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Letters to the Editor

SSS clarification on sale of Meralco shares

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This is in reference to the article “COA seeks probe on SSS sale of P5.69-B Meralco shares” published on Feb. 3, 2012. 

Please allow us to clarify some of the points raised and questioned by COA in that article, as follows:

1. SSS sold the shares for over P5 billion to a buyer with net assets of only P60 million. 

This is exactly the reason why the SSS required the highly-capitalized Development Bank of the Philippines (DBP) as the secondary buyer. The Board of Directors of DBP approved and confirmed under Board Resolution No. 003 dated 07 January 2009 for DBP to act as secondary buyer of the SSS-held meralco common shares.

2. DBP does not fully secure the risk of primary buyer’s default. 

The transaction is a contract of sale and not a loan. The SSS did not lend any money to Global 5000, neither did it release any shares to the buyer, even if the latter had already paid the P1.13 billion downpayment in February 2009 and had partially paid P4.57 billion by December 2011. The SSS will not release its shares to the buyer unless it has fully paid; thus, SSS is protected from any perceived risk.

3. The SSS assumed a risk that is greater than that of retaining its Meralco holdings. 

Any and all initial and subsequent payments made by and including dividends credited to the buyer will be forfeited in favor of SSS if both Global 5000 and DBP fail to complete the P6.50 billion consideration. If this happens, the SSS will book those payments as income and will continue to hold full ownership of subject Meralco shares. Again, this protects the SSS against any perceived risk.

4. The Share Purchase Agreement (SPA), which allowed the buyer to get dividends, is disadvantageous to SSS.

The SSS sold the shares at P90 apiece when the market price then (December 2008 - January 2009) was at P59.50 per share, or a hefty P1.92 billion premium over its market value. The SSS also received fixed interest of P729.3 million arising from the installment scheme. In addition, SSS received another P104.1 million interest in extended period payment. Thus, the combined premium and interest income totaling P2.75 billion are significantly high enough to forego possible dividends, which were not even certain at the time of sale.

5. SSS lost or failed to earn additional interest of P76.3 million when buyer failed to pay the first installment on the due date.

The SSS collected from the buyer all payments in accordance with the SPA executed among SSS, Global 5000 and DBO on 14 January 2009. The said SPA provides for an extended payment date for any installment subject to an interest of nine percent per annum on any extended installment amount. The buyer did not default but opted to extend the first installment, all in accordance with the SPA. Thus, SSS collected another P104.1 million interest when the first installment was paid. There is no legal basis to collect another P76.3 million, as raised by COA.

6. The sale was contrary to the Social Security Act and that SSS investments should adhere to sound business practices and financial principles.

The sale was highly advantageous to SSS and in accordance with sound business practices and investment principles. It enabled SSS to convert its risky asset into cash while being adequately protected from any perceived risk. On 31 January 2012, Global 5000 (now: SMC Global Power Holdings) fully paid the entire P6.50 billion consideration. There was even no need to collect any amount from DBP as secondary buyer.

The SSS was never put in a disadvantaged position and never lost any money from execution date or date of final settlement. The SSS was fully covered from all perceived risks and was compensated accordingly.

In conclusion, the SSS received P6.50 billion in total revenues versus the acquisition cost of P4.14 billion, or a huge profit of P2.37 billion, out of this transaction that was completed in accordance with the guidelines and investment principles of Social Security Law.

Thank you for giving us the opportunity to air our side. – Edgar B. Solilapsi, Executive Vice President - Investments Sector, Rizaldy T. Capulong, Vice President and Deputy Chief Actuary, Social Security System        

B MERALCO

BILLION

BOARD OF DIRECTORS

BOARD RESOLUTION NO

BUYER

DEVELOPMENT BANK OF THE PHILIPPINES

EDGAR B

EXECUTIVE VICE PRESIDENT

SSS

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