Buying opportunity

The excitement at PLDT happened last week while I was already in Singapore to visit my son and his family for Christmas.  Here is how Singapore’s The Business Times reported it, based on a Bloomberg report: “PLDT, the largest Philippine phone company, slumped the most on record with almost 62 billion pesos (S$1.5 billion) 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 percent 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 sank 2.4 percent on Dec. 16, 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.“

“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.”

One other estimate claims PLDT lost over 22 percent of its value. That’s about P76 billion in the wealth of shareholders – from its largest owners, down to small investors in pension funds – wiped out.

The market can be really harsh in punishing any hint of bad news from a listed issue. But in this case, I didn’t for a moment think some corporate hanky panky took place.

PLDT’s top management has a pretty good reputation and that includes the CFO who was suspended while investigation was being done. I have asked around and those who know her from UP, PNOC and PLDT only have good things to say.

What happened is something that could happen in a conglomerate that has become very big and probably bureaucratic. The CEO’s ability to know everything going on is limited by how much subordinates report and what questions top brass ask their subordinates.

I remember my late former boss Ronnie Velasco showing up unanounced in worksites or just stopping at any Petron station and going straight to the toilet. Woe to the vice president and his managers if worksites look messy or toilets not looking or smelling good. He calls it management by wandering around.

It was a particularly good way of managing the initial stages of our geothermal power development. Those impromptu meetings at the worksites have produced decisions that ensure the successful launch of pioneering projects.

Al Panlilio, PLDT president explained the context of what happened as explained by Malaya Business Insight: ”It was a confluence of factors. PLDT having to regain network leadership following years of underinvestment in Capex; the threat from former president Duterte for telcos to shape up; intense competition in the telco sector with the anticipated entry of DITO funded by ChinaTel, as well as the emergence of a competitor in the fiber space, Converge. Finally, the emergence of the COVID pandemic and the resulting lockdowns and quarantines, required the installation of fast fiber connections in millions of households for work and schools, pushed network teams to fast-track rollouts.“

MVP disputed claims PLDT didnt have sufficient controls. “So, the data are there. It is within the system,” MVP said. “The question is: to what extent are the accumulated and unspent capex reported at our level?”

According to a published transcript of the investors briefing, MVP said he himself had not thought of asking his people – who were under pressure to upgrade the system whether they had carryover capex (or those rolled over from the previous year.

MVP and his team assured investors that a significant chunk of the capex had been delivered and that the assets – mostly related to 5G rollouts – are sitting in the warehouses of either PLDT or the vendors and are just waiting to be installed once PLDT is ready to do so.

Apparently, what PLDT  referred to as “overspend” in its disclosure is the “gap” in the actual project progress, which was ahead of what was recorded in PLDT’s accounting books. In other words field performance was way ahead of bookkeeping.

PLDT  considers it an “overspend” because it breached the approved capex budget for the current year. But given that it only dipped into the capex budget of the succeeding years, the more appropriate description of this “overspend” is accelerated budget spend.

According to Singapore’s Business Times, 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.

But there are other important things that must be addressed including potentially replacing the external auditor who also failed to detect the problem over the last two years.

SGV & Co., the nation’s biggest auditing firm, is on its 20th year as PLDT’s external auditor. The Business Times noted that 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.

But on the whole, this is one unfortunate event that shouldn’t have happened. It was a very expensive mistake that caused so much anxiety among shareholders. Ambulance chasers in the US were also quick to threaten a class action suit to enable investors to regain losses.

PLDT is one if the bluest of our blue chips that generously shares profits with investors. I see the decline in stock price as a buying opportunity. The major shareholders are still there and are good company for smaller investors.

PLDT’s shareholders include Nippon Telegraph & Telephone, Hong Kong’s First Pacific and Manila-based JG Summit. Vanguard Group and BlackRock are among the biggest asset managers that hold the stock, according to Bloomberg data.

Must likely, we will see this as a tempest in a teacup a year from now and wonder what the excitement was all about.

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco