PLDT shares crash following $869 million capex overspend

Shares of PLDT were down 17% on Monday after the telco revealed it has completely blown its capex budget.

The Philippine Securities and Exchange Commission (SEC) has launched an investigation into unusual trading activity ahead of PLDT’s damaging disclosure, and, according to local press, chairman Manuel V Pangilinan has appointed an additional external auditor to look for evidence of fraud.

Shares of PLDT closed down 17 percent on Monday following Friday’s revelation that its capital expenditure for 2019-2022 would come in at PHP379 billion ($6.9 billion), as much as PHP48 billion ($869 million) more than it budgeted. The telco said the overspend will continue to be recorded on its books in fiscal 2023 before coming back down again in 2024.

In a statement, PLDT said its internal investigation has “so far, not uncovered any fraudulent transactions, procurement anomalies, or loss of assets arising from the capex spend.”

Despite the assurances, the revelations have – unsurprisingly – rocked investor confidence in PLDT. On Monday its share price fell as much as 19 percent before recovering, albeit only slightly to minus 17 percent, by the time the Philippine Stock Exchange (PSE) closed for the day.

It isn’t just Monday’s market activity that is a cause for concern though. The SEC has launched an inquiry into reports of PLDT share sales before the operator made its official disclosure on Friday.

“The SEC has ordered PLDT to clarify its disclosures to the Commission and the Philippine Stock Exchange (PSE), in relation to statements attributed by the media to the company and its officers, especially with regard to the nature of the PHP48 billion expenditure,” said a statement from the SEC on Monday. “The SEC has likewise directed PSE and [its compliance unit] Capital Markets Integrity Corporation (CMIC) to submit initial reports on their investigation into the trading activities that have resulted in the sudden and sharp decline in the share prices of PLDT before the official disclosure of the ‘budget overruns’, among others.”

Perhaps even more shocking is the news that PLDT’s chairman has been aware of the overspend for months.

Manuel V. Pangilinan (MVP) said in an interview with the Philippine Daily Inquirer on Monday that a senior executive told him in October that PLDT had issued a staggering PHP130 billion ($2.35 billion) worth of undocumented purchase orders over the last four years. MVP ordered the company to renegotiate or cancel these orders, subsequently lowering the undisclosed spending to the figure disclosed last Friday. Despite these efforts, the fact remains that when spending goes under the radar, it is much harder to detect bribery and fraud.

According to the report, four senior executives, including the heads of finance, procurement and networks, have been suspended with pay. The fourth was responsible for recommending suppliers to the company. MVP has also hired an extra auditor with no connections to PLDT’s current external auditor, SGV & Co., to go over the company’s books to find evidence of potential fraud.

PLDT has struck several tower sale and leaseback deals over the course of this year, and last week it agreed another one with local towerco Unity Digital Infrastructure for 650 towers. These deals are expected to bring in PHP86 billion this year, which PLDT said will soften the blow of its capex overspend.

Repairing its reputation is another matter though.

“Certainly, we’ve taken a knock on our reputation,” said MVP, in the Inquirer report. “We pride ourselves on governance, on disclosures, and we’re going to get a knock. We have a job in trying to recover our credibility.”

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