It may have taken them some eight years to get a favorable ruling on their soured investments in publicly-listed Alliance Select Foods International Inc. But for this bunch of Singaporean investors, it was worth the while.
The Dec. 15, 2022 ruling of the Securities and Exchange en banc voided the 2014 private placement and 2015 stock rights offering of Alliance Select that eased out the Singaporean investors and allowed Strongoak Inc. to take control of 55.32 percent of Alliance Select.
The SEC decision was a clear victory for the Singaporean investors and other minority shareholders of the company, whose shares were subsequently diluted by the twin corporate maneuvers.
The 2014 and 2015 transactions drew international attention and deterred foreign investments in the Philippines. Foreign investors became worried that money placed in local companies could be easily diluted through various schemes.
Strongoak, a local company associated with Alliance Select founders, managed to take control of Alliance Select through the private placement and SRO without conducting a tender offer. A group of Singaporean minority investors led by Hedy S.C. Yap-Chua, Harvest All Investment Limited, Victory Fund Limited and BondEast Private Limited filed a complaint letter on October 5, 2018 and a verified complaint with the SEC on Nov. 16, 2020.
The scales of justice, however, did not initially tilt toward the side of the minority investors. The SEC’s Markets Securities Regulation Department (MSRD) on May 19, 2022 dismissed the complaint of the Singaporean investors for alleged forum shopping and prescription of action, without looking into the substantive portion of their complaint.
The aggrieved parties appealed the decision to the SEC en banc, which looked closer into the case. SEC chairperson Emilio Aquino this time favored Chua and other minority shareholders.
The SEC declared the subscriptions of Strongoak to the Alliance Select shares under the 2014 private placement and 2015 SRO void and ordered them canceled from the stock and transfer book of the company. The ruling further stated that the questioned shares “shall be considered as unsubscribed, and … be allocated for subscription by any person who intends to buy the same …”
The decision added that “once the subscription is fully paid, ASFII shall pay Strongoak the price it paid for the subscriptions that were nullified.”
The Singaporean investors after their seven-year quest for justice now want the SEC en banc to issue a writ of execution to enforce its December 15, 2022 decision declaring the AFFII subscriptions made by Strongoak void.
Alliance Select has a long history of beefing up its capital since its commercial operations in 2003 to fund its tuna processing, canning and the export of canned tuna products.
From an authorized capital stock of P1.6 million. ASFII amended its articles of incorporation several times to increase its capital base to P300 million in 2004 and P700 million in 2005. In October 2006, the company held an initial public offering of P134 million worth of common shares, representing 25.04 percent of issued and outstanding capital stock.
The four Singaporean investors 2009 subscribed to the shares of ASFII. Two years later in 2011, ASFI conducted a stock rights offering totaling 272,267,965 shares from the company’s unissued capital stock to fund its expansion and operational requirements.
The minority shareholders participated in the 2011 SRO that resulted in the increase of their combined shareholdings in ASFII to 34.4 percent.
ASFII further raised its authorized capital stock to P1.5 billion in December 2013. And on May 5, 2014, it issued 430,286,226 shares to Strongoak, an unheralded company, through a public placement that resulted in Strongoak owning 28.69 percent of its total issued capital stock.
The board of ASFII in 2015 approved the doubling of its authorized capital stock from P1.5 billion to P3 billion to fund planned expansions and operational requirements and the conduct of an SRO of up to P1 billion in common shares.
Strongoak acquired 952,479,638 common shares from the P1-billion common shares of ASFII that were offered under the 2015 SRO. The transaction resulted in Strongoak owning 1,382,765,864 common shares, representing 55.32 percent of the total issued and outstanding common shares of ASFII. No tender offer was conducted in relation to the acquisition.
The series of transactions did not escape the prying eyes of the SEC en banc. It noted that MSRD failed to check the question relating to the possible violation of Section 19 of the Securities Regulation Code and its implementing rules and regulations.
It also found that Alliance Select violated Section 19 of the Securities and Regulation Code, which provides that “if any acquisition of even less than 35 percent would result in ownership of over 51 percent of the total outstanding equity securities of a public company, the acquirer shall be required to make a tender offer.”
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