Baguio’s Mysterious PILTEL Shares of Stock

Hey people of Baguio, do you know that your city government is a part-owner or a stockholder of the Pilipino Telephone Corporation (PILTEL)?

You don’t? Well you are not alone in not knowing because the city government itself also didn’t know — well, at least not until 2002 — that it is a PILTEL stockholder.

Strange huh?

In its 2002 Audit Report [PDF] for Baguio City, the Commission on Audit (COA) had this to say about these mysterious shares of stock:

These shares of stock are supported by nine certificates of ownership found among other documents in the custody of the City Treasurer’s Office during an inspection conducted by a representative of the City Auditor’s Office. Eight (8) of these certificates of ownership representing 185,000 shares were dated April 3, 1973 and the ninth certificate of ownership representing the remaining 6,443 shares was dated February 27, 1976 (Annex D).

No record, however, in the City Treasurer’s Office would show how the city acquired these shares of PILTEL stock. There are also no records of dividend income received by the city on account of its ownership of said stocks. Moreover, no record in the books of accounts at the City Accounting Office of such investment of PILTEL stocks was made.

The City Accounting Office claimed that they were not aware or have no knowledge of said investment documents as such were neither reported nor presented to their office hence no recording in the books of accounts were made.

But what’s all the fuss about these shares?

Apparently, because the value of the stocks was not being reported by the city, this results in “inadequate disclosure of the city’s financial position.” Additionally, because it didn’t know that it is a PILTEL stockholder, the city has not been getting whatever dividends it is entitled to receive from the phone company.

In its report, the Commission on Audit recommended that the city government send representatives “to the office of PILTEL and/or Securities and Exchange Commission to get the current market value of the subject shares of stock including dividends declared, if any, to serve as basis for appropriate recording in the books of accounts of the city”.

The following year the city government apparently failed to clarify the status of its PILTEL shares because COA reiterated its recommendation it its succeeding 2003 Audit Report [PDF]. It stated thus:

The City Accountant should exert more effort in tracing the stocks to determine status of the shares to serve as basis for appropriate recording in the books of accounts of the City so that the Investment in Stocks account will be fairly presented.

It would seem that the city accountant did eventually exert more effort because COA, in its 2004 Audit Report [PDF], stated that the city government has fully complied with its recommendation and that “the amount of P3.8 M was recorded in the accounting books representing 191,443 city-owned PILTEL Preferred Shares with a par value of P20.”

Now, if we understood said statement correctly, this means that the phone company acknowledged the city’s ownership of some of its shares of stocks. This appears to be the case because PILTEL, in its 2007 Financial Report [PDF file], says that it agreed with the city of Baguio to offset the latter’s cumulative dividends from the years 1997 to 2006 against the city government’s telephone bills.

Fair enough. But shouldn’t the city’s dividends be computed to as far back as 1973? Maybe PILTEL already paid the dividends from 1973 to 1996? Or maybe there was no profit during that period so there’s nothing to divide?

We’re just asking because we don’t know the whole picture.

P.S. Watch out for our future posts on the reports of the Commission on Audit.


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