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ABS at the mercy of creditor banks

ABS-CBN Corporation (ABS) has finally submitted its first half 2020 (1H 2020) results. The results showed that it has the financial strength to continue its operations.

It has cash, cash equivalents, and short-term investments of 18 Billion Pesos as of end of 1H 2020 while debts due in the next 12 months is only 0.5 Billion Pesos.

In the 1H 2020 it was able to generate cash from operations of 1.7 Billion Pesos which has been more than enough to service it debts.

The losses of 3.2 Billion for the period 1H 2020 can be attributed to the inefficiency of a bigger organization (the administrative and general expenses/GAEX) with a smaller revenue stream. But this inefficiency is now being addressed.

ABS has adopted and continues to 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. ABS is constrained to implement a retrenchment program effective at the close of business hours of August 31, 2020.

The biggest problem of ABS is that its long term loans from banks (of around 20 Billion Pesos) require ABS to have an active governmental license to operate. With the denial of its congressional franchise ABS has breached the terms of these loan. They are now in negotiation with its creditor banks. As of August 19, 2020 they said they have paid 4 Billion Pesos of the long term loans leaving around 16 Billion Pesos for negotiation. Among the creditors are BDO, BPI, Union Bank (UBP), PNB, and Insular Life Assurance Company Ltd.

ABS is poised to thrive in the new environment and has the financial strength to pivot to the new environment but the question is, will the banks pull the plug? It is interesting to follow the negotiations with the banks.

If ABS has breached the terms of its loans then it is in default making the debts payable immediately and that is a major liquidity issue to ABS. It was disclose that no banks has made a demand for immediate payment of its loan to ABS and that ABS is negotiating with its bank creditors. ABS is now at the mercy of its creditor banks, if the banks will demand for the immediate payment of the loans then ABS will have to liquidate and that could be its end.

It is tempting to add ABS to the portfolio but it is better to wait for the resolution of their breached of their long term loans.

Disclaimer: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent perspective.  Accuretti Systems Inc. does not hold any ABS-CBN Corporation shares.

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