As of March 31, 2022, DITO CME HOLDINGS (DITO) has a capital deficiency of 9.4 billion. DITO is the parent company of the third telco, Dito Telecommunity (Dito Tel). DITO has an indirect stake of 53.7% of Dito Tel.
The 9.4 billion capital deficiency means that DITO’s total liabilities exceed its total assets by 9.4 billion. The capital deficiency resulted from the net losses incurred by DITO. In the first quarter of 2022 alone, DITO’s net losses were at a staggering 6.8 billion.
DITO is not only suffering from net losses; it is also hemorrhaging cash. In the first quarter of 2022, it burned 1.3 billion from operating activities. Factoring in cash used for investing and financing total cash burn for the period was 2.4 billion. The cash burn reduced its cash balance to just 1.3 billion by the end of the quarter.
With one more quarter of negative cash flows from operating activities, DITO would probably be running out of cash.
Many would understand the losses and the capital deficiency of DITO as it is a start-up telco. A new telco would have to start from scratch and, in the process, incur significant losses.
But despite the capital deficiency and the negative cash flows, DITO is still trading at 3X pre-Dennis Uy period. Before the acquisition by Dennis Uy of a controlling stake, DITO was trading at around 1.3 a share, and presently it is trading at about 4.15 a piece.
The significant premium on DITO could be attributed to the support of its faithful shareholders. These shareholders are patriots holding on to DITO, expecting that the third telco stands to compete with the incumbents.
DITO can tap these faithful shareholders for capital. DITO can make a Stock Rights Offering to raise the necessary cash and capital for the third telco. The capital raised could wipe out the capital deficiency and bring money for operations.
These faithful shareholders won’t mind contributing capital to ensure that the nation will have a third telco competing with the incumbents. A third telco is necessary for robust competition in the telecommunication industry, and intense competition ensures a better quality of services. For these faithful contributing capital to DITO is just like paying tax.
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