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Stock Commentary

DITO CME clarifies reason for Udenna’s absence from SRO

Merkado Barkada
DITO CME clarifies reason for Udennaâs absence from SRO

Yesterday I reported on the DITO CME [DITO 5.90 5.30%] SRO, and how the disclosure “raised more questions than it answers”. Chief among those questions was the (at the time) conspicuous absence of Udenna from the SRO itself.

I raised other issues as well, such as the ex-date overlapping with the pricing date, and the extremely low level of detail offered on DITO’s use of the proceeds, but the Udenna thing seemed really odd.

That’s why I was so glad when Udenna's Investor Relations Head, Leo Venezuela, contacted me to let me know that Udenna’s absence was due to a little quirk in the PSE’s rules. You see, normally after a backdoor listing (such as the one that resulted from the share-swap with Udenna), the PSE requires the listed company to conduct a follow-on offer before any capital-raising activities are undertaken.

A stock-rights offering (SRO) is not usually allowed, except (as Mr. Venezuela explained) in cases where the majority shareholder sits out the first few rounds of the SRO. That’s what is happening here.

DITO is conducting its post-backdoor FOO, but instead of a FOO, it’s doing a Udenna-less SRO. As Mr. Venezuela also explained (and a few MB readers pointed out), this is exactly what AC Energy [ACEN 10.88 1.30%] did about one year ago.

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I was aware of the FOO rule, but I had not considered that Udenna’s absence from the SRO was required in order for DITO to conduct the SRO in the first place.

This is just another way for a listed company, post-backdoor listing, to comply with the PSE’s requirement to conduct some form of offering prior to raising additional equity. Mr. Valenzuela did point out, however, that Udenna would be able to participate by subscribing to any rights shares that were not taken up in the first few rounds.

As much as I like refining my understanding of a situation, I especially like to refine it by learning about a new wrinkle to an old rule!

Thanks again to Mr. Venezuela for the context; I’m happy to add that little bit of SRO knowledge to my library, and then pass it on to the Barkadans!

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Merkado Barkada is a free daily newsletter on the PSE, investing and business in the Philippines. You can subscribe to the newsletter or follow on Twitter to receive the full daily updates.
Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.

DITO TELECOMMUNITY CORP

PHILIPPINE STOCK EXCHANGE

UDENNA CORP.

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