ABS may need a “white knight” to continue as a going concern

SGV, the independent auditor of ABS, has declared that a material uncertainty exists that may cast significant doubt on ABS’ ability to continue as a going concern. This is after ABS registered a net loss of 13.5 Billion Pesos in the year 2020.

Earlier in the year 2020, ABS said that it will adopt and implement cost control measures, reducing general and administrative expenses (GAEX) or overhead, rationalizing capital expenditures, and streamlining its manpower requirements. Given the reduced operations, ABS is reviewing its current business models, structures, processes and systems, for a more agile, efficient and effective organization.  It appears that ABS has not been able to cut costs deep enough. General and Administrative expenses for the year 2020 stood at 13.8 Billion Pesos despite having a gross profit of only 1.7 Billion Pesos.

It is unfathomable why ABS’s GAEX has not gone down significantly during the year when gross profit has dived 79.5%. We can glean from that fact that the Lopezes may have been maintaining a big fat government-like bureaucracy at ABS. No wonder why the pre-crisis earnings of ABS is of the same level with that of GMA7 despite ABS generating a revenue 2.64X (times) that of GMA7.

ABS’ cash balance continued to dwindle as it burns cash on operations. At the end of the first quarter of 2021, ABS’ cash balance stood at only 3.7 Billion Pesos. Despite the standstill agreement with its creditors, ABS might still be having difficulty servicing its debt as it generates no cash from operations.

Should the Lopezes be unable to infuse fresh cash into ABS, a “white knight” might be needed to provide the necessary fresh capital to let ABS continue as a going concern.

In the past, the Lopezes sold their interest in NLEX, Meralco, Maynilad Water to the Manny Pangilinan/First Pacific group. Lopezes’ Bayantel was sold to Globe Telecom controlled by the Ayalas. While Henry Sy Jr. once upon a time offered to buy the Lopez family’s remaining stake in Meralco. The Gokongweis were once a partner of the Lopezes in PCIBank.

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