PDIC to provide P20-B financial package to UCPB

After months of intense negotiations, state-owned Philippine Deposit Insurance Corp. (PDIC) has agreed to provide a P20-billion financial assistance package to United Coconut Planters Bank (UCPB) which would involve the issuance of "hybrid Tier 2" bonds and the sale of bank assets amounting to P13 billion.

The assistance package was approved after months of negotiations between the PDIC, the UCPB management headed by president Edward Go, various government agencies, coconut industry representatives and other groups with pending claims on the controversial coconut levy fund that originally created the bank, including businessman Eduardo Cojuangco Jr.

PDIC president Ric Tan disclosed yesterday that UCPB already "advanced" P5 billion from PDIC sometime in April.

Tan said the UCPB and the PDIC approved last week the financial assistance package, involving the issuance of some P7-billion worth of capital notes, a corporate option that would have normally required the approval of the UCPB’s stockholders.

The PDIC chief, however, said that several critical adjustments had to be made on the Tier 2 bonds to avoid this requirement since UCPB’s ownership is still in question and management would not be able to approach any stockholder until the Sandiganbayan clears up the question of ownership.

"It was a short-term liquidity assistance, basically bridge financing in anticipation that the tenor would be lengthened once the agreement falls through," Tan said.

"The original tenor of the advance was aligned with the 91-day treasury bills plus spread," he added.

After getting P5 billion from PDIC, a source said the UCPB board went into intense discussions to draft the financial assistance package, while fending off speculations that the bank is about to collapse.

"Let’s just say the bank made a P5-billion advance from the PDIC," said one source. "In a way, it was a good move because the bank needed it immediately and getting that money also forced the conflicting parties to once and for all come to some agreement on how to save the bank."

The UCPB recorded the weakest capital base in the entire commercial banking industry with total equity as a percentage of total assets declining to 2.89 percent as of Dec 17, 2002 statement of condition.

Sources said this was the primary motivation for coming up with an alternative plan that would allow the bank to recapitalize without compromising the pending claims related to the coconut levy funds.

Tan explained that since UCPB’s Tier 1 capital was only P2 billion, it could only issue P2 billion worth of Tier 2 notes. The remaining P5 billion would be issued as secured notes instead.

Tan said the main characteristic of the "hybrid Tier 2" bonds would be "conditional" on certain milestones, mainly the decision of the relevant courts on the UCPB’s ownership and the improvement in the performance of the bank.

Ordinary Tier 2 notes are essentially debt instruments that the holder could either convert into equity in the bank or redeem upon maturity.

UCPB’s Tier 2 notes, on the other hand, would be dependent on the resolution of the ownership question by the Sandigangbayan where the case is still pending.

According to a PCGG source, the notes would be convertible into equity if the UCPB owners "whoever they are – would allow the conversion."

If the court has not decided when the notes mature in 10 years, then they would be non-convertible and redeemable only.

According to the source, the risky assumption was that the relevant courts of law would have made a clear decision by the time the instruments mature.

Aside from issuing P7 billion worth of Tier 2 bonds, Tan said the PDIC would purchase P8 billion worth of assets from the UCPB on an outright sale basis and another P5 billion worth of assets would be purchased with a buy-back option.

‘PDIC reps in UCPB board’

The PDIC has appointed two representatives into the 15-man UCPB board of directors, namely Norberto Nazareno and Jose "Jojo" Querubin, to occupy two vacant positions in the bank’s policy-making body.

The appointment of Nazareno and Querubin, both veteran bankers, was also approved by the UCPB board last week together with the financial assistance package.

Nazareno is former president and incumbent director of the PDIC while Querubin is country manager of the Bank of America.

"The approval of the financial package and the election of the PDIC representatives to the board will only strengthen the bank," said the source. "This is what it needs."

Already in the board of directors are Edward Go, chairman and chief executive officer, Jesus Lim Arranza, Alejandro D. Asis, Roben Carranza Jr. (PCGG), Jose Roberto Cuaycong, Carolina Diangco, William Dichoso (PCGG), Carlo Marco Estavillo, Vicente A. Fabe, Jose Marie Faustino, Prudencio A. Garcia, Rolando A. Golez and Romeo C. Royandoyan.

The election of PDIC representatives in the UCPB board was also expected to ease the pressure on Go who was reported to be at loggerheads with UCPB directors Arceo, Osias and Golez who reportedly wanted to reduce the power of the bank chairperson and chief executive, while increasing the power of the board of directors and of the executive committee.

UCPB is one of the country’s biggest banks with a deposit base of over P70 billion.

Established in 1963 as a commercial bank, UCPB grew to become the first private Philippine universal bank in 1981, enabling it to invest in non-allied businesses.

Today, with assets close to P 114 billion, the UCPB group is one of the country’s largest financial services groups.