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PhilWeb [WEB 2.39, up 10.1%] [link], in a letter responding to the PSE’s inquiry about how WEB will resolve its negative shareholders’ equity situation, revealed that it plans to earn its way out of that spot, in part through connecting its e-gaming platform to the GCash super app. In the letter, WEB said that the negative equity position is just an “accounting impact due to the treatment of treasury shares.” WEB explained: “The negative equity is not a result of operational underperformance,” and added that it still has “continued financial viability” and the “ability to operate as a going concern.”
MB bottom-line: For some background, “treasury shares” are just shares that have been issued and then somehow reacquired by the company. Treasury shares are kind of in share limbo; they’re neither fully real (they don’t receive dividends or have voting rights), nor fully eliminated when reacquired (they can still be resold). The problem here for WEB is that they don’t show up on the balance sheet as an asset (even though the company paid money to acquire them), they appear in Shareholders’ Equity as a contra-equity account. This means that Shareholders’ Equity is reduced by the value of the treasury shares. In WEB’s case, they hold so many treasury shares that it pushes their shareholders’ value account into the negative. WEB spelled this out for the PSE, and said that despite the negative equity position, it’s still cash-flow positive and otherwise healthy as a company. It has regular business plans to increase its earnings, manage its costs, sell some unissued shares, and reissue some of the treasury shares, with all of these actions happening over a three-year period ending in 2027. Why 2027? They don’t say, but it may be to tune the equity raising activities (the selling of the unissued shares and treasury shares) with the potential capex needs of the company. Just a guess, though. Investors liked it: the stock was up 10% yesterday.
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