SEC okay of CAP’s asset confirmation paves way for P1-B equity infusion

The Securities and Exchange Commission (SEC) has approved College Assurance Plan Phils. Inc.’s asset safekeeping receipt (ASKR) confirmation in favor of European fund manager International Global Capital Holdings (IGCH) AG, paving the way for the latter’s infusion of about P1 billion in fresh capital into the local pre-need firm.

The ASKR, issued by the Philippine Veterans Bank, was a precondition for IGCH’s planned equity investment in CAP. It covers CAP’s MRT bonds which shall remain unencumbered for five years from the date of issuance.

The approval, however, was subject to certain conditions, among which is the completion of the equity infusion within 15 days from receipt of the approval. However, CAP has reportedly asked the SEC for a 30-day period to complete the equity infusion.

SEC Chairperson Fe Barin has also directed CAP to put IGCH’s equity investment directly in its trust fund. The investment, she said, can be withdrawn, distributed or used only to pay the claims of CAP planholders.

IGCH is primarily involved in financial management and is registered in Vaduz, Liechtenstein. It is affiliated with all top 50 Western European banks, including Swissfirst Bank AG.

"Under no circumstances shall the proceeds be withdrawn, disbursed or used to settle any other contractual obligations of CAP with its creditors, affiliates, subsidiaries and other third parties,"Barin said.

Barin said CAP’s failure to comply with the conditions shall result in the withdrawal of the SEC’s approval.

The ASKR serves as a confirmation that CAP has sufficient assets. Without an ASKR, investment banks would have to conduct extensive due diligence on a company to determine asset valuations.

To further beef up its trust fund, CAP is holding negotiations with a local investor group for the possible infusion of as much as P1 billion. The prospective local investor, however, wants CAP to first secure a dealership license from the SEC prior to infusing fresh capital.

The SEC has not renewed CAP’s dealership license since last year due to the pre-need firm’s failure to beef up its shrinking trust fund.

With the fresh equity infusion and the reduction of its variance, CAP will apply for a renewal of its dealership license with the SEC.

As of end-2003, CAP’s actuarial reserve liability or ARL stood at P25.7 billion while the trust fund, which serves as the guarantee the pre-need firm would be able to meet future obligations, is only P8.5 billion. This has resulted to a trust fund deficiency of P17.2 billion. The ARL is the present value of the pre-need firm’s future liabilities.

Also part of the pre-need firm’s asset build-up program is the conversion of assets to equity which would be added to the trust fund, generation of interest income from loan programs, raising dividend income and securing fresh equity from interested investors.

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.