Equity restructuring and share swaps

LAST week, Securities and Exchange Commission (SEC) Chair Emilio Aquino met with the Financial Executives Institute of the Philippines (FINEX) board of directors led by 2023 FINEX President Wilson Tan at the new SEC headquarters in Makati City. The FINEX Ethics Committee presented its recently published book titled Ethics: Enduring or Evolving? to Mr. Aquino, who wrote in the book’s foreword that “the SEC’s continuing story manifests that ethics is a guiding star which ushers the entire organization in considering difficult priorities and making decisions which create impact.”

Under Mr. Aquino’s leadership since 2018, the SEC received 25 global and national awards by championing an ethical approach to governance. He has shepherded many reforms in the Philippines’ corporate sector, most notably the Revised Corporation Code passed by Congress in 2019 that fosters inclusive entrepreneurship, good governance, economic competitiveness, and ease of doing business in the country.

Listed companies in the Philippine Stock Exchange (PSE) have welcomed the forward-looking provisions of the new law that updated the old Corporation Code, which was enacted by the Interim Batasang Pambansa in 1980.

For instance, gaming and technology firm DFNN, Inc. obtained a certificate of approval from the SEC this month for its equity restructuring plan. In a disclosure to the PSE, the only publicly listed company in the Philippines’ regulated gaming industry said the restructuring exercise is aimed at improving the company’s financial condition by reducing its deficit in the equity account and offsetting it against additional paid-in capital.

This accounting process is intended to reflect the actual financial condition of DFNN as of end-2021. However, it will not involve capital infusion or a change in the par value of the stock, nor will it result in any changes to the number of issued, outstanding, and listed shares of the company.

DFNN is set to acquire 100% ownership and control of its subsidiary DCG, Inc. through a share purchase agreement. DCG is a joint venture between DFNN and Singaporean firm CYG Pte. Ltd. It is engaged in the business of providing information technology (IT) services to third parties such as system development, web design, business intelligence, software testing, video streaming, and network security.

Its full acquisition of DCG will bolster DFNN’s revenues as the leading IT solutions provider to the financial sector. The parent company also holds licenses for electronic gaming machines and operates digital games in partnership with state-run regulator Philippine Gaming and Amusement Corp. or Pagcor.

In another development, the SEC has approved two share swap deals between property giant Ayala Land, Inc. (ALI) and its listed real estate investment trust known as AREIT, Inc. Under the first deal, ALI subscribed to 252.1 million AREIT shares in exchange for six commercial buildings at the Cebu IT Park with a combined value of P11.3 billion.

A second transaction valued at P22.5 billion involves a property-for-share swap that will transfer several of ALI’s prime commercial properties at the Makati Central Business District to AREIT in exchange for 607.6 million of the latter’s shares. Among the flagship buildings that will be added to AREIT’s portfolio are the Glorietta mall and BPO wings as well as the brand-new One Ayala Avenue East and West BPO Towers at Ayala Center.

After these swap transactions are completed, the assets under management by AREIT will jump to P87 billion. They constitute the biggest-ever asset injection since the country’s pioneering real estate investment trust company went public in 2020 at the onset of the pandemic.

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J. Albert Gamboa is the chief finance officer of Asian Center for Legal Excellence and vice-chair of the FINEX Ethics Committee. #FinexPhils www.finex.org.ph