By Emeterio Sd. Perez
Section Editor
PHILIPPINE Long Distance Telephone Co. (PLDT) has a good reason in not allowing Smart Communications Inc. to sell shares through an initial public offering—the telephone giant would lose part of the dividends it regularly receives from one of its two cellular- phone subsidiaries.
PLDT said Smart is “subject to loan covenants that restricts its ability to pay dividends, redeem preferred shares, make distribution to PLDT or otherwise provide funds to PLDT or any associate without the consent of its lenders.”
However, PLDT said that some creditors have exempted it from the covenant allowing Smart to remit to it P57.523-billion dividends in five years—P14 billion in 2006; P19.717 billion in 2005; P16.10 billion in 2004; P6.166 billion in 2003; and P1.54 billion in 2002.
In addition, Smart also boosted PLDT’s revenues by redeeming P5.283 billion worth of its preferred shares.
PLDT also relies heavily on its cellular units—Smart and Pilipino Telephone Corp. (Piltel)—for cash.
“A significant portion of our cash flow is generated by our wireless business, which contributed revenues of approximately 60 percent and 59 percent of our service revenues in 2006 and 2005 respectively,” PLDT said in a filing.
In the first six months of 2006, PLDT said these cash flows “amounted to P17.226 billion in the first half of 2006, a decrease of P3.533 billion, or 17 percent, compared to P20.759 billion in the same period in 2005.”
“Smart has publicly stated that it believes it had 10 years from the commencement of its operation, or until August 2004 to conduct a public offering of its shares,” PLDT had said in an earlier filing.
Republic Act 7925, or the Public Telecommunications Act, requires telecommunication companies to broaden their ownership base by selling shares to the public.
Smart, which is fully owned by PLDT, has not done so, while its competitors Globe Telecom Inc. of the Ayala group and Digital Telecommunications (Phils). Inc. of the Gokongweis have long been listed on the exchange.
As a result of its noncompliance with the provision of the law, PLDT has recognized that Smart faces the risk of losing its franchise.
“As Smart has not conducted a public offering of its shares, the Philippine Congress may revoke the franchise of Smart for its failure to comply with the requirement under R.A. 7925 on the public offering of its shares,” PLDT said.
“A quo warranto case may also be filed against Smart by the Office of the Solicitor General of the Philippines for the revocation of the franchise of Smart on the ground of violation of R.A. 7925.”
Smart’s hope of not losing its franchise is anchored on a bill pending congressional approval since 2004.
The proposed legislation amending the law “seeks to declare that a telecommunications entity shall be deemed to have complied with the requirement of making a public offering of its shares if two-thirds of its outstanding voting stock are owned and controlled, directly or indirectly, by a listed company,” PLDT said.
PLDT has been listed on the stock exchange since 1953.
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