Saturday, January 12, 2013

stok tots: on apc's par value reduction (12 jan 2013)

recently, apc disclosed to the pse that its bored of directors approved the reduction of its par value from 1 peso to 35 centavos (see 1 below) ... it further disclosed that the reduction in par value aims to reduce the capital deficit of apc by 5,888,635,367 (see 2 below) ... as of 3Q2012, aps's deficit is  7.736 billion pesos (see 3 below) ... the reduction in par value will be submitted for stockholders' approval in june 2013 .. and the sec's approval is expected by end of september 2013 ...

why would apc management want to reduce the company's capital deficit via reduction in par value? here's what one internet source (see 4 below) tells us about why companies reduce their par value:
1.  to support future dividend payments if the company is experiencing accumulated loss. Capital reduction will compensate for a deficit in retained earnings allowing the firm to pay dividends without  waiting for current operating results.

2. to support capital increases by new investors
3. to encourage efficiency of capital usage, which consequently improves financial ratios (e.g., ROE, ROA, total asset turnover) and increases the company’s attractiveness among investors.
with the reduction in par value and capital deficit, however, i reckon that apc still wont be declaring dividends in the coming days/months ... thus i can only assume that apc"s capital restructuring exercise is in preparation for new investments ... either by old investors or new ones ... either way ... whether it is declaring divs or  new investments/investors  ... these could only mean well for the shareholders of apc ...

previous APC monitor: The Ninja Stock Monitor: APC (04 jan 2013)

1 - Amendment of Article Seventh of the Articles of Incorporation of APC Group, Inc. by reducing the par value of its common shares from P1.00 to P0.35

2 - Additional information re: Board approval of reduction in par value

3 - apc 3rd quarter 2012 financial report

4 - Benefits of capital reduction