CAP eyes $100-M infusion from foreign investor

The Securities and Exchange Commission (SEC) expects College Assurance Plan Philippines Inc., (CAP), one of the country’s biggest pre-need companies, to conclude negotiations for a possible $100 million capital infusion or loan end this month.

"We’re waiting for their foreign investor. They said negotiations with the foreign investor should be concluded by the end of the month so let’s wait and see," SEC chairman Lilia R. Bautista said.

Bautista, however, said the SEC will be forced to step in should CAP fail to secure a deal with the prospective foreign investor. "We will step in only when they fail to find an investor. But we will discuss with them first. As the primary regulator, the SEC has to make sure that investors are adequately protected," she said.

The SEC chief said that even without an investor, CAP can still build up its trust fund through additional equity infusion from shareholders and the sale of assets. She said CAP could also merge with another bigger pre-need firm.

Bautista said CAP’s trustee banks are set to make a presentation to the SEC, detailing the proposed trust fund build-up plan for the Sobrepena-owned pre-need firm. "The trustee banks will make a presentation to show that the assets in place are sufficient to cover future obligations," she said.

CAP’s trust fund assets are managed by Bank of Commerce, Allied Banking Corp., Bank of the Philippine Islands, Union Bank of the Philippines, Metropolitan Bank & Trust Co., Equitable-PCIBank, Philippine Veterans Bank, and recently East West Banking Corp.

Based on its audited financial statements for 2003, CAP only had P8.49 billion in trust funds managed by its trustee banks compared with its actual reserve liability of P25.6 billion. The ARL is computed on the basis of assumptions on interest rates, inflation rates and percentage of lapsed plans or contracts cancelled due to incomplete payment.

CAP’s trust fund assets are invested in the following: Metro Rail Transit bonds, (P3.12 billion), real estate, (P2.67 billion); shares of stock of listed companies, (P2.26 billion); treasury bills, (P83.83 million); advances to Nasugbu Properties, (P134.92 million); and loans to other firms (P143.06 million).

CAP is confident it can cover all obligations to planholders, saying the the gap between its trust fund and its ARL is only temporary. It pointed out that all maturing obligations have always been paid on time while the recipients wait for the check to be issued.

The company is looking at other real estate assets that could be included in the computation of its trust fund. Among these include the Canyon Woods, Tagaytay; Manila Southwoods; the Nasugbu Harbor Town and investments in Naic Properties.

Another source of funds is the P1 billion bonds subcribed by CAP from the Systems Technology Institute (STI). These bonds are non-interest bearing certificates that give holders academic entitlements to any of STI Colleges or its affiliated educational entities upon redemption on certain designated redemption dates which range from between four and 19 years from issue date.

CAP has also reportedly asked the SEC to allow a higher valuation for its investment in the MRT bonds which have a book value of P3.12 billion. The bonds, according to CAP, should be valued at P7.1 billion as per initial valuation made by PentaCapital Investment Corp.

CAP emphasized that its P2.5 billion trust fund shortfall in 2002 was fully covered in Sept. 30 the same year. As of end-2003, CAP’s total assets stood at P18.5 billion.

A trust fund refers to the money set aside by a pre-need company to cover future obligations. It is considered insufficient when it is less than the estimated total amount the pre-need company must pay in the future.