PLDT Inc., the largest Philippine phone company, sank as a P48 billion ($866 million) four-year capital spending overrun raised questions about its corporate governance and fiscal control.
The stock fell as much as 17% to P1,230, its steepest loss since March 2020, erasing more than P53 billion in market value. The company’s US-traded depositary receipts sank 2.4% on Friday, when PLDT announced the budget irregularity.
The spending probe casts a stain on the finances and governance of PLDT, which is among the nation’s most widely held stocks by foreign investors. It also raised questions about the management of PLDT Chairman Manuel V. Pangilinan, 76, who was also president and CEO until June 2021.
“The core issue here and the primary reason PLDT is getting sold down is corporate governance,” said Manny Cruz, strategist at Papa Securities. “The overrun is quite a substantial amount and it went on for years. That raises questions on how that could have happened to a blue chip company.”
The budget overrun is almost equivalent to the company’s combined 2020 and 2021 net income. It’s also more than twice the P21.46 billion of cash and cash equivalents that PLDT reported at the end of last quarter.
Given the growing scrutiny on environmental, social and governance issues, PLDT’s debacle will raise concerns among its large base of foreign investors, which currently hold more than 40% stake in the company.
The issue hasn’t been “fully addressed by management with regards to details, how it transpired or steps they will be taking in response,” said Carlos Temporal, analyst at AP Securities. “This will remain an overhang for the stock and the market will be pricing in various speculations” including scenarios that could depict a larger issue within the group.
SGV & Co., the nation’s biggest auditing firm, is on its 20th year as the company’s external auditor. In other jurisdictions like the European Union, a company is required to invite bids for other auditors or have joint audits after 10 years.
PLDT also has the second lowest percentage of independent directors among the 30 companies in the benchmark Philippine Stock Exchange Index, according to data compiled by Bloomberg. In the broader MSCI Asia Pacific, it ranks 1,453 out of 1,486 companies.
The Philippine Stock Exchange will look into trades involving shares of PLDT after bourse officials noticed heavy selling before the market closed Friday and an hour before the company disclosed the overrun, the Philippine Daily Inquirer reported, citing PSE President Ramon Monzon.
PLDT’s shareholders include Nippon Telegraph & Telephone Corp., Hong Kong’s First Pacific Co. and Manila-based JG Summit Holdings Inc. Vanguard Group Inc. and BlackRock Inc. are among the biggest asset managers that hold the stock, according to Bloomberg data.
Several other companies of which Pangilinan is also chairman declined. Metro Pacific Investments Corp., owned by First Pacific, sank as much as 5.4%, while Manila Electric Co., fell as much as 3.3%. Philex Mining Corp. was down more than 1%, set for its third straight day of declines.
Mr. Pangilinan stunned the Philippines in 1998 when he engineered a P30 billion takeover of PLDT that he later merged with Smart Communications Inc., a mobile phone startup which he already owned through First Pacific.
“Pangilinan will have to take responsibility for what transpired following the principles of command responsibility,” said Papa Securities’ Cruz. “This could end his career on a sour note and blemish a sterling legacy.” — Bloomberg