Spending scandal at Philippine phone giant had roots in ambition

The day after the Philippines’ largest phone company plunged by a record 19% following an audit disclosure that shocked investors, chairman Manuel Pangilinan tweeted that his arowana, a freshwater fish, had just died.
The poor fish had “probably absorbed all the angst of PLDT, on our behalf,” he quipped.
He was referring to the scandal that has engulfed PLDT Inc, with the company losing more than $1bn in market value and becoming the subject of a regulatory investigation and a probe into possible insider trading. The bourse says it hasn’t found evidence of insider trading but its investigation is continuing.
Manuel Pangilinan in 2018.
PLDT has described this month’s disclosure of more than $800mn in previously unreported spending over four years as a “budget overrun” that involves “no fraud, no anomalies.”
But the Philippine stock exchange and securities regulator said the company should clarify what happened, and the head of the bourse said it may take time for PLDT to regain the full confidence of investors. The big question hanging over PLDT: How did so much spending go unreported for so long at a company that’s almost a century-old and had won awards for corporate governance?
PLDT was motivated by a need to keep up in an increasingly competitive industry, according to a company disclosure that cited CEO Alfredo Panlilio at a briefing for investors and analysts this week. The company had a fierce rivalry with local peer Globe Telecom Inc and was under pressure from a new entrant backed by China Telecommunications Corp.
“Behind the irregular spending was the desire to regain leadership and prepare for threats from new players,” said Japhet Tantiangco, an analyst at local brokerage Philstocks Financial Inc.
Pangilinan and Panlilio didn’t respond to multiple requests from Bloomberg News for interviews and comments since the company’s announcement triggered investor and regulatory concerns.
The Makati-based firm said after the market closed on December 16, a Friday, that an internal audit had found as much as 48bn pesos ($869mn) in previously undisclosed spending. The outlays ran from 2019 through 2022, a period in which PLDT forked out 379 billion pesos mostly to improve its network and upgrade to 5G.
The following Monday, its stock plummeted almost 20%, the biggest decline in data compiled by Bloomberg going back to 1990. The country’s Securities and Exchange Commission announced it had started an inquiry, saying the overspending and the stock selloff before the disclosure were “areas of concern.” It also ordered the nation’s bourse to submit a report on its own investigation into the trading patterns.
Trading in PLDT shares spiked in the 10 minutes prior to the close that Friday, before the company informed the exchange about the spending.
PLDT executives including Pangilinan and Panlilio told the Wednesday briefing that the previously unreported spending was for equipment to transform the network after years of underinvestment, according to a company disclosure the day after. Panlilio said they felt pressure to do so, partly because then Philippine President Rodrigo Duterte was pushing telecommunications companies to shape up and due to increasing competition and the pandemic. The company said there was no fraudulent trading before the December 16 announcement.
“Nobody is shirking from their responsibility,” Pangilinan, who’s known as MVP, said at the meeting, according to a transcript obtained by local media Philippine Daily Inquirer. “I take command responsibility and Al” — referring to Panlilio — “also takes full responsibility.”
Carlos Temporal, an analyst at local broker AP Securities Inc, attended the briefing and concluded that “without any substantial changes in top management, sentiment may not recover significantly.”
Anabelle Chua, PLDT’s chief financial officer and chief risk management officer, has been put on paid leave so an “independent investigation” can be conducted on the transactions, the company said this week. On December 15, PLDT separately said the board confirmed three new appointments: a group controller, chief technology officer and chief transformation officer.
Shares in PLDT, which lists “fast is better than perfect” as one of its six corporate values, have lost 17% since it revealed the spending.
The company said on Thursday there was no fraud, no anomalies and “no unrecorded transactions in relation to the overrun.” It also said it expects earnings before interest, taxes and depreciation to remain unaffected this year. But it warned it will reduce fresh capital expenditure in 2023, which it said will be “a year of consolidation.”
Later, PLDT said it plans to borrow 35bn to 45bn pesos over two years to fund general expenses including capital spending and dividend payout.
The PSE has asked the company to clarify its comments about not uncovering fraud or anomalies, according to bourse President Ramon Monzon.
“For you to make that statement, that means the investigation has been completed,” Monzon said in an interview with Bloomberg News. “If the investigation is over, that’s a material information that should have been disclosed. Why wasn’t it disclosed to us?”