SEC says media deal is ‘disadvantageous’ to ABS-CBN investors as it reveals TV5 drowning in P5.3B red ink in last 3 years

The Securities and Exchange Commission (SEC) has raised several issues in the P4 billion joint venture deal between TV5 of bilyonaryo Manny V. Pangilinan and ABS-CBN Broadcasting of the Lopez family.

In his testimony to the House Committee on Legislative Franchises, SEC general counsel Romuald Padilla questioned why ABS-CBN wanted so badly to buy a stake in loss-making TV5 that it agreed to such a lopsided deal.

Padilla told lawmakers that based on its initial evaluation of the deal, ABS-CBN needs to address four main issues involving its purchase of P1.84 billion debt notes that could be converted to an additional 14.93 percent in TV5 after eight years.

The debt note is the second part of the joint venture agreement where ABS-CBN will pay P2.16 billion for a 34.99 percent stake in TV5 and enable it to get a new home on free TV after losing its franchise two years ago.

The SEC questioned why ABS-CBN agreed to tie its interest earnings on the debt notes to the cash dividends to be declared by TV5.

This means that ABS-CBN won’t earn from the convertible notes until TV5 has erased its retained earnings deficit of P1.2 billion as of 2021. (Cash dividends are declared based on the company’s available retained earnings or accumulated profits).

Records show that TV5 has been losing for at least three years – P1.2 billion in 2021, P1.6 billion in 2020, and P2.5 billion in 2019.

The SEC also found it “unusual” for ABS-CBN to agree to wait for eight years before it could exercise its right to gain more shares in TV5 instead of demanding a “shorter or more reasonable period of time.”

SEC said this prevents ABS-CBN from taking advantage of the notes’ equity feature at a more opportune time.

Just like the interest rate-dividend issue, Padilla said “this again, to the mind of the Commission, is disadvantageous to ABS-CBN and to its shareholders, especially minority investors.”

SEC also found it “unusual” that ABS-CBN agreed to the provision that it could only convert the debts to equity much earlier than eight years if TV5 defaults on its loans.

Padilla questioned why ABS-CBN would choose to increase its stake in a bankrupt TV5 when the more reasonable thing to do is to remain as a creditor and demand payment considering its preferred status (first in line to be paid) as a convertible note holder.

“For ABS-CBN, being a shareholder of TV5 is more important than being able to collect a debt from a defaulting entity. This is a concern on the part of the SEC whose mandate is to protect the investing public which includes investors of ABS-CBN, a publicly-listed company,” said Padilla.

Padilla, however, stressed the SEC needs more time and data to determine whether TV5 and ABS-CBN violated any regulation.

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