Cityland Development Corp., a real estate firm with several residential and commercial condominium projects, is being investigated by the government for engaging in the same controversial brokering operation as Westmont Investment Corp. (Wincorp) and ASB Realty.
Government sources said that the Securities and Exchange Commission (SEC) has intiated an investigation into the borrowing and lending activities of Cityland due to rising apprehensions by holders of Cityland's non-recourse debts.
Non-recourse debts are high-yielding commercial papers which borrowing companies sell to investors for them to raise money for their projects. The without recourse papers yield investors high interest rates but do not entitle them to the recovery of their investments from the borrowing firms.
Sources revealed to The STAR that the SEC investigation, being conducted together with the Bangko Sentral ng Pilipinas (BSP) on Cityland is the offshoot of the probe on ASB Realty which suffered from a liquidity crunch due to Wincorp's failure to service over P7 billion in debts.
Wincorp's check payments to investors bounched when a financing agreement it had with UOB Philippines was stopped. This led to a suspension of payments for other investors.
Sources said the government is worried that the borkering operation, which supposedly matches the borrower and the lender, is being abused to the point that the borrowing operations of companies skirt the 19-lender rule.
Under SEC rules, a borrowing company cannot sell debt investments tomore than 19 lenders. However, that borrowing firms do is to engage in brokering opertion to allow them to borrow from more than 19 lenders.
Sources said that the SEC is looking into the operation of ASB and Cityland since their owners are siblings. Likewise, the SEC is also looking into the related State Investment House which in the past had also been involved in some sour deals.
The SEC and BSP are now silently looking into the borrowing and lending activities of companies as the practice is considered more prevalent than actually known by the public.
Market sources said such a practice is actually very common, especially with investors who are not satisfied with the returns that are offered by duly authorized and licensed banks and financial institutions.
What happens, sources explained is that a firm usually matches a lender and a borrower, in effect brokering the transaction.
The "broker firm" usually finds investors and offer a guaranteed yield that tops the rates offered by banks and other licensed financial institutions in exchange for without recourse debts from borrowing firms.
Such a practice, sources said is allowed but is limited to the 19-lender rule. The broker is normally able to successfully provide the yields to its investor. But the whole scheme could collapse if the borrower default on his obligation.
The Capital Market Association of the Philippines has already expressed its concern to the BSP and SEC and has urged that an educational campaign be launched to inform the public about the risk of such investments without recourse.
The BSP and the Association, sources said, are hoping to convince the public to stick to making their investments only with the banks and authorized and licensed financial houses. -