalent to PLDT’s combined 2020 and 2021 net income. It’s also more than twice the 21.46 billion pesos of cash and cash equivalents that PLDT had at the end of last quarter. While PLDT hasn’t given any details, Mr Pangilinan said in a Philippine Daily Inquirer report that as much as 130 billion pesos in undocumented purchases were made from 2019 through 2022 and an audit lowered the “questionable deals” to 48 billion pesos.
Given the growing scrutiny on environmental, social and governance issues, PLDT’s debacle will raise concerns among its large base of foreign investors, which currently hold more than 40% stake in the company. More than 1.18 million PLDT shares changed hands yesterday, the most since June 2017.
The issue hasn’t been “fully addressed by management with regards to details, how it transpired or steps they will be taking in response”, said Carlos Temporal, an analyst at AP Securities. “This will remain an overhang for the stock and the market will be pricing in various speculations” including scenarios that could depict a larger issue within the group.
SGV & Co, the nation’s biggest auditing firm, is in its 20th year as the company’s external auditor. In other jurisdictions like the European Union, a company is required to invite bids for other auditors or have joint audits after 10 years.
PLDT also has the second lowest percentage of independent directors among the 30 companies in the benchmark Philippine Stock Exchange Index, according to data compiled by Bloomberg. In the broader MSCI Asia Pacific, it ranks 1,453 out of 1,486 companies.
The Philippine Stock Exchange will look into trades involving shares of PLDT after bourse officials noticed heavy selling before the market closed Friday and an hour before the company disclosed the overrun, the Philippine Daily Inquirer reported, citing PSE President Ramon Monzon.
Some investors say it may be premature to pass judgment on PLDT’s system of controls pending the release of more details on what happened.
“It’s too early to judge PLDT’s quality of governance without the details” on how this came about, said Noel Reyes, chief investment officer at Security Bank Corp. “PLDT never had an issue like this before under Pangilinan.”
PLDT’s shareholders include Japan’s Nippon Telegraph & Telephone Corp, Hong Kong’s First Pacific Co, and Manila-based JG Summit Holdings Inc. Vanguard Group Inc and BlackRock Inc are among the biggest asset managers that hold the stock, according to Bloomberg data.
Several other companies of which Mr Pangilinan is also chairman declined. Metro Pacific Investments Corp, owned by First Pacific, sank as much as 5.4%, while Manila Electric Co, fell as much as 3.6%. Philex Mining Corp. closed down more than 1%, falling for a third straight day.
Mr Pangilinan stunned the Philippines in 1998 when he engineered a 30 billion peso takeover of PLDT that he later merged with Smart Communications Inc, a mobile phone startup he funded through First Pacific.
“Pangilinan will have to take responsibility for what transpired following the principles of command responsibility,” said Papa Securities’ Cruz. “This could end his career on a sour note and blemish a sterling legacy.”