PentaCapital terminates Mondragon deal

PentaCapital Investment Corp. (PentaCapital) announced yesterday that it was terminating its financial advisory contract with Mondragon International Philippines Inc. (MIPI) following the allegations of collusion hurled against it by former Tourism Secretary Jose Antonio Gonzalez.

PentaCapital said its decision to quit as financial advisor of Mondragon was prompted by Gonzalez’s accusation that the company’s rehabilitation proposal for Mondragon Leisure and Resorts Corp. (MLRC) was a "crony deal."

PentaCapital said it was "mystified" by Gonzalez’s statements, saying that any proposal that it submitted to the government was for the account and sole benefit of Mondragon as the owner of the Mimosa Leisure Estate in Clark Field, Pampanga.

PentaCapital said it conducted studies and analyses for the proposal together with senior Mondragon officials whom the company said were responsible for the new rental rates that MLRC could afford while still remaining competitive.

Under the proposal, PentaCapital said the renegotiated annual lease rental to Clark Development Corp. (CDC) for the first 10 years was reduced from P1.7 billion to P826 million and not P350 million as Gonzalez reported.

"The main beneficiary of this reduction is clearly Mondragon," said PentaCapital chief operating officer Jose Revilla Reyes. "Had CDC insisted on the old rental rates, there would have been no way for MLRC to have been rehabilitated and consequently, for the government to collect."PentaCapital reasoned that the negotiations with CDC and the Philippine Gaming and Amusement Corp. (Pagcor) were done hastily and were still on ongoing.

"There is no mystery involved as the rehabilitation plan called for a last-in-first-out (LIFO) loan of up to P650 million to MLRC payable over a two year period," Reyes said. "This does not involve any investment by any investor."

The bulk of the loan Reyes said, was to be sourced from existing bank creditors who would benefit from a rehabilitated MLRC.

Part of the rehabilitation plan, according PentaCapital, was the recapitalization of MLRC, since it was already bankrupt.

As an incentive for prospective lenders of the LIFO loan, PentaCapital said the plan was to offer an option to the prospective lenders to subscribe at par to 20 percent of the equity of the rehabilitated MLRC.

Further, the existing creditors would still have to agree to convert part of their exposure in MLRC into equity for about 55 percent of the rehabilitated MLRC. PentaCapital said this would explain why MIPI, the holding company of MLRC, would then be left with only 25 percent equity in MLRC.

"All these were preliminary plans to be worked out with creditor’s committee, which was supposed to be formed right after the LIFO loan is effected," PentaCapital said. "Thus all future equity holders would have to pay for their shares, contrary to Gonzalez’s claim that these shares were being acquired for free."

PentaCapital also explained that MLRC had agreed to enter into a management contract with PentaCapital’s nominee, New Millennium Investment Corp. (NMIC).

"Because of the termination of its financial advisory role, PentaCapital has withdrawn all proposals that it submitted on behalf of MLRC to CDC, Pagcor and various bank creditors," PentaCapital said.