The Philex Mining saga: How First Pacific acquired control

by Lala Rimando, ABS-CBNnews.com Special Report

Posted at 05/27/2011 3:44 AM | Updated as of 05/27/2011 4:39 AM

The Philex Mining saga: How First Pacific acquired control

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Last of a two-part series. Read part one here.

There were many moving parts when different business entities and political personalities changed hands in controlling Philex Mining  Corp. in 2009 to 2010. This last of the 2-part series explains the big picture behind the controversial deals.

MANILA, Philippines – Tax and justice officials are taking former state-run pension fund president Romulo Neri to court for reportedly failing to disclose his true income and pay over P18 million in taxes. While the investigations focused on the alleged crime, there is more to the profitable but controversial stock transactions of the Social Security System (SSS) chief than meets the eye.

In November 2009 alone, he earned around half a million pesos when he bought and sold shares of Philex Mining Corporation over a period of only four days. The authorities who acted on the results of a previous Senate investigation on excessive income of government officials have questioned why Neri personally benefitted from trading Philex shares when he was merely representing SSS’s stake in the miner’s board.

Neri  acquired 123,000 Philex shares on November 16, 2009 under the miner’s stock option plan, which means he got them at less than the trading price of around P13 to P14 each at the time. On November 20, he sold the same number of shares for P17.50 each.


While trading Philex shares has brought tax troubles to Neri now, his actions as a Philex board member did not sit well with the other shareholders before. In fact, his earnings from trading the Philex shares in November paled in comparison to those earned by other shareholders who were also actively trading the miner’s shares in the last months of 2009.


For example, state-owned Development Bank of the Philippines (DBP) earned a whopping P1.3 billion from trading Philex shares also in 2009. Unlike Neri’s Philex-related woes, former DBP vice chair and president Reynaldo David described their Philex trades as “heaven-sent” for the bank. (Read Part 1 here)
In the boardroom of the country’s oldest mining company, representatives of the country’s two largest state-controlled financial institutions, SSS and DBP, joined two of the country’s most powerful businessmen: Manuel Pangilinan and Roberto Ongpin.


In this last part of a two-series special report, abs-cbnnews.com explains the many moving parts when different entities and personalities in both business and government changed hands in controlling Philex, one of the country’s biggest mining firms, in 2009 to 2010.


Aiming for Philex
Investors have long recognized the potentials of the mining industry in the Philippines. But the sins of the past irresponsible miners who have left a trail of poisoned rivers or hollowed mountains have resulted in strong opposition from the Catholic Church, environmental and non-government groups, and local hosts.

Philex, which has been operating since 1958, has generally dodged these.  It mines gold, copper, and other minerals in various parts of the country. Pangilinan noted these when he stood in front of Philex shareholders in June 2010 and explained why his Hong Kong-based principals, who control diversified businesses in the Philippines and Indonesia, invested in the local mining company.


“First Pacific decided to go into natural resources because we strongly believe that the Philippine mining industry has tremendous potential for growth given the country’s known but still largely undeveloped mineral deposits,” he said in a speech. His group has business interests in telecommunications, power, utilities, infrastructure, media, hospitals, among others.
“First Pacific has chosen Philex to be the key company in its entry into this sector because of Philex’s reputation in the industry as a responsible and profitable operator…  and, of course, a market price that was well below its real value,” he said.


At the time, Philex’s share price hovered at around P15 to P16 each, far lower than the P21 per share First Pacific Investment Corp. paid 6 months before to other shareholders who were no longer around during the annual stockholders meeting in 2010.


This was his second year as chairman of Philex. A year before, Pangilinan was with Ongpin, SSS’ Neri, DBP’s Reynaldo David, and former Philex president Walter Brown during the mining company’s annual stockholders meeting. Except for SSS, all these shareholders have since sold their stakes in Philex to Pangilinan-led First Pacific group, raking trading profits worth hundreds of millions of pesos in the process.
 
Abs-cbnnews.com looked back at the events leading to those acquisitions. These put into context not only the controversial loan of DBP to an Ongpin-led company in 2009, but also other high-profile events in Philippine business. These include the public spat between the Pangilinan-led group and the two state-run pension funds, SSS and Government Service Insurance System (GSIS), and parallel efforts by First Pacific to go around the costly mandatory tender offer at both Philex and power retailer Manila Electric Company (Meralco).


Neri vs Pangilinan, et al
Keen watchers of how Pangilinan does business noted that he enters into deals with acquiring control as  the end in mind. “He pays premium for control,” an analyst, who asked not to be named, told abs-cbnnews.com.


In previous deals, Pangilinan-led entities pursued companies where they could assert control by acquiring shares enough to clinch majority seats in the boardroom. This was apparent in Meralco where the Pangilinan group wrestled with state-run pension fund GSIS and another conglomerate, San Miguel Corporation from 2008 to 2010  to acquire more shares and board seats. Pangilinan’s group also walked out of a port deal in 2010 when the selling parties decided not to yield control.

The price of control The price of Philex shares were soaring in the run up to the controversial deal between First Pacific and the group of businessman Roberto Ongpin and state-owned Development Bank of the Philippines in December 2, 2009. Philex shares were trading at only about P5 to P6 at the start of 2009, then leap-frogged to P21, an all-time high, before the year ended.  In an interview with Business Nightly in November, analyst April Lee Tan said there was no fundamental reason for Philex shares to go up so dramatically.  At the time, Philex actually had production issues since ground condition and ore handling problems affected mine delivery. These resulted in slightly lower net income of P2.74 billion compared to the P2.8 billion registered in 2008. Around the same time, the share price of another mining stock, Atok-Big Wedge, was also soaring. The common directors between Philex and Atok were Ongpin and his nephew, Eric Recto. The Ongpin group acquired majority stake in Atok, a penny stock, in October 2009. Atok shares rose from only P1.94 in September 4 and closed at P92 in December 11, a whopping 4,642% increase. In an interview with Business Nightly, Eagle Securities President Joey Roxas said this phenomenal rise was not backed up by fundamental financial accomplishments or strategic plans. "Buy at your own risk," Roxas said.  After Ongpin sold his group’s Philex mining shares to the First Pacific group in December 2009, he became the chairman of Atok. Fast forward to 2011. After those heady days in 2009, the prices of the two stocks have since fallen from the sky. Atok’s shares were worth P30.90 apiece while Philex closed at P19 on May 26, 2011. This time, there are already fundamental reasons for Philex’s share hike. Its net profits increased 44%  to P3.95 billion in 2010, thanks to higher metal prices, and it has recently wrapped up talks with Manila Mining which have gold and copper reserves near the former’s Silangan mining sites in Surigao del Norte. – Lala Rimando, abs-cbnNEWS.com

Thus, when First Pacific initially bought a 20% stake in Philex through unit Asia Link BV in November 2008, market watchers had their antenna up for a possible acquisition binge. After First Pacific initially bought shares at P7.92 each, the share price started inching up and peaked at a little over P8 that year.

An easier and simpler route for the Pangilinan’s group to gain control would have been a successful deal with SSS. The pension fund owned the other big bloc of Philex shares equivalent to over 20% stake, which could have easily jacked up First Pacific’s to over 40%, giving it a controlling ownership. But Neri, who was then the president of the pension fund, was not keen on selling.


Neri, an academic-turned-government official, was appointed SSS chief by former President Gloria Arroyo after he was dragged in the botched National Broadband Network-ZTE telecommunications scandal, which he handled when he was the socio-economic planning secretary. As SSS chief, he did not only want to sell the Philex shares to the Pangilinan group, he also tried to block its initial entry in 2008.


Philex was then trying to raise funds to develop its mine sites in the Mindanao region since its current mineral resources and proven reserves at its premier Padcal mine in Baguio City in northern Luzon would be exhausted by 2017. Pangilinan’s group offered to buy Philex treasury shares in October 2008, but Neri cited an academic fact that current shareholders should have been offered these shares first since they have the “right of first refusal.”


Most Philex shareholders, including Ongpin who joined the Philex board in August 2008, were reportedly not pleased with Neri’s stand. It delayed the initial entry of the Pangilinan group.


A few months after, Pangilinan confirmed rumors that he personally approached Neri to offer to buy SSS’ shares in Philex.  “I was able to talk to Romulo Neri and he said they are not [selling] now but maybe next year. So we backed off,” Pangilinan told reporters. Neri confirmed this and said SSS would probably sell in mid-2010.

There was a plan to sell together with DBP,  but the latter had since sold its Philex shares at a premium. SSS retained its over 20% stake in the mining firm.


Minority shareholders
Pangilinan had been consistent in his media interviews that First Pacific intended to increase its stake
 in Philex. First Pacific, too, had disclosed  to the Hong Kong stock exchange that it aimed for up to 51% controlling stake in Philex.

With Pangilinan’s group evidently a motivated buyer of additional Philex shares, First Pacific’s next purchases would have to consider two things: how many more shares are needed, and how much to pay for them. 
Since SSS’ Neri was adamant about not entering into a deal with the First Pacific group, the latter had to pursue other minority shareholders with lesser stakes.

To control the Philex board, First Pacific would need to accumulate shares to clinch 5 of the 11 board seats, enough to veto major decisions made during board meetings. In a disclosure, First Pacific said these board seats would “allow the Company to exercise significant influence over the future strategic direction of Philex.”

It boiled down to math. Since Philex had 3.9 billion outstanding common shares, First Pacific would likely need about 1.8 billion total shares enough to entitle it to 5 board seats. But with around 30% of Philex shareholders already unaccounted for, First Pacific may aim for as low as 1.2 billion shares.


With the initial 20.06% stake acquired by First Pacific’s unit Asia Link BV in 2008, the Hong Kong-based conglomerate already had 779 million Philex shares. At end-November, First Pacific disclosed that Asia Link BV had accumulated 11.44% more, or over 444 million shares, from the open market, bringing the group’s total shareholdings to over 1.2 billion,  the low end of the possible target aggregate shares to assert control.

David said DBP’s capital markets group made its initial purchase of a few million shares in March 2009 when Philex’s shares dipped to P5 each. They continued to accumulate more in the coming months.  “We were thinking that MVP (Pangilinan) would buy an additional 20% from the market since Philex had no more treasury shares,” David said.


Meanwhile, like DBP, the Ongpin group was also slowly building up their Philex shareholdings. Ongpin’s firms acquired a few more Philex shares in 2009, including the additional 50 million shares from the state-owned bank acquired through a loan in November.

Ongpin, like Neri, also personally acquired 3.2 million shares under the company’s stock option plan. This increased the group’s total Philex shares to 321.81 million. The Ongpin group’s shareholdings accounted for 6.58% of Philex as of November 23, a week before the December 2 mega-deal with Pangilinan.

The banker and the dealmaker
The deal between First Pacific unit Two Rivers Inc. and “the group led by Mr. Roberto V. Ongpin”  for a bloc of shares representing 9.24% stake in the mining firm was sealed in the evening of December 2, 2009.

Of the 452 million Philex shares covered by the share purchase agreement, DBP accounted for 59.3 million (1.2% stake) while Walter Brown had almost 29 million (0.5%).
Ongpin had the largest share among the sellers. Accounting for 7% of the total shares sold to First Pacific’s Two Rivers were shares held by the following Ongpin-led sellers: Boerstar Corp. (175 million shares), Elkhound Resources (66.25 million shares), Goldenmedia Corp. (123.2 million shares), and from Ongpin himself (3.2 million shares).


The December 2 deal, valued each share at P21, was a record high. It represented a 7.7% premium over the P14 per share closing price that day. First Pacific paid a hefty P9.49 billion for the bloc sale.

It meant a windfall for DBP. At P21 per share, its almost 60 million remaining Philex shares translated to a hefty P1.25 billion profit, the highest ever the bank earned from its trading activities.

A month before, however, DBP sold almost half or 50 million of Philex shares to Ongpin-led Goldenmedia for only P12.75 per share. Critics have questioned the glaring price difference of the two transactions and raised concerns on whether DBP entered into a deal with Ongpin that effectively deprived DBP of fatter profits.

Since the deal with Ongpin included a P510 million loan, DBP was also criticized for accepting credit, which involved a borrower  with questionable financial capacity, instead of outright cash.

David denied that he calculated the potential risks of the loan and agreed to a less profitable share purchase deal with Ongpin since he had intimate knowledge of an upcoming more profitable deal between Ongpin and Pangilinan.

“I didn’t have a crystal ball. I didn’t know that Philex shares would even be sold at P21. I didn’t even know that there would be a takeover (of Philex by First Pacific group),” he told abs-cbnnews.com

David admitted, however, that he learned that the two were talking 4 or 5 days before it was announced. He maintained that he did not know how much the two would price the deal. He said he wanted to be part of the bloc that would sell to Pangilinan.

In those 2009 deals, David was the banker, Ongpin the dealmaker, and Pangilinan the motivated buyer.

Fund raising and tender offers
Why was the deal between the groups of First Pacific and Ongpin made on December 2, 2009?


One potential reason was availability of funds. A month before, First Pacific announced that it was raising $277 million through a rights issue partly to “expand and develop the Group’s mining strategies in the Philippines.”

Coincidentally, December 2 was also a year after First Pacific acquired its initial Philex stake through unit Asia Link BV.

Keen observers of how Pangilinan does business note that share acquisitions were usually precisely scheduled so as not to trigger an expensive mandatory tender offer, a rule that requires any individual or group who acquires a 35% stake in a listed company within the span of a year to buy out other shareholders at the same price agreed upon with the block seller.

While First Pacific disclosed that Asia Link BV had spent about $96 million to accumulate additional 11.44% between November 28, 2008 and November 28, 2009,  Asia Link effectively had an aggregate stake of 31.5%. It did not breach the 35% cap nor trigger the mandatory tender offer rule.

First Pacific group’s stake jumped to 40.7% in December when another First Pacific unit, Two Rivers, acquired the additional 9.2% stake in Philex from Ongpin and DBP.

However, the conglomerate stressed in a disclosure  that the mandatory tender offer was not triggered since it was “being acquired after the lapse of the 12-month period from First Pacific’s initial purchase.”

The First Pacific group was particularly careful about the tender offer rule since, around that same time, it was facing a thorny issue on this in Meralco, the country’s biggest power distributor.


The conglomerate had then acquired an additional 6.7% stake in Meralco from the Lopez group of companies, bringing its aggregate stake to 41.4%.  This generated a complaint from pension fund GSIS, then led by its former general manager Winston Garcia who had previously waged a public war with the Pangilinan group.

In November 2009, GSIS wanted the Philippine Stock Exchange to suspend trading of and delist Meralco over an alleged scheme to skirt the mandatory tender offer rule.  In December, GSIS filed large scale estafa cases against officials of the units of First Pacific and the Lopez Group before a regional trial court.

Interestingly, while GSIS was in a legal battle with First Pacific over Meralco, it was also accumulating shares in Philex, the mining arm of First Pacific. In November, GSIS’ stake in Philex  was increased to 5.14%. After the Ongpin group and DBP sold their Philex shares to First Pacific’s Two Rivers in December, GSIS further beefed up its stake in the mining firm.

In January 14, 2010, Philex reported that GSIS already owned a 5.33% stake, and that Garcia had the “sole power to vote/direct the disposition of the said shares.”

Four days after, in January 18, GSIS turned around and sold all its Philex shares to Two Rivers. The deal – a conditional sale with GSIS granting proxy to Two Rivers/First Pacific – priced the Philex shares at P21, the same price fetched by the Ongpin group and DBP a month before. It had a price tag of P6 billion, representing a 42% premium over the P14.75 closing price that day.

On the same day, GSIS announced that it was dropping its tender offer demand against the First Pacific and Lopez group officials. The pension fund also sold its remaining shares in Meralco.

After the dust settled in January 2010, the First Pacific group had solidified its control of Philex with a higher stake of 46%. It has spent around $571 million (around P25 billion) since 2008 in buying Philex shares from different entities and individuals.


It’s a price for control the conglomerate justified to its shareholders. In its 2010 annual report, it wrote: “The blended cost of acquisition will average to approximately P11.8 (equivalent to approximately $0.26) per share.” That still represents a healthy discount compared to current share prices. On May 26, Philex traded at P19 per share.

In this saga for control of Philex, the shrewd and prudent, as well as the winners and losers, made their mark.
Abs-cbnnews.com is the online news arm of ABS-CBN Corp, a member of the Lopez Group of Companies, which has a minority stake in Meralco.
 

DBP-Ongpin-Philex controversial deals detailed

by Lala Rimando, ABS-CBNnews.com special report

Posted at 05/25/2011 2:46 PM | Updated as of 05/25/2011 3:22 PM

 

Trading Philex: The curious case of P510-M DBP loan

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First of two parts
MANILA, Philippines – Reynaldo David vividly recalled having lunch with peers in June 2009 when he received a call. He was asked to attend the annual shareholders meeting of Philex Mining Corp., the country’s oldest mining company, in a Makati hotel a few blocks away from the headquarters of state-owned Development Bank of the Philippines (DBP) where he was vice chairman and president. The Philex shares of DBP would help meet the required quorum. David agreed to attend.


Present at the stockholders meeting were Manuel V. Pangilinan who steers one of the country’s biggest diversified conglomerates, and Roberto “Bobby” V. Ongpin, a former Marcos crony who has or represents major stakes in real estate, power, energy and telecommunication firms. Pangilinan was eventually voted as the chairman of the board of Philex Mining, while Ongpin was vice chair. David completed the 11-man board.


“I did not expect to become a Philex director but became one at the end of that day (June 24, 2009),” David told abs-cbnnews.com in an interview. He was voted as an independent director and not a representative of DBP, which, at the time, had only 109 million shares, representing a paltry 0.003% of all Philex owners with voting rights. But these were enough for Philex to proceed with the annual meeting where stockholders would give their nod to approve key corporate decisions of the group of Pangilinan and Ongpin who had the biggest stakes.

Less than 6 months after that meeting, David’s DBP, the Ongpin group, and former Philex CEO Walter Brown jointly sold all their Philex shares to Pangilinan’s group for a fabulous price of P21 per share. To DBP, that meant a historic windfall. The bank accumulated its Philex shares from the open market for an average of only P5.06 per share. Trading the mining stock resulted in a 315% return in just over 8 months.


But David was not recalling that interrupted lunch 2 years ago because the Philex deal meant fat and fast returns for the bank. He was being asked why, a month before selling at P21 per share, DBP sold almost half of its over 100 million Philex shares to the Ongpin group at only P12.75 per share. The baffling price difference and the timing of the two deals – only 4 weeks apart – have raised critics’ brows and fanned speculations of hanky-panky, even illegal, arrangement.

Adding fuel to the fire was how that November 2009 deal was financed: DBP granted a P510 million loan to the Ongpin group to bankroll the purchase of the bank’s Philex shares. Simply put, the buyer was able to acquire the shares from the government bank on credit.
 
Why DBP agreed to part with its Philex shares in exchange for an inherently risky credit arrangement instead of outright cash has been criticized in various opinion columns published in the past months, and has been a hot topic among the banking and investment circles in Manila.


In this 2-part series, abs-cbnnews.com unveils the multi-million lending and stock trading transactions between DBP and the companies associated with Ongpin. We will also explain the context by which these controversial deals took place.
 
Loan for the buyer
Even before the controversial half-a-billion loan that DBP extended to the Ongpin group in November 2009, the state-owned bank had granted several multi-million loans to companies associated with Ongpin, including Deltaventure Resources Inc. (DVRI)

DVRI, according to its incorporation papers, is mainly engaged in real estate business, but also authorized to buy and trade stocks. Its main asset are shares in mining-turned-gaming firm Philweb Corporation, which, in turn, lists DVRI as one of its minority owners.  Ongpin votes the DVRI shares in Philweb.


DVRI, which is headquartered in Makati, had a P150 million credit line with the DBP branch in Baguio City that was used for the business needs of its agricultural and trading activities in the summer capital. In April 2009, DBP renewed the fully-availed credit line, which was collateralized by DVRI’s orange orchard farm in Baguio and backed by DVRI’s pledge of its Philweb shares.


These loans were still outstanding in November when DBP granted DVRI a second credit facility. This time, the loan was worth a whopping P510 million. It was payable in 6 months. 
The Ongpin group failed to submit several pre-loan documentary requirements to DBP, but all these became moot when DVRI paid all its loans on December 8, 2010. DBP earned about P4 million in interest income from its short and seemingly sweet loan business with DVRI in 2009. Or so they seemed.


One year after, newspaper columnists started raising concerns about the prudence  of these loan transactions, especially the second one. They cited wrongful lending practices and conspiracy among the cast of characters. Bankers, investors, good governance advocates and others were easily alarmed.

Since the transaction details have been incoherent, abs-cbnnews.com gathered publicly available and related documents, and interviewed stakeholders to piece the story together. What evolved is a trail of big risks and big rewards not for the faint-hearted. The timing of the DBP loan to DVRI, the trading of Philex shares, and key decisions made by the corporate players in the Philippines and Hong Kong all seemed synchronized.

Cash and credit
On November 4, 2009, First Pacific Co. Ltd, which is led by businessman Manuel Pangilinan, told the Hong Kong stock exchange that it is pursuing its plan  disclosed two weeks ago to raise about $277 million from a rights issue.
 
In its prospectus,  the Hong Kong-based holding company said that it “intends to apply the net proceeds of the Rights Issue in pursuit of the Group’s investment strategies and, in particular, to apply part of such proceeds to expand and develop the Group’s mining strategies in the Philippines and in Southeast Asia….” At the time, Philex was the group’s only mining interest in the Philippines.


The following day, November 5, Philex, in turn, disclosed  to the Philippine Stock Exchange that Goldenmedia Corporation, another Ongpin-led firm, acquired additional 50 million shares of the mining firm. These were the same shares that were acquired from—and funded by—DBP, the seller.

DBP’s former president David offered an explanation as to how the controversial loan transaction was hatched. It happened during a meeting  with Ongpin a few days before November 4, 2009, when they were discussing loans and other banking businesses of Alphaland Corporation, the real estate arm of Ongpin’s group of companies. David said he casually broached the idea of selling half of the bank’s 109 million Philex shares to Ongpin.
 
“He knows my motive: It was almost year end… DBP should earn from trading shares,” he told abs-cbnnews.com, stressing that the Philex shares at the time had already more than doubled its average acquisition price of P5.06 per share.
 
They eventually settled at P12.75 per share, the closing price of trade on November 4. David claimed that he simply thought that that price would allow DBP to recoup the P555 million it spent for all its 109 million Philex shares. (A stock dividend in 2009 increased DBP’s Philex shares to 129 million).


Since the proposed deal was only for 50 million shares, David said proceeds from succeeding sale of the remaining over 50 million more shares would just be gravy.


David said Ongpin asked for a deferred payment arrangement of the P637.5 million deal price. “I told him that I cannot lend him the entire amount since there is no way this deal will be free. So I asked for a down payment. He (Ongpin) agreed to (make a) 20% (down payment). He came up with the cash.”


DBP’s relevant credit committees and the board approved the deal in an unusually speedy manner. They approved the loan amount and structure on November 4, also the day First Pacific confirmed its plans to raise funds for Philex.

The loan transaction was structured this way: DVRI paid DBP a down payment of P127.5 million equivalent to 20% of the Philex shares’ P637.5 million value. DBP then granted a loan of P510 million, representing the balance, to DVRI, a unit of Goldenmedia. The 50 million Philex shares, however, were not registered under DVRI, the borrower-client, but under Goldenmedia, which, in turn, pledged the same shares as loan collateral in favor of DBP.
 
The loan and its structure triggered these questions: Why did DBP, the seller, agree to a share sale transaction where it received credit instead of outright cash? Why was Goldenmedia added as third party in what could have just been a straight and simple loan transaction between two entities, DBP and DVRI? Was the bank unduly exposed to any risk? Did DBP violate any banking rule or favor a borrower to the detriment of the bank’s depositors and the taxpayers?

The banking business in the country falls under the purview of the Bangko Sentral ng Pilipinas, which has rules and guidelines to ensure that banks protect the money entrusted to them by the public. In the case of DBP, a state-owned bank, funds do not only come from depositors but also taxpayers.


In its rule book for banks, BSP said that, regardless of transaction amount, banks should not engage in suspicious transactions. These occur when client is not properly identified; the amount involved is not commensurate with the business or financial capacity of the client, and when there is any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered institution.

Cast of characters in the DBP-Ongpin-Philex deals MANILA, Philippines – The 3 personalities around the controversial multi-million loan transaction in 2009 involving a state-owned bank and a private entity are no strangers to each other. Reynaldo David, former president of Development Bank of the Philippines (DBP), and businessmen Roberto Ongpin and Manny Pangilinan, have crossed paths in the past. David, a veteran banker who has served major financial institutions here and abroad, recalled meeting Ongpin for the first time in the early 1980’s. David was then an executive of Interbank, a private bank controlled by the Disini family who had financial and legal problems that led the Marcos government to bail out and take over the bank.  David recalled when Ongpin, then the trade minister of Marcos, visited Interbank. “I was in awe. Siya pala ang legendary Bobby Ongpin,” he shared. Ongpin already had a reputation for being an astute businessman. After Marcos was forcibly removed from power in 1986 and Ongpin went on a self-exile, David and Ongpin would bump into each other as they both moved around similar social and professional circles. “It’s a small world,” David said. As for Pangilinan, David said he knew him from his days as investment banker in Hong Kong where First Pacific Investments is based. Pangilinan heads the conglomerate which has assets in Asia controlled by the Salim family of Indonesia. David said he was not privy to the deal between Ongpin and Pangilinan that priced the Philex shares at an all-time high of P21 each last December 2009. “Iba  sya (Ongpin) mag-isip. Malalim,” he said of the former Marcos crony. But whatever was the deal between Ongpin and Pangilinan, David said he wanted to make sure that DBP would be part of it. “That was our opportunity to unload and maximize our profits,” he told abs-cbnnews.com in a recent interview. DBP earned a hefty P1.3 billion from trading Philex shares in 2009. Meantime, Ongpin and Pangilinan have done business together over the past years. Ongpin has sold stakes in some of the companies he has acquired in the past to Philippine companies controlled by First Pacific. In Philweb, for example, ePLDT, the data and outsourcing arm of telecommunications giant Philippine Long Distance Telephone Co (PLDT), which Pangilinan chairs, acquired a 26.74% stake in Philweb Corporation, the gaming company where Ongpin is chairman. Philweb was formerly South Sea Oil Resources, a dormant but listed mining firm that Ongpin acquired in the 1990’s. Gaming was then being considered as an additional offering to wireless subscribers of PLDT. Mobile gaming was once thought as a potential “killer application” that could help PLDT keep its subscribers from transferring to another operator. Ongpin has also sold CURE to the PLDT group. CURE, a little-known telecommunications company that won one of the few 3G licenses from the government, eventually became the PLDT group’s entity to launch Red Mobile, which offers low-cost broad-band services. In 2009, Ongpin also sold its minority 30% stake, together with the Cojuangco group, in ABC Development Corp to Mediaquest, the corporate entity that the Pangilinan-led group taps for its foray into the media industry. TV5, the network’s brand name, is the third largest broadcast group in the country. – By Lala Rimando

Meantime, the Anti-Graft and Corrupt Practices Act holds public officers criminally liable for “causing any undue injury to any party… or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official administrative… functions.” The board members and top executives of DBP, being a state-owned bank, are political appointees.

Pledged shares
In the P510 million loan to DVRI, DBP partially covered its risks by accepting the pledged Philex shares from Goldenmedia, a third party that had no credit history with DBP unlike DVRI, which was already an existing DBP loan client.


Abs-cbnnews.com noted that, at the time, Goldenmedia was one of the 3 Ongpin-related entities that already owned Philex shares.

Goldenmedia then owned 22 million Philex shares and could just tally up the newly acquired 50 million shares from DBP.


The BSP considers loans against pledged shares of a blue-chip company listed in the Philippine Stock Exchange as a “safe” transaction if the value of the pledged stocks is equivalent to 200% of the loan. For example, for the bank and the BSP to consider the P510 million as a fully secured loan to DVRI, the value of the pledged stocks must be P1.02 billion. This 2:1 ratio supposedly provides the necessary cushion against volatile prices and inherently risky nature of stocks.
 
When Goldenmedia pledged the entire 50 million Philex shares, it meant DBP allowed the loan to the Ongpin group to be secured by only 80%. Instead of 2:1, the ratio was down to 1.25:1.

David said the bank was still comfortable with how the loan was collateralized since the pledged Philex shares remained in the custody of the bank’s capital markets subsidiary.

“If DVRI defaults, what does DBP get? We forfeit the P120 [million down payment], we get back the (50 million) Philex shares, and go after the orange orchard [of DVRI and] the mortgaged assets of Alphaland (another Ongpin-led firm with DBP loans),” the former bank president said.


“We had to make a position fast because we didn’t know how the share price would move. There must be a stop date,” he added.  

A check at the incorporation papers of Goldenmedia filed at the SEC also showed that it was not allowed to act as a third-party mortgagor or pledging entity. These could have posed problems if DVRI failed to pay its P510 million loan. The DBP board reportedly waived the requirement for Goldenmedia to amend its Articles of Incorporation to authorize it to pledge its own assets in behalf of another company.

Rushed and revoked
Mitigating risks through proper collateral guarantees, however, were not what made this deal beyond the usual. After all, it is the bank’s call if a client deserves a partially or fully secured credit.

However, findings of an unauthorized third party and the questionable financial capacity and corporate personalities of the borrower showed that the Ongpin group failed to meet the basic criteria for screening loan clients mandated by the BSP.

These failures could be attributed to the bank being lax with compelling DVRI to comply with the different requirements. The second loan to DVRI was also granted in haste.


After the early November meeting between David and Ongpin, it took DBP only a couple of days to process the P510 million loan. It usually takes at least 1 to 2 months for banks to process loans to give ample time for due diligence work on the borrower. BSP’s guidelines on suspicious transactions  require banks to ensure the borrower’s capacity to pay back the loan out of the normal course of business activity.
 
DVRI’s credit records, which were urgently couriered from Baguio, did not even contain an updated report on DVRI’s credit and financial standing, a standard procedure among prudent bankers to know if the borrower has been paying its other creditors and suppliers on time.
DVRI’s credit records in Baguio also reportedly did not include its latest audited financial statements. It has been reported that DVRI only earned around P311,000 in 2007, and incurred a net loss of almost P100,000 in 2008 due to decline in the value of its Philweb shares. These interim financial reports showed that DVRI could not even afford the P16 million total interest charges for that new half a billion-peso loan throughout the approved 6-month loan period.

When abs-cbnnews.com checked DVRI’s submissions to the Securities and Exchange Commission to independently confirm DVRI’s financial performance, the regulators’ records showed that DVRI last submitted an audited financial report way back in 1996. That year, it earned only P106,334 from its investments and from a property called “Green Mountain Farm,”   which, according to records of a labor dispute, refers to a cockfighting-related property in Benguet province.


Aside from delayed submissions of audited financial records to the SEC and to DBP, we learned that the corporate license of DVRI had been revoked. It failed to submit the required general information sheet (GIS), which discloses, among others, the owners and their respective stock holdings and the key management officers. Both are decided upon during the annual stockholders meeting, which DVRI had not been holding. SEC automatically revokes corporate licenses if the company has not been operating for 5 consecutive years.


Abs-cbnnews.com noted, however, that DVRI submitted to the SEC its corporate information for year 2008. DBP renewed DVRI’s first credit facility and granted the controversial P510 million loan the following year.


The 2008 corporate information sheet listed Josephine Manalo, a long-time assistant to Ongpin as main stockholder and president. Manalo was also one the incorporators of DVRI in 1977 and holds key positions and major shareholdings in other Ongpin-led firms, such as Tidemark Holdings, Boerstar Corp, and Goldenmedia. These 3 companies have or had stakes in Philex Mining or its subsidiaries. On record, Manalo also holds major stakes and positions in listed firms Alphaland Corp, Philweb Corp, and Atok Big Wedge Corp.


Bigger picture
DBP’s David acknowledged that there may have been lapses in the credit checks on the Ongpin-led firms, but stressed that the bank also considered the bigger picture. To him, DVRI and Goldenmedia were mere small parts of a grander strategy of the bank to maximize its earning potentials. David was the main cheerleader of the DBP-DVRI-Goldenmedia deal.


“Our critics question the loan. But you must have a greater, larger view. This is not just an account that’s obscure or whatever. This is a group relationship that we’ve had. And it’s a very profitable relationship,” he explained.


David was referring to real estate firm Alphaland and its main principal, Roberto Ongpin. DBP is one of the main creditor and depository banks of Alphaland, according to David. In two of the real estate firm’s biggest projects in Makati City – Alphaland Southgate Tower, an office and mall complex strategically located along Edsa, the metropolis’ main thoroughfare, and Alphaland Makati Place, a high-end residential and mall complex in the outskirts of the business district – DBP was always part of the consortium of banks that raised P1.4 billion and P1.7 billion syndicated loans for the respective projects. 

DBP was also the underwriter of the corporate debt notes of Petron, the country’s largest oil refiner and retailer, and lists Ongpin as one of its board members.

David was proud that, amid the competitive commercial banking landscape, DBP edged out the country’s biggest universal banks and investment houses in clinching the loan and equity businesses of Alphaland and other companies that Ongpin controls. The state-owned development bank has been allowed to engage in commercial and investment banking activities in the 1990’s.

While it is a mutually beneficial relationship, David said DBP still followed banking rules to the letter. He emphasized that DBP has been designated as the trustee of the mortgage documents on Alphaland’s glass-encased, 20-story building in EDSA, and that the pledged assets of the real estate firm were more than enough to cover DVRI’s if the latter fails to settle both its loans totaling P660 million.
 
“To my mind, we were covered,” stressed David. “There could be exceptions, such as the lack of financials or whatever, but we disclosed these to the bank’s approving bodies. Even the board gave its blessing for this transaction…. We gave them the greater view, we told them about our overall relationship with the Ongpin group. The board said, ‘It’s fine’.”

When asked why the bank accepted a credit payment instead of cash for the Philex shares, he replied: “At the end of the day, monetization na lang of the credit. And you (DBP) know you’ll be paid (by Ongpin group).”

Patricia Sto. Tomas, a long-time government official who was the chairperson of the DBP at the time of these transactions, vaguely remembers the now controversial loans made to DVRI almost 2 years ago. She confirmed that DBP had a satisfactory and profitable experience with the Ongpin group.


In an interview, she admitted that concerns about the controversial loans have reached her, too. “Someone called me about it. But since I’m doing consulting work (now) that is not into banking, it didn’t interest me all that much.”


Sto. Tomas pointed out to abs-cbnnews.com, however, that the bank tried to managed loan-related risks. In an email response to abs-cbnnews.com’s follow-up questions, she shared that “the loans (to DVRI) were covered by shares of stocks (either Philweb or Philex or both) which we could have sold in case of a default on the loan. I remember this in particular because I am not too big a risk-taker myself and I always ask if there is sufficient cushion for the bank.”

She added: “My primary interest in the bank was how it can assist in the country's development.  Early enough, I realized that developmental funding proceeds from profits generated from commercial lending. This means, among others, being judicious  in who we lend to and making sure that we are sufficiently covered for what we lend… I am pleased with the depth and breadth of our engagement in social issues as an offshoot of our commercial operations.”

Under her watch, DBP had several social and development efforts ranging from scholarship and forestry programs, OFW repatriation efforts, and the clean-up of Pasig River.

“Lending in particular is a risky operation. I am particularly proud to have worked with a board and management which knew how to take risks with the requisite prudence and due diligence," she said.


Philippine Star columnist Boo Chanco is not convinced. He wrote  in his March column: “My concern was more in terms of whether it is the business of a development bank funded by the taxpayers to lend money to Arroyo administration cronies to speculate in the stock market. The fact that the bank did not lose money and in fact made oodles of money on the transaction is beside the point.”

The “crony” Chanco was referring to was Ongpin, who was close to the husband of former President Gloria Arroyo. There have been persistent but unverified talk in Manila that Ongpin fronts for the investments of the Arroyos placed with London-based Ashmore Group, which has several big-ticket investments in the Philippines, including Petron and diversifying conglomerate San Miguel Corporation.


Good governance
The analysis of how DBP granted loans to DVRI and the DBP’s highly profitable buy-and-sell of its Philex shares highlights how banks are naturally more risk averse than traders.
 
DBP’s approach of looking at the overall relationship of the bank with the Ongpin group was in keeping with BSP’s mandate for banks not to breach the Single Borrowers’ Limit, which represents 25% of the bank’s capital. However, while banks have to aggregate the outstanding credit facilities of related companies and borrowers, each borrower within that group is rated separately based on the bank’s risk exposure.

Thus, while DBP has shrugged off even the basic requirements from DVRI and Goldenmedia in support of its overall strategy of maximizing trading profits on Philex shares, this decision itself has a cost. According to a board member of one of the top 3 privately held universal banks in the country, DBP must have been penalized for the risks it took in 2009.

The veteran banker noted that the BSP has required banks to follow the international banking practice of rating the risks attributed to each borrower-client, even if that client is part of a group. If a borrower is rated as a “high risk” client, the bank has to increase its capital tucked away at the BSP to cover the possibility of default by that client. Banks generally prefer to set aside minimal capital reserves so it could deploy more funds for profitable activities, such as loans and investments.


Since the DBP board had been made aware of these risks and still approved the loans to the Ongpin group, the cost of additional capital reserves must have been factored in, he said .


A BSP official acknowledged that the financial success of the transaction between DBP and the Ongpin group did not give them a trigger to conduct an investigation. “If there are no losses or injury, it is not for the regulators to come in,” BSP deputy governor Nestor Espenilla told abs-cbnnews.com.


He said DBP’s board must have understood the risks—and the cost of the DVRI-related risks— involved in lending to DVRI, and took a position that proved to be profitable.
 
“At the end of the day, it’s good governance,” he said, adding that banks have their own internal risk standards by which loans are screened against. Companies who observe good corporate governance vow to protect the long-term interests of their shareholders, especially the minority, who generally do not have a voice in key business decisions and strategies.


The board of directors are tasked to ensure that these internal standards are followed, but are aware of the repercussions to the bank and to their professional careers in case of exceptions.

Calculated risks?
Despite the risks and exceptions to internal risk standards, Lady Luck was on DBP’s side. The price of Philex shares, which was the basis of the collateral cover, hovered around P11 after the loan was granted in November 5, then soared day after day after day. By end-November, the share prices were touching P18 per share, a record high.


Since the Ongpin group paid a 20% down payment, David said the bank’s capital markets group computed that the Philex shares had to fall to about P9 per share level for the bank to worry about the pledged collateral.


By December 2—less than a month after DBP sold half of its total Philex shareholdings at P12.75— Philex and Hong Kong-based First Pacific announced that the Ongpin group sold their entire Philex shares for a whopping P21 per share.


David admitted that DBP piggy-backed with Ongpin so the bank could also sell its remaining almost 60 million Philex shares to the Pangilinan-led First Pacific group at P21 per share.


“I signed because I wanted DBP to be part of that transaction. We don’t want to be left behind. If we were left behind, then we’re at the mercy of the market. The market never touched P21 (per share), only around P18 or P19,” he said.
 
He stressed that the strategy may be a “very shrewd move” but it helped maximize the trading profits of the bank. “The P2 difference (for over half a million more Philex shares of DBP) translated to P100 million plus-plus additional trading gains for DBP. Imagine how much development work we were able to fund with P100 million more.”

While the loans fetched around P4 million in interest income, it was the trading transactions on the Philex shares that brought the windfall. All in all, DBP earned over P1.3 billion from trading gains. It pushed net profits to P6 billion that year,  a record high.  The development bank considered 2009 as its banner year. Half of DBP’s profits were remitted to the national treasury.


(Part two of this series will explain the other entities and personalities both in business and government involved in the changes in the control of Philex Mining Corp.)

 

He wanted to be a doctor, then lawyer, but never banker

By Michelle Remo
Philippine Daily Inquirer
First Posted 00:01:00 05/08/2011

BECOMING a central bank governor was never a dream he had as a child. Like any typical smart kid, Amando M. Tetangco Jr. wanted to become either a medical doctor or a lawyer.

Nevertheless, aided by his skills, fate put him at the helm of the Bangko Sentral ng Pilipinas and led him to becoming recognized globally as a Grade-A central banker.

Tetangco, known to his friends as “Say,” a nickname given to him by neighbors since he was born at the height of popularity of Ramon Magsaysay, is the first person to be serving as BSP governor for two terms. President Aquino has just extended his tenure for another six years, or until July 2017, given his accomplishments in his field.

The President had all the reason to do so; the international community itself has recognized Tetangco for his skills in conducting monetary policy and bank regulation –the two main tasks of the central bank.

In 2007, international business magazine Global Finance gave him a grade of “A” for central banking together with only a few other central bank heads. US Federal Reserve Chair Ben Bernanke, by the way, got only a grade of “C.”

Tetangco spent his grade school and high school in Pampanga, but eventually went to Manila to take economics at the Ateneo de Manila University.

“In grade school, I wanted to become a doctor. In high school, I wanted to become a lawyer. But I eventually decided to take economics because medicine and law required a lot of years of study,” Tetangco tells SundayBiz, explaining that he wanted to become self-supporting much sooner.

Hard work was one of the many values his parents inculcated in him and his eight other siblings, he says.

After graduating from college, which he finished cum laude, Say worked for about a year at financial services firm SGV before applying at the Central Bank of the Philippines (which is the Bangko Sentral ng Pilipinas today).

Unlike most applicants, Say had the guts to send his application letter directly to the office of then Central Bank Governor Gregorio Lecaros.

“I sent my letter directly to Governor Lecaros. I told him I was impressed by the functions and policies of the central bank,” says Tetangco, who eventually got a call from the central bank’s human resource department.

Toughest challenges at the central bank

Tetangco, who started as an employee at the BSP’s statistics department, rose from the ranks.

He was the director of the international economic research department when the Philippines called for a debt moratorium in the early 1980s. The country only had $500 million in foreign exchange reserves back then, and so it did not have money to pay its debts to foreign creditors. The amount was even barely enough to meet the country’s import requirements.

Given his position at the central bank, Tetangco was part of the team that talked to officials from various creditors of the Philippines, including foreign commercial banks, and bilateral as well as multilateral creditors, to help arrive at a debt-restructuring package for the country.

Another tough time was in the late 1990s when the Asian financial crisis struck. At the time, Tetangco was managing director for economic research and treasury. The regional crisis dragged down Asian currencies, including the peso, thus bloating the dollar-denominated debts of countries in the region.

“It was a very challenging time. We had to implement measures to put the foreign exchange market and the financial system back to stability,” Tetangco recalls.

A family man

Besides his skills in central banking, his healthy relation with his family is another thing that characterizes Tetangco. While his weekdays are busy, he finds time on weekends to enjoy the company of his wife and three children.

“We would go to the mall, have lunch or dinner together. Sometimes, we would just lounge on the sofa to watch TV,” he says.

On some cocktail occasions, Tetangco would be spotted with his wife, Elma, a former officemate whom he says with a smile was known at the BSP for her beauty and brains. Elma, he says, understands the significant amount of time he has to spend at work.

“She is supportive of me,” Tetangco says.

Tetangco as a boss

Even with the demands of his job, Tetangco is often seen in public as having a calm disposition. From time to time, he would step out of his office to attend social activities for BSP employees. Sometimes, he would visit the gym at the BSP to exercise together with the employees.

He says he values spending time with BSP employees.

Reforms

Asian countries learned a lot from the crisis in the late 1990s. In the case of the Philippines, the BSP instituted quite a number of reforms both in monetary policy (the function that deals with keeping price increases, or inflation, moderate) and bank regulation.

“Our situation now is very far from that in the 1980s and 1990s,” Tetangco says. For instance, he says, the country has now over $66 billion in foreign exchange reserves.

Tetangco eventually became deputy governor for the monetary sector, a job through which he helped institute skills training at the BSP to enhance econometric modeling and improve capacity to manage inflation.

The BSP pays particular attention to training its human resources to ensure it is able to adopt international best practices, he says. “We put premium on improving the analytic skills of our staff. We would send them to trainings both here and abroad,” he says.

Tetangco himself has an extensive training in his field. In his earlier years at the BSP, he was sent to the University of Wisconsin in the United States to study Master in Public Policy and Administration as a central bank scholar.

Given Tetangco’s dedication to his job, it was impossible for his former boss, the late BSP Governor Rafael Buenaventura, not to notice his qualifications.

Getting appointed

The position of a central bank governor, more often than not, would be awarded to someone outside the central bank who is well known to the incumbent President.

Given his lack of connection to then President Gloria Macapagal-Arroyo, some doubted the chance for Tetangco to be appointed governor of the BSP, a highly coveted post, despite his credentials.

Good thing he has the trust of Buenaventura, who pushed for Tetangco to be his successor. Tetangco acknowledges the confidence in him of the late central bank governor, saying “he is one of my supporters.”

Thus, in July 2005, with the backing of Buenaventura, Tetangco was indeed appointed BSP governor.

Accomplishments under his term

Under Tetangco’s leadership, the BSP has continued initiating reforms that started following the Asian crisis.
The BSP has issued several bank regulatory reforms, such as on risk management, capitalization increases, and asset quality, among others. On monetary-policy side, it has continued enhancing its modeling and strategies for managing inflation.

Central bankers take pride in the fact that the Philippine banking sector was almost unscathed by the latest global financial and economic crisis, from 2007 to 2009. They said reforms initiated over the years have made the country’s banking sector resilient to external shocks.

Members of the international financial community have cited the BSP for its performance in the conduct of monetary policy and bank regulation. They recognized the relatively benign inflation environment in the Philippines as well as sound financial health of banks in the country.

“The BSP is one of the most professionally run central banks in the world,” Neeraj Jain, country director of the Asian Development Bank, was quoted as saying in a recent press conference.

International credit rating firms have also recognized the BSP’s accomplishments. Standard & Poor’s and Moody’s Investors Service both cited the country’s growing dollar reserves, moderate inflation, and stable banking sector for their latest favorable rating actions for the Philippines.

Reappointment offer

Given the recognition earned by the BSP under Tetangco’s leadership, many had thought he deserved a second term. However, after he was indeed offered the second term, not too many believed he would accept it.

For one, he had a heart condition. For another, everybody thought he would prefer to rest from his taxing job. After all, he had already contributed so much, having worked at the central bank for more than 30 years.
Some thought Tetangco could have made a good exit this year, when the economy enjoys benign inflation and a relatively healthy banking sector.

He admits deciding whether to accept or decline the President’s offer was difficult.

On his health, Tetangco says it is not a hindering factor anymore. Since his heart bypass last year, he says, “I have never felt healthier.”

Nonetheless, there are other things to consider. “I had to make a list of the pros and cons of accepting the offer,” he says.

Tetangco says he had to consult his wife and three kids about the President’s offer. Accepting the offer means another six years of less-than-preferred amount of time spent with the family.

Although he is currently able to find time to spend with his wife and children, they would enjoy his company much more if he decided to decline the job offer.

He says his youngest daughter, Mia, 19, wants the family to spend more time watching movies with him. “Watching movies is something my daughter wants us to do more,” he shares.

Nonetheless, his family did not discourage him from accepting the job offer. In fact, he says, they were supportive of the option for him to stay as BSP governor for another six years.

“They knew I wanted to do more [for the BSP], and they wanted me to do what I want,” he says.

And so he accepted the President’s offer.

Tetangco cites three goals that he wants to BSP to accomplish under his second term as governor.

First is to further enhance and broaden the monetary policy tools of the BSP (for better management of inflation and the country’s foreign currency reserves).

Second is to have a more sophisticated financial system, one that is closer to those of industrialized economies.

And third is implementation of more financial-literacy programs that will protect people against financial scams and that will make them more investment savvy. He says he wants more Filipinos becoming entrepreneurial and knowledgeable of available investment opportunities that will help augment their incomes.

He says the BSP has begun conducting financial literacy programs in many parts of the country, and he wants to see it continue doing so.

Tetangco’s supporters, including business groups that have welcomed news about his reappointment, are confident of what the BSP could further contribute to the economy under his leadership.

“I want to see the BSP become a truly world-class monetary authority,” Tetangco says.

April inflation surges to 12-month high

BSP responds with 2nd consecutive rate hike

By Ronnel Domingo, Michelle Remo
Philippine Daily Inquirer
First Posted 21:36:00 05/05/2011

MANILA, Philippines—Prices of local goods and services rose faster than expected in April, prompting the Bangko Sentral ng Pilipinas to raise borrowing costs in an attempt to squelch inflationary pressures.

Government data released Thursday showed that the inflation rate hit a 12-month high of 4.5 percent last month, mainly due to higher prices in most commodity groups.

The latest inflation rate matches the level recorded in April 2010, and puts the average for the first four months of 2011 at 4.2 percent.

Because of this, the central bank on Thursday raised its short-term borrowing cost by 25 basis points to 4.5 percent, following a similar increase in March.

Higher interest rates temper demand for loans, consumer spending and encouraging savings.

The BSP hopes that its monetary policy tightening will ease demand for goods and services, and thus cap consumer price increases.

The government wants to limit inflation within a range of 3 to 5 percent for this year and next.

“In deciding to increase policy rates anew, the Monetary Board noted that the latest baseline inflation forecasts continue to suggest that the 3-5 percent inflation target for 2011 remains at risk, mainly as a result of expected pressures from oil prices,” BSP Governor Amando Tetangco Jr. said during a press conference immediately after Thursday’s Monetary Board meeting.

Tetangco acknowledged that the buildup of price pressures was driven largely by an external factor—the rising price of oil in the global market—to which the Philippines is vulnerable.

In April, faster price hikes were observed in five of six commodity groups covered in the index, except for the heavily weighted food, beverage and tobacco (FBT) sector, which registered a 4.2 percent rate from the previous month’s 4.4 percent.

The biggest price increases were seen in fuel, light and water, or FLW, (8.8 percent from 7.7 percent) and services (6.5 percent from 5.7 percent).

Price increments also rose for clothing (1.9 percent from 1.8 percent), housing and repairs (2.2 percent from 2.1 percent) and miscellaneous goods (1.2 percent from 1.1 percent).

According to NSO administrator Carmelita N. Ericta, only the annual inflation rate for food eased to 4.3 percent from the previous month’s 4.5 percent.

GSIS withdraws $675-M overseas placements

Reuters

Posted at 05/04/2011 4:16 PM | Updated as of 05/04/2011 8:32 PM

 

MANILA, Philippines (UPDATE) - The country's biggest state pension fund, GSIS, has started withdrawing foreign placements worth $675 million and will reinvest these locally as uncertainty over the pace of global economic recovery grows, and with prospects of better returns in the country, its president said on Wednesday.

Robert Vergara, president of the Government Service Insurance System (GSIS), said the agency expects to receive the full amount from its overseas investments in June, but the impact on the foreign exchange market should be minimal as the fund had already hedged this amount.

"Nobody foresaw the turmoil in the Middle East and North Africa, nor did we see the tsunami that devastated Japan," Vergara, former managing director of a Hong Kong-based hedge fund, told Reuters in an interview at his Manila office.

"The unclear outlook for the global economy relative to the improving prospects of the local markets justified our decision to bring these (investments) back here," he said. "We have an improving fiscal position and we have the momentum of growth from last year."

The Southeast Asian economy grew 7.3% in 2010, the fastest in more than three decades, and the government is aiming to grow the economy by a similar rate this year. The Philippines is also on track to meet its target of a narrower budget deficit of 3.2% of GDP this year from 3.7% in 2010.

GSIS began its overseas placements in 2008 before the global financial crisis peaked, investing $600 million in stocks and bonds in countries such as the United States, United Kingdom, Germany, France, Japan, and Australia-- a move some critics said then were ill-timed.

More than $400 million of GSIS' overseas investments are managed by Amundi -- the fund management unit of Credit Agricole -- which invests in fixed income and equities in developed markets, while the rest are handled by Pimco, the world's largest bond fund manager.

GSIS, with assets of more than P550 billion ($12 billion), said it wants to raise its equities portfolio from the current 6% to 7%. Vergara said the pension fund was interested in investing in energy, banking, and mining stocks but did not specify the companies it was considering.

Vergara also said GSIS was keen on investing in real estate investment trusts and major infrastructure projects under the government's public-private partnership (PPP) program.

"If we find investments within the president's PPP program which meets and match our requirements, then we will look at them with the intention of maybe participating directly in each investment," Vergara said.

GSIS has already committed to buy the governmentinfrastructure bonds worth P50 billion, part of a P200-billion funding facility for the PPP projects.

Vergara said the pension fund may consider going back to the overseas markets once the global economy was on a solid recovery path.

 

BPI offers online investment services

By Doris Dumlao
Philippine Daily Inquirer
First Posted 22:53:00 04/30/2011

THE PRIVATE BANKING unit of Bank of the Philippine Islands has rolled out the country’s first full-service online investment platform, seeking to harness the Internet to broaden participation in its managed funds.

BPI asset management and trust group—a leading wealth management unit in the Philippines with close to P600 billion in assets under management—launched Tuesday night a web-based facility that allows investors to initiate mutual funds and unit investment trust fund (UITF) transactions through the Internet.

Through this platform which can be accessed at www.bpiassetmanagement.com, investors can access portfolio information, explore further investment opportunities, subscribe to additional funds, redeem investments and make regular contributions online.

“Customer behavior and technology are driving the way financial and investment services are conducted and with the pace at which technology is moving, we should always be one step ahead,” says BPI senior vice president and chief investment officer Maria Theresa Marcial Javier in the press briefing.

This online investment platform resides in the same system architecture as BPI’s pioneering electronic banking facility and complements an existing online stock trading system which caters to those who prefer to manage their own equities portfolio.

“We’ve migrated our investment facility online to take advantage of the pervasive Internet technology that will empower our investor clients to transact anywhere at any time at their convenience. This frees up more of their precious time that could be spent on other important business agenda or with their families,” Javier says.

Of BPI’s close to P600 billion in assets under management, around P100 billion is in the form of either mutual funds or UITFs. The unit has about 70,000 accounts, 90 percent of which are held by individuals or retail investors.

Average fund investment per individual client at BPI’s unit is still high at P2-P3 million but with the bank having reduced the minimum investment required to enter its funds to P10,000 (from P50,000) and the rollout of this online investment platform, Javier sees an enormous potential moving forward.

BPI president Aurelio Montinola III says: “We’re quite excited about this. Not only does this open investment capacity to Metro Manila clients. It opens to provincial and overseas clients which comprise a large community. And it’s going to be an active community.”

The bank’s growing customer base in its traditional services also offers a lot of opportunities for cross-selling investment products to that certain segment of clients with excess funds which they wouldn’t be satisfied to keep in low-yielding deposits. BPI now has 4.3 million customer base, which it aims to grow to five million by the year’s end.

Of BPI’s total customer base, overseas Filipino clients number around one million. About $4.8 billion worth of remittances flowed into the country through the BPI channel last year, giving it a market share of 25 percent, based on bank estimates.

By using technology to widen its investor base, BPI, the country’s most profitable bank, also seeks to increase fee-based earnings that complement its interest earnings from lending.

BPI completed at end-March its purchase of the local fund management business of Dutch financial giant ING, an acquisition that made it the biggest player in the local trust industry. This deal also made it the largest employer of trust and investment professionals in the country. The group is now the manager, advisor and administrator of a total of 32 investment funds in the country.