CAP director Robert John Sobrepena said the company is presently in talks with the developer for a property-to-share swap, which would involve the possible infusion into CAP’s trust fund of P6 billion worth of real estate in exchange for preferred shares to be issued by CAP.
Sobrepena, however, declined to identify the developer until the negotiations have been finalized.
But he added that CAP and a prospective foreign investor based in New York are now in an advanced stage of negotiations for a straight cash infusion of $227 million and a long-term loan facility to be used to liquefy certain assets in its trust fund, worth around P7.1 billion.
Sobrepena said an agreement could be expected within a month’s time. "It would take about 30 days to sign the definitive terms of agreement so we expect cash to come in by October," he said.
With the entry of the foreign investor and the local developer, the Sobrepena group’s hold in CAP’s 11-man board would be whittled down to six seats as the foreign investor could take in four seats and the developer, one seat.
With all this in place, CAP’s trust fund is expected to increase by as much as P18 billion, which would be sufficient to cover the fund’s future deficiency — a lingering concern hounding the pre-need firm.
Earlier, CAP secured a P300-million loan from its trustee bank Philippine Veterans Bank (PVB). "Our loan application has been approved. In fact, we have similar credit lines with other banks which we haven’t drawn yet," Sobrepena said.
CAP is now awaiting a go-signal from the Securities and Exchange Commission (SEC) to sell an additional P1 billion worth of educational plans as it has used up most of the P5 billion worth of educational plans registered last year.
In addition, the company also intends to offer P5 billion worth of enhanced pre-need plans which features free hospitalization or accident insurance benefits.
Without a fresh capital infusion, CAP may not be able to renew its dealer’s license which expires on the SEC-set deadline of Sept. 30.
The dealer’s license allows a company to sell pre-need plans to the public.
The capital infusion forms part of the SEC-approved asset build-up program that CAP is undertaking in order to match the anticipated deficiency in its trust fund with the growth of its assets.
As of end-2003, CAP only had P8.41 billion in trust assets managed by trustee banks as against an actuarial reserve liability of P25.6 billion.
CAP’s trust fund assets are invested in the following portfolio mix: MRT bonds (P3.12 bonds); real estate (P2.67 billion); shares of stocks 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).
The asset build-up program, which aims to increase CAP’s assets by P9.955 billion, will include the conversion of assets to equity to be added to the trust fund and the generation of interest income from loan programs.
Also part of the capital build-up program is raising dividend income and securing fresh equity from interested investors, as well as the inclusion of its interest income from a loan program.
Other measures aimed at plugging the trust fund deficiency include recognizing the value of developed properties which were previously valued when they were still undeveloped; recognizing real estate inventory or unsold land at the end of five years, including outstanding accounts receivables at the end of five years from its real estate development projects; recognizing a portion of the MRT bonds that are not reflected in its financial statements; and recovering an investment in Fil-Estate Management Inc. These adjustments would allow CAP to book an additional P10.6 billion in its trust fund assets.