Foreign group to acquire 1/3 of CAP for $227M

College Assurance Plan Philippines Inc. (CAP), one of the country’s largest pre-need companies, expects to raise $227 million from the entry of a foreign investor by way of straight cash infusion and purchase of some assets.

CAP is trying to negotiate for a $100-million equity infusion with a foreign investor before the September 30 deadline set by the Securities and Exchange Commission (SEC). Apart from this, the prospective foreign investor is expected to shell out another $127 million to liquefy certain trust fund assets of CAP which include MRT bonds.

In an interview, CAP first vice-president Bobby Café said the money to be raised from the sale of assets will go directly to the pre-need firm’s trustee banks.

In exchange for its investment, the foreign investor will acquire a third of CAP’s total equity.

Café said CAP may instead issue common shares to the prospective foreign investor that may be redeemable in 10 years. The original plan was to issue preferred shares to the foreign investor.

He declined to name the investor but he said the latter is not into the pre-need business and is merely a fund provider. "We can not disclose the identity of our foreign investor until we have finalized a deal," Café said.

Café said he is very optimistic that CAP would meet the September 30 deadline as discussions with the prospective foreign investor have been moving "smoothly."

"The entry is not a problem. How it is going to be structured is the question. We’re discussing the general terms, " Café said.

Without new capital, CAP may not be able to renew its dealer’s license, which expires on the SEC deadline date. The dealer’s license allows a company to sell pre-need plans to the public.

At the same time, Café said CAP will continue to look for a strategic partner to provide backroom support and technological know-how to further strengthen its operations amid a highly competitive business environment.

"We would still want to entertain strategic investors. Actually, the other group that we’re talking to right now wants to tap our marketing network to gain a foothold in the Philippines," Café said.

Café earlier said one investor group based in North America wants to come in as a strategic partner and tap the pre-need firm’s 60,000 agents.

The capital infusion is part of the SEC-approved asset build-up program that CAP is undertaking to match the future deficiency in its trust fund with the growth of its assets.

As of end-December last year, CAP only had P8.41 billion in trust assets managed by trustee banks versus an actuarial reserve liability of P25.6 billion.

Its trust fund assets are invested in the following portfolio mix: MRT bonds, (P3.12 bonds); real estate, (P2.67 billion); shares of stock of listed companies, (P2.26 billion); treasury bills, (P83.83 million); advances to Nasugbu Properties, (P134.92 million); and loans to other firms (P143.06 million).

The asset build-up program will include conversion of assets to equity which would be added to the trust fund, generation of interest income from loan programs, raising dividend income and securing fresh equity from interested investors.

Also part of the capital build-up program is the inclusion of its interest income from a loan program dividend income and others.

Café said the asset-building program would increase CAP’s assets by P9.955 billion.

Other measures aimed at plugging the trust fund deficiency include recognizing the value of developed properties which were previously valued when they were still undeveloped, recognizing real estate inventory or unsold land at the end of five years including outstanding accounts receivables at the end of five years from its real estate development projects, recognizing a portion of the MRT bonds that are not reflected in its financial statements and recovering an investment in Fil-Estate Management Inc. These adjustments, Café said, would allow CAP to book an additional P10.6 billion in its trust fund assets.

CAP plans to sell an additional P1-billion worth of educational plans to shore up sales. The company also intends to offer P5- billion worth of enhanced pre-need plans with free hospitalization or accident insurance. The pre-need firm has used most of the P5-billion worth of educational plans registered with the SEC last year.