Funding Maharlika

Now that the bill creating the Maharlika Investment Fund is just waiting for the President’s signature, it is time to figure out how it will be funded… I mean really funded. And how will it invest its funds.

It is difficult to believe the claim that it will fund infrastructure projects. Right now, the funds expected to be contributed by the BSP, DBP, Landbank and Pagcor, and from the sale of government assets will not be enough to finance a big enough infrastructure project requiring long term funds.

The fund’s managers will be thinking short term. They will be pressured to show earnings in the first year if only to prove the critics wrong. The law that was passed virtually called for risk-free investments that deliver profits or dividends quickly.

Think NGCP. An average of P20 billion in dividend is assured each year for all shareholders. It should be easy to convince Big Boy Sy and the other Filipino investors in NGCP, as well as the Chinese State Grid, to sell a proportionate amount of their holdings to give Maharlika no less than a 30 percent stake. A suggestion that the NGCP franchise may be reviewed or cancelled should be convincing.

Then there is Malampaya. According to Eduardo Mañalac, a former energy official, in a typical year, Malampaya earns roughly P45.5 billion. PNOC’s revenues from the venture from 2018 to 2020 averaged around P4.55 billion yearly representing its 10 percent share in the gas field consortium, he said.

It should be easy to convince Dennis Uy to sell his Malampaya shares to Maharlika if the President asks him. For one thing, nakabawi na siya. Then, Uy needs money for his other big venture, Dito Telecom. Uy’s presence in Malampaya adds no real value unlike Ricky Razon who is providing the managerial and financial resources that should help keep the gas field productive.

The Malampaya consortium just got a renewal of the service contract that was to expire next year. If properly managed, they should be able to get more production from Malampaya, but investments in step-out wells will be needed.

Malampaya investors may have to invest $600 million to drill those wells, so dividends may not be immediately forthcoming. There is also some risk the field will be exhausted sooner than hoped for. But for now, if current production level holds for the next five years of BBM’s watch, the cash flow for investors is something that Maharlika needs badly.

Then convince the bluest of our blue chips to sell a significant number of shares, probably treasury shares, to Maharlika. That keeps Maharlika investments safe and earning good returns, because the major telco issues, for example, pay generous dividends.

For additional funding, the President should ask his travel buddies who head our top conglomerates to contribute no less than a billion pesos each in personal investment in Maharlika. That will make these taipans credible when they try to convince foreign investors to come into the country. This is also putting their money where their mouths are. Same for Manny Villar who is not part of the travel cabal, but whose businesses benefit greatly from his political alliance with whoever is in power.

Kahiyaan na ito. The political leadership simply muscled the approval of Maharlika even in the face of clear evidence that it was not timely and is not likely to be successful. It even threatens the ability of the two government banks to carry out their development objectives. This is a political and not an economic decision.

I was surprised to see the name of a senator, who I thought wouldn’t fall for the Maharlika hard-sell, on the list of those who voted for it. So, I asked why and the response I received pointed out that the Senate bill that was passed has enough safeguards. In fact, it is too safe, one wonders how it can accomplish its lofty investment goals. This is why I am suggesting equally safe investment possibilities in NGCP and Malampaya that hardly need any investment savvy to make.

Here is the list of safeguards the senator sent me:

Prohibited the use of GSIS, SSS, PhilHealth, OWWA, PVAO, and HDMF (Pag-IBIG) for Maharlika.

Required a fidelity bond worth P10 million for all board members.

Strengthened congressional oversight by requiring the quarterly submission of investment portfolio and audit reports.

Preserved the public’s right to freedom of information and access to investment portfolio and audit documents.

Increased the fines, imposed imprisonment, and added perpetual disqualification from public office in all penalty provisions: Grossly incomplete audits by the independent auditor; acting as intermediaries for graft; tolerating graft

Placed a cap on the investments of government banks (Landbank, DBP) and other financial institutions to not exceed 25 percent of their respective net worth to ensure fiscal stability.

Limited BSP’s contributions of its dividends to two years only instead of the original open-ended period until the P50 billion capitalization is reached.

Required the publication of investment and risk management strategies and activities of Maharlika to encourage scrutiny by the public.

Required congressional authorization for any increase in capitalization to ensure congressional oversight in Maharlika’s expansion and trajectory.

Prohibited the government guarantee of any bonds issued by the Maharlika Corp.

Required the written authority of proper authorities for any guarantee involving financial liability to be binding against Maharlika Corp.

Required Maharlika’s investments in infrastructures to focus on the national priorities of the DPWH, DTI, NEDA, and other relevant agencies.

No self-respecting investment fund manager would accept an assignment with all these “safeguards” that leave little room to maneuver. Risk aversion, which is called for when dealing with public funds, is why experts were saying Maharlika is a bad fit for the government at this time. It is strange that the administration agreed to be shackled as tightly as these amendments suggest.

Maybe, the administration isn’t serious about an investment fund. Maybe it just wanted to flex its muscles. Even the Senate fell in line. Maybe they just wanted to highlight that point. That’s how to get political respect.

I heard a suggestion that the fund should be renamed Maalikaya because we are all going to get screwed.

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco