PH Resorts Group Holdings trying to raise funds quickly to fund casino development

The casino-resort arm of Dennis Uy’s mini-empire is majority owned by Mr. Uy’s holdco, Udenna Corp. PH Resorts Group Holdings [PHR 1.69 1.20%] disclosure indicates that it wants to raise P600 million in a “most expeditious and efficient manner” to “partially fund” the development of its Emerald Bay Resort and Casino project. The deal will work like this: Udenna Corp will sell 352,441,000 common shares in PHR in a private placement to “various Qualified Buyers” at P1.70/share, and then Udenna will take the P600 million that it earns from that sale and immediately buy 352,441,000 shares from PHR at the same P1.70/share price.

The shares that Udenna Corp will buy from PHR will be primary (newly issued), so the deal is dilutive to other PHR shareholders, but it will result in PHR receiving P600 million that it can use to fund the casino development. If it doesn’t choose to use the funding for Emerald Bay, PHR can just elect to use the money for “general corporate purposes” (basically: anything it wants). The amount in question is equal to about 4.8% of PHR’s total outstanding common shares.

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Totally not weird at all for PHR to be headed back to the market to raise a new round of working capital in a “most expeditious and efficient manner” less than a year after it already raised P750 million in a FOO to do pretty much the same thing. Totally not weird at all that Udenna couldn’t produce a relatively small sum as P600m to push down to PHR and satisfy the working capital deficit that way. In the two quarters since the FOO and Udenna injection, PHR has burned through almost all of its cash (has less than P50 million in the bank), and is currently trying to renegotiate a massive P6 billion bridge loan into a long-term project loan (but no success on that yet).

In its Q2 earnings report, PHR said that it would rely on either borrowing money, shareholder advances, and/or paid-up capital to fund the remaining construction on the project, but did not mention this “most expeditious” private placement in the report. Technically, firms are supposed to report any material changes that might have happened over the period (Q2), and any potential material events are known to management that might occur in the future, but the threshold for this reporting is 5% of the firm’s “financial position”. Perhaps that’s why the private placement raise was limited to just 4.8% of PHR’s outstanding stock, to avoid breaking the disclosure rules of the earnings report that was released with no mention of the raise just four days earlier?

While PHR did mention in the MDA section that it “may” need to raise additional funds, it also said that it “expected” to meet its funding needs for the “next 12 months” using “additional borrowings” and funds from the “successful retail offer” (FOO). So, either PHR pinned all of its funding hopes on the re-negotiations of that bridge loan that totally didn’t work, or it knew that it planned to issue 352 million in new shares to Udenna Corp when it wrote those lines and just neglected to update that little bit about how they expected to meet their 12-month funding needs. Either way, maybe not be a great look.

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