Cebu Pacific board approves P16B deficit wipe

Cebu Pacific [CEB 29.25, up 0.5%; 91% avgVol] [link] was halted for one hour yesterday after the discount airline disclosed that its board of directors had approved a plan to eliminate its P16.2 billion retained earnings deficit using its additional paid-in capital (APIC). The move would leave CEB with approximately P4.4 billion in remaining APIC. Shares of CEB flash-crashed around 2.5% just 15 minutes before the disclosure hit the EDGE servers and before the shares were halted. Shares had recovered somewhat just before the halt and even ticked slightly higher once the halt was lifted at 1:33 PM to see shares close up 0.5% on huge end-of-day buying interest.

MB bottom-line: This one can be confusing, but the main thing to remember here is that this is a non-cash transaction. It’s a paper move. A reclassification within the equity section of CEB’s balance sheet. The main benefit of this move is that once it is completed, CEB will be able to declare and pay dividends. Companies with a retained earnings deficit are not able to pay dividends. Monde Nissin [MONDE 9.43, down 0.7%; 68% avgVol] pulled a similar move to wipe a P7 billion deficit off its books in Q2/23.

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