According to the report prepared by the SEC’s Compliance and Enforcement Department, FDC directors and shareholders have allegedly traded and sold shares of its property development subsidiary Filinvest Land Inc. (FLI) prior to the disclosure of its P1.2-billion bond deal with Singapore’s Reco Grandhomes Pte. Ltd.
The SEC’s Office of the General Counsel will decide on the merits of the case.
Under Section 27 of the Securities Regulation Code, an insider is prohibited from selling or buying shares of the issuer while in possession of material information not yet known to the public and regulators.
FDC has denied involvement in any illegal trading activity and stressed that the company has "strictly adhered to high ethical standards governing trading of securities."
In its reply to the SEC, FDC emphasized that the sale of FLI shares was in the exercise of its corporate authority and in discharge of its corporate responsibility to maintain the financial stability of FLI and to protect shareholder value.
FDC president Josephine Gotianun Yap said the sale of a little over P100 million worth of FLI shares was used in funding part of the P300 million loan provided by FDC to its subsidiary FLI. FLI, in turn, used the funds together with the proceeds of the bond issuance to retire its $100 million convertible bond which matured last Feb. 2002, she said.
Yap further said that FDC did not buy back any shares and did not make any gains from the transaction. She claimed that FDC, in fact, had incurred a financial loss from the sale.
"The loss is secondary to our maintaining a strong credit track record. We are very proud of the fact that both FDC and FLI have successfully retired a total of $250 million in convertible bonds under a challenging economic scenario. We believe that the prompt payment of our bond obligations is in fact the overriding event that has influenced shareholder value," Yap said.
FDC is hoping that the matter will be resolved the soonest possible time in order to revive investor interest in FLI whose value has been temporarily dampened by the investigation.
"We are hopeful that the SEC will appreciate FDC’s actions to protect shareholder value and with the information we have now provided recognize that the discharge of our corporate responsibility does not constitute insider trading," Yap said.
The investigation was spurred by complaints from at least 30 brokers that FLI failed to make a timely disclosure on its controversial bond deal, allegedly enabling its directors and shareholders to trade on inside information to the disadvantage of the investing public.
Brokers claimed that directors and shareholders of the Filinvest Group bought and sold shares while aware of then ongoing serious negotiations on a deal to allow Reco, a unit of the Government of Singapore Investment Corp. Pte. to buy P1.2 billion in bonds convertible immediately into FLI shares at a price ranging from P1.70 to P1.875 each.
The Philippine Stock Exchange itself has imposed a fine on FLI for failing to disclose the bond deal. The disclosure of the bond deal had led to a sharp drop in the property firm’s stock prices, causing many investors to lose money.
FLI, for its part, had explained that while negotiations with the foreign investor had been going on for months, the deal was finalized only in Feb. 2002.
The company explained the lower-than-market conversion price it has pegged on the convertible bond issue was fairly valued since it was based on a predetermined formula, given the stock market conditions at the time of negotiations.
Negotiations with Reco started in mid-Dec. 2001 when the stock market was still in a slump. With an original target closing date of Jan. 15, 2002, the parties then projected that share prices would hover at P1.72, the average for the last two trading weeks of December.