A capital shortfall is a situation where a company does not have sufficient financial resources or capital to meet its obligations. DITO CME has argued that most of its liabilities are non-cash in nature and there is no immediate need to address this.
Big picture
DITO CME president Donald Lim and chief financial officer Leo Venezuela issued a comprehensive disclosure to discuss how they aim to address the company's negative equity, in response to a request from the Philippine Stock Exchange.
DITO CME is the listed parent firm of Uy’s venture with China Telecom, DITO Telecommunity.
Apart from fundraising, DITO CME pointed to its ongoing network rollout and growing telco revenues.
It reiterated plans to become profitable by the end of 2028 and achieve positive earnings before interest, taxes, depreciation, and amortization by the end of next year.
Long-term fundraising plans
DITO CME said most of the equity funding will come from raising up to P40.3 billion from existing and new investors until the end of 2028.
It has so far raised P5.5 billion from third parties such as Xterra Ventures Pte. Ltd., Summit Telco Corp. Pte. Ltd., and Summit Telco Holdings Corp.
Advances from Uy, China Telecom
The group also aims to convert almost P16 billion in shareholder advances from Uy’s Udenna and China Telecom to equity, allowing them to increase their respective ownership.
Advances are a form of debt and are recorded in the books as liabilities.
Legal restrictions
The problem is advances made by China Telecom are “much more than the advances made by the Filipino shareholder,” which is Uy’s group, DITO CME said in its explanation to the PSE.
Immediately converting these might cause China Telecom, owner of 40 percent of DITO Telecommunity, to violate the Public Service Act, which restricts foreign state-owned enterprises from holding over 40 percent equity in telecom companies.
“Thus, DITO Tel’s foreign shareholder could not easily convert its advances into equity as it will be illegal,” DITO CME said.
The group plans to complete the conversion to equity by the end of 2025.
Follow-on offering
DITO CME earlier tapped BDO Capital & Investment Corp. to sell P1.95-P4.2 billion worth of shares to also strengthen its equity position.
It plans to conduct the offering during the third quarter of 2024.
What’s next?
DITO CME said it focused on growing DITO Telecommunity, which is steadily gaining market share versus larger rivals.
“In only the third year from commercial operations, DITO Telecommunity has already gained more than 11.3 million subscribers, resulting in increasing cash flows from operations,” DITO CME said.
“Thus, the accumulated losses will be reduced and/or wiped out as soon as the operations are ramped up in the following years,” it added.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
