Smart may not have to go public if House measure is approved

Smart Communications Inc. may not have to go public once Congress approves a bill that will allow a telecommunications entity not to undertake an initial public offering of its shares if at least two thirds of its outstanding voting stock is owned or controlled by a listed company.

In a disclosure to the Philippine Stock Exchange (PSE), Smart Group head for legal and carrier business Rogelio Quevedo said the approval of the bill that seeks to amend the Public Telecommunications Policy Act of the Philippines will directly affect Smart because at least two-thirds of its outstanding voting stock is owned by telecommunications giant Philippine Long Distance Telephone Co. (PLDT) whose shares are listed on the PSE.

Quevedo issued this statement in response to the National Telecommunications Commission’s (NTC) letter requesting Smart to explain why it has failed to undertake an IPO as required under its Congressional franchise.

Smart is mandated by its Congressional franchise to offer about 30 percent of its shares to the public not later than August this year or three years after it started operations.

He explained that section 13 of Smart’s franchise is merely directory and merely embodies the spirit of the intent of Congress to disperse public ownership of public utilities.

Smart is currently the biggest shareholder of another listed company Pilipino Telephone Corp. after it acquired the PLDT common shares in Piltel before the end of the year.

Securities regulators have been encouraging Smart to list its shares on the exchange to revive investor confidence and boost liquidity in the stockmarket.

Smart, however, has been bidding for time to comply with the IPO requirement, citing the poor market conditions.

Smart has been the main contributor to PLDT’s earnings in 2003. It paid P6.2 billion in dividends to PLDT, representing 100 percent of the latter’s 2002 net income.

This year, the profitable wireless subsidiary of PLDT is expected to remit about P10 billion to PLDT. The amount represents about 70 percent of Smart’s 2003 earnings. Contributions from Smart have allowed PLDT to settle its fixed line debt.

Smart said it would only consider any listing plan between 2006 and 2007 once it has cut down its debt substantially. The company expects to trim its outstanding debt to $2.5 billion by the end of the year and further to $1.5 billion by 2006.

While PLDT’s cashflow is positive, it is still not enough to pay off its maturing debts.

Should government insist that Smart do a public offering, officials said they may cite the fact that a wholly-owned subsidiary like Smart no longer has to publicly list its shares when its parent firm (PLDT) is also a publicly-listed company.