ISM president Eric Recto told The STAR that the company is undertaking a rights offering that hopes to raise around P200 million for the acquisition of Smart’s 9.8-percent stake in ETPI and another 10.2 percent owned by government and being disposed of by the Privatization Management Office (PMO).
Another 20 percent of ETPI is still under sequestration but these could still not be disposed of by the Presidential Commission on Good Government (PCGG) unless the issue of ownership of these shares has been resolved.
ISM is still awaiting approval from the Securities and Exchange Commission (SEC) for the proposed increase in ISM’s authorized capital stock to accommodate the additional shares that will be offered to existing shareholders under the rights offering.
Earlier, ISM shareholders approved a P300-million one-for-one stock rights offering to finance the company’s acquisition of additional shares in ETPI. Aside from the acquisition, proceeds from the rights offer will also be used to support operations or such other projects the company may embark on in the future.
ISM, the former Itogon Suyoc Mines Inc., recently increased its stake in ETPI to 57.7 percent after acquiring the 40-percent holdings of AGN Philippines Inc., the local subsidiary of the Australian group that used to control ETPI.
Sources say the 57.7 percent currently held by Ongpin’s group in ETPI still is shaky as it may not be enough to sway board decisions in ISM’s favor, especially those that require a two-thirds vote.
Recto, however, said in an interview that it makes sense for ISM to increase its stake in ETPI, considering that it already holds majority control. "After all, what will Smart do with a 9.8-percent stake. And the government, through the PMO, has already twice attempted to bid out its 10.2-percent stake in ETPI but there were no takers," he pointed out.
The value for the ETPI shares based on the last transaction, the price pegged by government for the sale of its stake, was at P100 million for every 10-percent stake. Thus, the combined holdings of Smart and government is estimated at around P200 million, Recto disclosed.
But Smart insiders say, according to the grapevine, is more than willing to divest of its 9.8-percent interest in ETPI and that talks with ISM are reportedly in the final stages. "We are now discussing the final prints of the deal. It’s part of the strategic objectives of Smart," the insider said.
According to the source, Smart realized that it had little use for its 9.8-percent ETPI stake which does not even entitle it to one board seat.
ISM started buying into ETPI when it initially acquired 17.7 percent through a share swap agreement with Aerocom Investors and Managers Inc.
Following the share swap agreement, the ISM agreed on a private placement with strategic investors Ashmore Investment Management Ltd. of the United Kingdom, Boerstar Corp. and Araza Resources Inc. worth $8.2 million. ISM used the proceeds of the private placement to fund the acquisition of an additional 40-percent stake held by AGN Philippines.
Eastern Telecom is the oldest telephone company in the Philippines and was originally controlled by Cable and Wireless of UK. ISM, meanwhile, was a gold-producing company with mines in the municipalities of Itogon and Suyoc in Benguet province.
Aside from ETPI, Ongpin’s group also controls PhilWeb, a publicly listed information technology company. The Philippine Long Distance Telephone Co. (PLDT), through its subsidiary ePLDT, earlier acquired a 20-percent stake in PhilWeb, which was enough to entitle ePLDT to three seats in the PhilWeb board.
Ongpin likewise controls Connectivity Unlimited Resources Enterprises (CURE) which was awarded 3G (third generation mobile communications technology) license and frequency by the National Telecommunications Commission (NTC). Other 3G frequency holders include Smart and Globe Telecom, both of which have already offered 3G services commercially, and Digitel Mobile.
ETPI recorded losses of about P157.31 million in 2005, on account of higher expenses and weak operating revenues. But last year’s losses were 47 percent lower than the previous year’s loss of P301.38 million.
Operating revenues in 2005 dropped to P544.16 million from P649.12 million in 2004. Its data and Internet business contributed the bulk of revenues at P494.26 million followed by its voice and carrier businesses with P29.41 million and P20.49 million, respectively.
But Recto expressed confidence that they will be able to turnaround the company beginning next year. ETPI, of which Recto is also president, is expected to post a P200-million EBITDA (earnings before interests, taxes, depreciation, and amortization) in 2006, The STAR learned.