DITO confirms plans for Q3 follow-on offering

DITO CME [DITO 2.00 ?2.6%; 54% avgVol] [link], the parent company of Dito Telecommunications (Dito Tel), was asked by the PSE to provide the company’s detailed plan for how it will turn its stockholders’ equity (-P44.4 billion) from negative to positive. DITO’s response confirmed its plan to conduct a follow-on offering (FOO) but provided additional information such as the company’s expected timetable for conducting the FOO (Q3 this year) and the potential size of the offering (P1.95 billion to P4.20 billion). The company also listed the other various methods of raising equity that it has already mentioned in the past, such as private placement (up to P40 billion over the next five years) and the conversion of stockholders’ advances to equity (up to P16 billion by the end of FY25).

MB BOTTOM-LINE: One complication that this response revealed that I had not considered was a prohibition against China Telecom, DITO’s 40% foreign partner in Dito Tel, from owning more than 40% of a domestic telecom company. My understanding of the recent amendments to the laws was that those amendments cleared the way for foreign companies to own more than 40% of domestic telecoms, but DITO’s analysis is that since China Telecom is a People’s Republic of China state-owned corporation, it is not allowed to own more than the 40% it already owns. This complicates the situation, since (as DITO points out) the advances made to Dito Tel by China Telecom are “much more than the advances made by the Filipino shareholder.” According to DITO, this makes their books look worse than they actually are; those advances were always intended to be converted into equity at some point, and until they’re converted, it just looks like debt. Unfortunately for DITO, though, they’re not able to disproportionately convert China Telecom’s advances to equity, because if they did that, China Telecom’s stake would illegally exceed the 40% threshold. As DITO says, it’s playing the “long game”. It certainly is, but I’m just not sure exactly what game it’s playing, and exactly who loses if DITO “wins”.

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