SEC asked to impose sanctions on Philtrust

The controversy involving the planned takeover of medium-sized Philippine Bank of Communications (PBCom) by Chinese-Filipino businessman Emilio Yap’s Philtrust Bank is far from over.

The Luy family, the single biggest shareholder of PBCom owning 37 percent or approximately 72 million shares, has asked the Securities and Exchange Commission (SEC) to impose sanctions on Philtrust for misrepresentations made in its tender offer report.

At the same time, the Luys, through lawyer Estelito Mendoza, claimed that Philtrust is not qualified to acquire the shares held by the Chung and Nubla families based on Sec. 30 of the 2000 General Banking Law (R.A. 8791).

The said provision limits the equity investment of a commercial bank in any enterprise to up to 25 percent of its networth.

He said financial statements of Philtrust as of Sept. 29, 2006 showed that the bank had a total networth of only P6.845 billion.

"Under RA 8791, the maximum investment that Philtrust can put in PBCom is limited to 25 percent of its networth or P1.711 billion. Thus, Philtrust can- not buy the 58.26 percent interest of the Nubla and Chung Group in PBCom for P3.016 billion," Mendoza said in his letter to the SEC.

Aside from this, Mendoza claimed that Philtrust failed to disclose to the SEC the financial assistance agreement entered into by majority shareholders of PBCom with the Philippine Deposit Insurance Corp. (PDIC) in 2004 which requires shareholders to sell controlling interest as one block over a five-year period.

The Nubla and Chung families have agreed to sell to Philtrust their combined 58.26 percent shareholdings (approximately 100.559 million shares) at P30 each share. The Nublas own 28 percent while the Chungs hold 26 percent of PBCom.

"It is clear that the purported transaction of the Nubla group and Chung group with Philtrust is in violation of the FAA. The sale does not include the shares of the Luy Group which are integral part of the controlling interest which must be sold as one block," Mendoza said.

Mendoza also pointed out that any sale or transfer of the controlling interest in PBCom shall have the prior approval and concurrence of the Central Bank and PDIC.

He said the representations made by Philtrust in its tender offer report submitted to the SEC are in violation of Section 19.2 of the Securities Regulation Code, which states that "it shall be unlawful for any person to make any untrue statement or omit to state any material fact…or to engage in any fraudulent acts or practices in connection with an tender offer."

The Luys, who felt left out of the deal, rejected the tender offer made by the Yap-owned bank for the remaining 41.74 percent of PBCom. This prompted the PDIC to urge PBCom shareholders to agree on a common stand on the sale of their shares.

The Luys reportedly prefer to sell their shares to other parties since they found the price offered by Philtrust well below the market price of PBCom shares of around P55 in November.

The Luys’ voting block is seen crucial to Philtrust’s bid to acquire a controlling block in PBCom.

If Philtrust succeeds in taking control of PBCom, a merger between the two banks would create the country’s 13th biggest bank, with total assets of P115.4 billion. PBCom is ranked 19th with assets of P60.3 billion while Philtrust is ranked 20th with P55.1 billion.

PBCom became one of the first non-American foreign commercial banks to operate in the Philippines (foreign because it was under Chinese control at the time) with the granting of its banking license on August 15, 1939. It was incorporated and registered with the SEC on August 23 and started operations on Sept. 4 the same year.