CAP first vice president Bobby Cafe said the company initially received offers from five investor groups but only three were serious in pursuing their planned investment. "We worked on five foreign investors but there are only three serious players in here," he said.
Cafe noted that one investor group, based in North America, wants to come in as a strategic partner. The other group is based in Asia while the third group is represented by investment bankers.
The company expects to conclude negotiations with the foreign investor by the end of the month or by the fourth quarter of this year at the latest, Cafe said.
He said one group earlier offered to infuse $100 million in exchange for an equity in CAP. "This investor wants to bring in their products and tap our marketing network as a vehicle to gain a foothold in the Philippines," he said.
Cafe said CAP will issue new preferred shares coming from its planned increase in capital stock to accommodate the new investor. He pointed out, however, that the company will choose just one investor to acquire majority shareholdings in CAP’s subsidiaries and affiliates.
The Securities and Exchange Commission (SEC) earlier said it will be forced to step in should CAP fail to secure a deal with the prospective foreign investor.
The SEC 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. Another option, the SEC added is for CAP merge with another pre-need firm.
SEC chairperson Lilia Bautista said CAP’s trustee banks are set to make a presentation detailing the proposed trust fund build-up plan for the Sobrepena-owned pre-need firm.
Cafe said CAP has over P20 billion in assets to match the P17.2 billion worth of plans to mature up to 2032. He said CAP would even have a P3 billion surplus by 2032.
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 (ARL) 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 portfolio mix: 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 said it is confident it can cover all obligations to planholders, noting that 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 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 of 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 of 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.