P1.1-B in Meralco dividends P1.1-B in Meralco dividends

05/12/2008

Girding for a major boardroom battle with government representatives led by state fund Government Service Insurance System (GSIS) the Lopez-led management of electricity distributor Manila Electric Co. (Meralco) will pay out a total of P1.1 billion in cash dividends to shareholders this year.

This was bared yesterday by Cebu Rep. Eduardo Gullas, based on documents submitted by Meralco to the Philippine Stock Exchange (PSE).

Of the P1.1 billion, half or P558 million will be distributed to Meralco shareholders on May 13, at a rate of 50 centavos per share.

The other P558 million or 50 centavos per share will be paid in the second semester.

GSIS and other state agencies which owns a total of 33-percent stake in Meralco are consolidating their forces to oust the Lopez group-led management in the power firm’s stockholders meeting on May 27.

Among the entities that are expected to receive their share of the dividends are First Philippine Union Fenosa Inc. and First Philippine Holdings Corp. — two Lopez family-controlled firms that together own 33.38 percent of Meralco.

The two firms hold a combined 372,175,706 common shares in Meralco, or a total of P372 million in dividends, based on the dividend rate of P1 per share.

The dividend beneficiaries will also include government agencies GSIS, Social Security System, Home Development Mutual Fund or Pag-ibig Fund and the Philippine Health Insurance Corp.

The two groups are, however, courting the small shareholders representing approximately one-third of the total Meralco stake.

The P558-million bonus payable on Tuesday is in accord with the 50-centavo per share dividend declared by Meralco’s board of directors on March 17, based on a total of 1,114,770,636 common shares outstanding.

Like other utilities whose shares are publicly traded, Gullas said the country’s largest distributor of electricity faces the constant challenge of keeping rates fair and reasonable, while staying profitable.

“Actually, as a corporation whose shares are traded by the investing public on the PSE, Meralco’s board of directors has a clear mandate to produce gains for shareholders. Theoretically, the entire Meralco board can be removed for not making enough money for shareholders,” Gullas said.

“In fact, the GSIS, SSS, Philhealth and Pag-ibig invested in Meralco shares precisely to make money, either by way of dividends, or share price appreciation, or both. They did not invest in Meralco to lose money,” he pointed out.

“There is nothing wrong with Meralco making money, provided it is based on a reasonable rate of return. And this is where regulators are supposed to come in and tell everyone whether Meralco’s current rates reflect a fair rate of return for the firm, or an excessive return,” Gullas said.

“This is the function of regulators. They should be in a position to categorically say whether Meralco’s rates are fair or unreasonably high,” the Cebu lawmaker added.

Documents filed with the PSE show that Meralco has been regularly paying cash, as well as stock bonuses to shareholders.

Since 1994, Meralco has paid a cumulative P16.25 per share in cash dividends, without counting the 50-centavo bonus payable in the second semester.

Apart from the cash distributions, Meralco paid a 50-percent stock dividend in 1994, another 50-percent stock dividend in 1995, a 30-percent stock dividend in 1996, another 30-percent stock dividend in 1997, a 20-percent stock dividend in 2000 and a 10-percent stock dividend in 2007.

This means a Meralco stockholder with 100 shares in 1994 would have amassed a total of 519 shares by now, with the six successive stock dividends paid out since 1994.

As a utility imbued with public interest, Gullas said Meralco shareholders supposed to be “fully aware that the company faces constant regulatory risk.”

“By this we mean that like other electricity or water distributors whose rates undergo regulatory scrutiny, Meralco’s profitability or lack of it depends in a big way on regulatory action,” he said.

“If we look at large utilities in the United States, they too face constant regulatory risk. And yet, investors continue to be drawn to utilities because they usually enjoy a guaranteed minimum rate of return,” Gullas said.

Sen. Miriam Santiago earlier said the Senate would hold a joint inquiry with the House of Representatives on the government’s plan to take over Meralco, to find out if this would actually lead to the Arroyo administration’s goal of reducing electricity bills.

“We really have to investigate Meralco because our electricity rates are just too high and the company is raking in a lot of profits,” Santiago said.

Last week, Meralco reported a net income of P655 million in the first quarter, up by 3.2 percent from the P532 million it realized in the same period in 2007.

The company posted a net income of P3.61 billion in 2007. PNA

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