Corporate Watch

The United Coconut Planters Bank (UCPB) is number 12 of 42 in the Bangko Sentral ng Pilipinas (BSP) ranking of Philippine universal and commercial banks, with its assets of P310.732 billion as of June 30, according to the Bangko Sentral ng Pilipinas (BSP). Published balance sheet as of June 30 show deposits of P270.111 billion plus other liabilities, all totaling P292.968 billion, covered 1:1 by assets of which P73.438 billion are cash or near-cash, or 27% vis-à-vis deposit liabilities. Of Gross Total Loan Portfolio of P151.898 billion only 3.23% are Nonperforming Loans (NPL). Return on Equity (ROE) is 22.75% for the quarter ended June 2017 compared to 21.47% as of the previous quarter (Ibid.). Capital Adequacy Ratio (CAR) is at 8.19%, compliant with Basel III norm of 8%. (The Economic Times, 10.08.2017).

“UCPB will soon be privatized,” Finance Secretary Carlos G. Dominguez III told a forum in September (The Philippine Daily Inquirer [PDI], 09.25.2017). Privatization would mean selling the government’s 73.9% stake in UCPB worth at least P1.1 billion (1,106,408,800 in common shares at a minimum price of P1 each) and recapitalization of at least P15 billion through subscription to up to 37.2 billion of primary common shares (BusinessWorld, 03.04.2016).

“I don’t believe their valuation because that’s all book value. We have to reassess. We have to make a reassessment of the current values,” Sec. Dominguez said (PDI, op. cit.).

Yes, the pricing of UCPB will be a most critical issue. It cannot be valued at a loss for government, because there is no flexibility to book losses under auditing rules for state-run agencies (inquirer.net, 01.19.2014). But of course, pricing cannot be too expensive, as this will discourage potential buyers. What must be established is the fair market value, based on honest analysis of past financial performance and how this was achieved, and projected income/profitability based on assumptions of future economic and market conditions to achieve and sustain this.

A crucial matter is Department Circular (DC) 1-2015, issued by then Finance Secretary Cesar V. Purisima (under President Aquino III) that mandates all state agencies, GOCCs and LGUs (local government units) to deposit funds only with authorized government depository banks. “The government is currently supporting UCPB with deposits in excess of P40 billion,” according to Sec. Dominguez (PDI, 09.25.2017). These deposits will be pulled out when UCPB is privatized — unless DC 1-2015 is revoked.

Revenue projections for the privatized UCPB will thus be affected, and will have to be conservatively downgraded. This has to be reflected in calibrating the privatization pricing. But the pricing dilemma is complicated because of nagging questions on who are the real owners of shares in UCPB — and the impoverished coconut farmers and the coconut levy fund established way back in Ferdinand Marcos’s martial law must be remembered.

The coco levy refers to the taxes imposed on coconut farmers by Marcos. Eduardo “Danding” M. Cojuangco, Jr., who was at the time chairman of the board of the Philippine Coconut Authority, was tasked to collect and manage the funds (Rappler, 01.21.2017). Nearly P9.8 billion was collected from farmers from 1971 to 1983. At present, all coco levy assets, excluding those still pending litigation, are estimated to be worth P93 billion, according to the Presidential Commission on Good Government (PCGG) (Rappler, 01.22.2017).

The coco levy funds were reportedly invested in the UCPB, SMC (San Miguel Corp.), Cocolife insurance, including 14 coconut oil milling and trading firms under the Coconut Industry Investment Fund (Ibid.) Stock certificates were distributed to 1.4 million individual names of coconut farmers, according to Coconut Industry Reform Movement (COIR) director Joey Faustino (Ibid.).

When Corazon “Cory” Aquino became president after Marcos was ousted by the EDSA People Power Revolution (EDSA I), the then newly created PCGG took over the sequestered assets from the Marcos dictatorship. The coconut levy funds were subsumed into the legal identity of the corporations into which these were allegedly diverted by the Marcos cronies. All presidents since Cory promised to return the coco levy funds to the farmers, but how?

On Dec. 14, 2001, the Supreme Court first declared that the coconut levy funds are public funds. The high court said the government has the right to vote as stockholder of the UCPB, SMC, and the CIIF group (Ibid.). In October, 2015 the government finally and actually secured ownership of 72.2% of UCPB (The Philippine Star, 08.16.2017) from Danding Cojuangco (who claimed personal ownership), settling the to-and-fro protests from interest groups following the Supreme Court reiteration in 2012 that the state is the rightful owner of the UCPB stocks.

Then-President Benigno S. C. Aquino III immediately announced the privatization of UCPB and the creation of a Coconut Levy Trust Fund (Ibid.). But the privatization plans were overtaken by the May 2016 elections and subsequent change of administration to Duterte.

What to do?

First, fine-tune the pricing of the UCPB shares to be privatized (and re-calibrate the amount of additional [new, fresh] capital needed and to be offered). Income streams projected under the new status of UCPB as private (not benefitted by government deposits) brought to present value, plus the goodwill gained from past financial performance can be the basis for pricing, to be established by an inter-agency technical group that would include the NEDA, DBM, SEC, and the BSP led by the Department of Finance, and sent up to the President for approval and thence to the Legislature for the final operating law.

Included in the privatization plan might be the direct pay-out of validated shares of stock and coupons held by vetted farmer-claimants documenting their claims of ownership on the coco levy fund. Those claimants who have no proof of direct ownership in the fund will be taken care of by the Trust Fund or a small government agency under the Department of Agriculture that will administer and directly disburse the funds for the sole benefit of the coconut industry (not just the group of original claimants to the coco levy fund).

Let us take this chance to close the coco levy fund permanently, and move on.

 

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com