RCBC got raw end of Peace bond deal not government, says FEFI

A socio-economic group believes that the issuance of the so-called Peace Bonds favored the government, and that the bond’s underwriter "bore the cost that was enjoyed by the bond issuer.

The Foundation for Economic Freedom Inc. (FEFI) said that the 12.75-percent yield of the controversial bond "was favorable to government and that it was the Rizal Commercial and Banking Corp. (RCBC), not government, that bore a windfall of P1.8 billion that was enjoyed by Code-NGO by suffering an inordinately low yield in the instrument."

Strong opposition including congressional hearings are being conducted alleging that the government was "tricked" by Code-NGO when it entered into a negotiated deal for the Peace Bonds. Opposition insists that government lost P1.8 billion in taxes under suspicious transactions with the Department of Finance (DOF) and the Bureau of Treasury (BTr).

In a press statement, the FEFI called the transaction as a "private matter."

"Whether this resulted from philanthropy and social spirit, miscalculation or contractual constraints that required RCBC to provide fees to Code-NGO even in a transparently bidded auction where they would have been entitled to participate, is a private matter," it explained.

However, they chided Code-NGO for having insisted and entered into a negotiated bidding calling it "inappropriate if not outright wrong."

The BTr sold a 10-year zero-coupon (tax exempt) bond with a face value of P35 billion to RCBC which acted on behalf of Code-NGO. It was sold at a total price of P10.2 billion at 12.75 percent per annum.

In turn, Code-NGO sold the bonds to RCBC Capital at a gross profit of P1.8 billion or a total consideration of P12 billion. "At this price, the implied yield of the bonds to RCBC Capital goes down to from 12.75 percent to only 11 percent."

FEFI questioned the sudden fluctuation of the yield in a short period saying that only a major market development could have caused the yield to drop from 12.75 percent to 11 percent. The only reason it would occur without the aid of a major financial development is that the issuer paid too high a yield or the final buyer overpaid for the bond and is now suffering below-market yields, it said.

"If the appropriate yield of the bonds was 12.75 percent, then clearly there could have been no anomally involving government funds and the only logical conclusion is that RCBC overpaid for the bonds."

RCBC acting chairman Cesar E.A. Virata had said that they have already disposed of the P1.2-billion worth of the bonds in secondary market. However, they have seized to sell the bonds until the controversy would simmer down. – TPT