Philippines’ largest telco PLDT slumps 19% after billions of pesos in budget overrun revealed

PLDT, the largest Philippine phone company, slumped the most on record with almost 62 billion pesos (S$1.5 billion) in market value wiped out as investors punished the stock amid questions over its corporate governance and fiscal control following a 48 billion peso four-year capital spending overrun.

The stock plunged more than 19 per cent to 1,192 pesos, its steepest loss ever based on prices going back to January 1990, as investors dumped the shares. The company’s US-traded depositary receipts sank 2.4 per cent on Dec 16, when PLDT announced the budget irregularity from 2019 through 2022, when it spent 379 billion pesos to bulk up its network for broadband and data to stave off rival Globe Telecom.

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 Pangilinan, 76, who was also president and chief executive officer 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 21.46 billion pesos of cash and cash equivalents that PLDT reported at the end of last quarter. While PLDT hasn’t given details, Pangilinan said in a Philippine Daily Inquirer report that as much as 130 billion pesos in undocumented purchases were made from 2019 through 2022 and an audit lowered the “questionable deals” to 48 billion pesos.

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 a more than 40 per cent stake in the company. More than 1.18 million PLDT shares changed hands Monday, the most since June 2017.

The issue hasn’t been “fully addressed by management with regard 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. 

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The Philippine Stock Exchange (PSE) will look into trades involving shares of PLDT after bourse officials noticed heavy selling before the market closed on Dec 16 and an hour before the company disclosed the overrun, the Philippine Daily Inquirer reported, citing PSE president Ramon Monzon.

The Philippines’ Securities and Exchange Commission (SEC) has also launched an inquiry, and has ordered the Philippine Stock Exchange to submit its report on its own investigation on the Dec. 16 trading activities. 

The regulator’s move should provide clarity to investors on what’s happening in PLDT, said Japhet Tantiangco, analyst at Philstocks Financial. “It’s highly possible that there were lapses and violations committed that led to this problem and PLDT as a public company must explain to investors what happened,” Tantiangco said. “The SEC must see to it that investors are protected.”

The SEC said it “will closely monitor the investigation and will continue to conduct a parallel, independent inquiry into the matter.”

Some investors say it may be premature to pass judgment on PLDT’s system of controls pending the release of more details on what happened.

“It’s too early to judge PLDT’s quality of governance without the details” on how this came about, said Noel Reyes, chief investment officer at Security Bank. “PLDT never had an issue like this before under Pangilinan.”

PLDT’s shareholders include Nippon Telegraph & Telephone, Hong Kong’s First Pacific and Manila-based JG Summit. Vanguard Group and BlackRock 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, owned by First Pacific, sank as much as 5.4 per cent, while Manila Electric, fell as much as 3.6 per cent. Philex Mining closed down more than 1 per cent, falling for a third straight day.

Pangilinan stunned the Philippines in 1998 when he engineered a 30 billion peso takeover of PLDT that he later merged with Smart Communications, a mobile phone startup he funded 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