The Yuchengcos will defend their name

The good news is, after this column urged the Yuchengcos to defend their name and live up to their commitment to Pacific planholders, they released a story that the taipan Al Yuchengco will contribute P250 million of his personal funds to help planholders enroll their children this June. The amount, though substantial, is not nearly enough to cover potential liabilities to holders of the traditional or open-ended plans. But it is a start.

It is also encouraging that recent press releases from Pacific Plans have become less legalistic and more appreciative of the concerns of planholders. Even as they also appeal for more understanding of their own predicament, officials of Pacific Plans are now talking of doing what they can to rehabilitate the enterprise. They earlier gave the impression they did all they could to isolate Pacific Plans and let it and the planholders wither in the legal vine.

Shortly after my column was published, Helen, the daughter of the taipan who is carrying the day-to-day burden of running the taipan’s enterprises, also sent word through mutual friends to reassure me that the Yuchengco family understands everything I wrote and "would do what is humanly possible to help all affected planholders."

I subsequently sat down with her and she reiterated the family’s general commitment in principle, even as she couldn’t be more specific about how far they could go by way of support to Pacific Plans. I guess this is because no one can really estimate at this point, the amount of money needed to rescue Pacific Plans completely. Given our extremely volatile economic (and political) situation, any number is at best, a moving target. Even the schools have refused attempts of Pacific Plans to tie them down to a number. Everything depends on how well or how badly our economy fares.

But Helen emphasized that contrary to what many people may think, they did not mismanage Pacific Plans. She didn’t compare what is happening to Pacific Plans with the other pre-need plan companies in trouble today. But she didn’t have to. A week or two ago, the bank managing the trust fund of that other pre-need plan came out with the revelation that they lost over a billion pesos by investing in a related real estate company. In contrast, Helen assured me that their investment portfolio at Pacific Plans can be defended at Plaza Miranda.

Helen explained that they would not be in trouble if two major events didn’t happen: Deregulation of tuition fees and the Asian financial crisis. The deregulation of tuition fees rendered their assumption of an annual 10-percent increase in tuition fees inoperative. And we all know the returns on investments – T-bills, real estate, business – were pitifully low following the outbreak of the Asian financial crisis, considerably reducing their earnings projections. The fine print in the pre-need contracts they wrote gives them a way out. But, she pointed out, they have so far lived up to the promise as best as they can.

To prove to me that their investment decisions for Pacific Plans are defensible, Helen showed me sample plans, comparing what they have paid out, how much the plan was sold to the plan holder and what could have been earned by the purchase plan under various investment options. In fairness, she did have a point.

For example, a plan for a four-year college course in an exclusive school bought in 1987 for P29,200 due for availment on school years 2002-2005, paid out total benefits of P368,603 for an internal rate of return of 19.60 percent and a return on investment of 1,262.34 percent. A very wise investment, indeed!

When they sold that plan, they assumed they would pay out benefits amounting to P128,027 compared to the P368,603 they actually paid out. Their trust fund investments earned P105,484, or an IRR of 10.59 percent and a ROI of 438.45 percent, which is not that far from their assumption even if they actually earned less. If the money were invested in T-bills, it would have earned P124,666 with an IRR of 10.50 percent and a ROI of 426.94 percent. If the money was merely parked in a time deposit, it would have made P91,521 or an IRR of 8.18 percent and a ROI of 313.43 percent.

There were other examples presented to me, all clearly showing that their trust fund investment earnings were within the ballpark of what alternative investments could have earned during the period in question. In other words, the numbers seem to indicate that they did not mismanage the funds, but were just a victim of unforeseen events.

Even the investment in Napocor bonds cannot be looked at as evidence of a bad investment decision, as some critics point out. Napocor may stink, but its bonds are totally guaranteed by the government. It is as good as a government Treasury bill, even better, because the Napocor bonds Pacific Plans invested in are dollar denominated, giving the trust fund an extra measure of protection.

But, I pointed out to Helen, if you had nothing to hide, why did you resort to such a sneaky tactic as establishing another company and transferring the good assets to it, leaving the open-ended ones in Pacific Plans? Helen insists they had the best of intentions of safeguarding the interests of the buyers of fixed benefit plans, while they figured out how to save the open ended plans left at Pacific Plans. Their mistake, Helen now realizes, is they allowed the lawyers to do the talking. When the legal Rottweilers take over, of course people get threatened and offended.

Still, I insisted to Helen, the numbers and your best intentions notwithstanding, the family must still live up to the public’s high expectations, to preserve the value of the name built up by her father. Any default now would also have serious social consequences, and threaten their other businesses that are all dependent on the public’s unwavering trust.

She looked up at me with a tired and worried look and nodded agreement, as if to say how dare you pontificate the obvious. Of course she realizes all that. She didn’t get to where she is by being dense. The reputably tough lady that she is, she just feels helpless at the impossibility of pinning down a number that keeps on changing.

Actually, if you think hard about it, any holder of an open-ended plan from any company should have reason to worry. Looking at the numbers, it does seem impossible for even the best managed trust funds to make the kind of return on investment needed to service those open-ended plans. Perhaps Pacific Plans was just honest enough to admit early on that they have a problem. In hindsight, the pre-need industry made a colossal miscalculation in selling those open-ended plans. I am not sure there is a viable way out of this bloody mess now.

Unfortunately for Helen, the Yuchengcos have a name and reputation to protect. Unlike the Sobrepeñas whose problems with their real estate business have been legendary long before they experienced any problem with CAP, the Yuchengcos have managed their businesses well. I would be very surprised if they decided to turn their backs on a legacy that Helen’s 82-year-old father, now recuperating from quintuple heart bypass surgery, built over his lifetime.

Still, it is a good idea for Pacific Plan holders to keep the pressure on the Yuchengcos. But as a CAP planholder, I would trade places with them in an instant. They are lucky they are dealing with the Yuchengcos.

I do not expect the Sobrepeñas to lose sleep over the amount I am entitled to collect from the last year of my youngest daughter’s CAP plan, given their string of payables: Over a billion pesos to BCDA for Camp John Hay and the billions of pesos owed to hundreds or thousands of buyers of Fil-Estate projects. I have a nephew who bought a lot in Forest Hills, a Fil-Estate subdivision. He completed his payments of over a million pesos years ago, but is unable to get his title up to now. Isn’t that against the law? But, duh… what else is new?

I know it is small comfort to affected Pacific Plan buyers but they are still luckier than I am. Even if the future may not be that clear now, at least, they have more reason to hope.

Rear view

Now, here’s Dr. Ernie E.

A man clearly looking very distraught, ran in to a friend. So the friend asked him what was wrong.

The man answered, "as you know, I am looking for employment. I found an ad in the paper for a part in local dinner theater, Shakespeare’s Romeo and Juliet. I went and tried out for the part of Romeo. However, I failed my audition. Apparently, I misunderstood a simple stage direction. But look at the script… it clearly said, ‘Enter Juliet from the rear.’"

Boo Chanco’s e-mail address is [email protected]