PAL board met to discuss raising authorized capital to P30 B

Philippine Airlines' [PAL 6.05] board of directors voted yesterday on a measure that would raise PAL’s authorized capital stock (ACS) from P13.5 billion to P30.0 billion, with the same par value of P1.00/share.

This disclosure was made after the market, but it wouldn’t have really mattered anyway since the stock has been suspended and untradable since June for failing to submit audited financial statements for FY20. No other information was provided, aside from the setting of the company’s annual stockholders’ meeting for November 25, 2021.

MB BOTTOM-LINE

I’ll admit that I’ve lost the plot of what is happening with PAL. Barkadans should remember that a company’s ACS is the total number of common and preferred shares that it is permitted to sell.

With 11.6 billion shares outstanding as of this writing, PAL’s board is essentially authorizing PAL’s management to sell (up to) an additional 18.4 billion shares. That is an incredible amount of potential dilution for the P7 billion in outside capital trapped in the stock since June.

Theoretically, management already had the authority to sell up to 1.8 billion shares that were authorized, but not issued, but it appears as though the board has plans that will require 10x that amount.

We still have to wait to hear how the board voted on the ACS raise, but assuming the measure passes with the board, it still has to be approved by shareholders. Unless PAL calls a special shareholders’ meeting in the interim, the next scheduled shareholders’ meeting is the ASM that the disclosure mentioned on November 25.

I have a feeling that this raise is related to the restructuring agreement that PAL agreed to as part of its bankruptcy protection.

Perhaps this raise is just a technical step required for Lucio Tan to inject equity in compliance with that agreement, or perhaps PAL is also getting ready to offer some kind of convertible preferred shares sale like Cebu Pacific [CEB 39.95 0.62%] did, but there isn’t a lot of information out to appropriately guide us.

PAL’s communications with the market have degraded over the past year, so I don’t expect the company to prioritize investor guidance or expectation management as they lurch through this process. 

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