HGC says it is not losing money, claims debts due to past deals

MANILA, Philippines - Home Guaranty Corp. (HGC) has earned P760 million in guaranty revenues for 2012 and expects to earn more from the sale of acquired assets.

This statement was issued by HGC president  Manuel R. Sanchez in reaction to recent reports that the agency has been losing money.

“We are surpassing our guaranty premium income of P632 million for 2011,” Sanchez said.

“HGC is earning more than we are spending. Our cost of operations is just about half of what we earn,” he said, adding that a sizable portion of HGC’s income goes to servicing inherited debts. 

He said bad business decisions and questionable housing projects which HGC was ‘compelled’ to guarantee during previous administrations left HGC heavily indebted. These “sins of the past” also left HGC with more than P16 billion inventory of foreclosed assets, Sanchez pointed out. The bulk of these were flagship projects of the national government in the 1990s, funded through the floatation of asset-backed securities.

To save the project, bonds were floated to raise the needed funds.  HGC guaranteed payment for the bonds and assumed all financial obligations to investors amounting to more than P4 billion, including interests.

The state-owned HGC is mandated to mobilize private funds for public housing through a system of guarantees and fiscal incentives.

Since the enactment of its new charter in 2000, Sanchez said HGC guaranteed P272.8 billion worth of housing loans making possible the purchase/construction of 556,221 housing units.

Under the present administration, HGC guaranteed P71.31 billion of private investments in public housing translating to 48,949 housing units, Sanchez continued.

This, he said, was despite HGC’s “under-capitalization”. HGC’s 2000 charter authorized a P50-billion capitalization from the National Government. To date, however only P14.073 billion was remitted to HGC through its annual budgets, leaving a balance of P35.927 billion, Sanchez said.

Talks are ongoing between the Department of Finance and HGC to comply with the charter’s capitalization provision, he added.

According to Sanchez, the current HGC management has taken vigorous steps to make sure that “sins of the past” do not happen again. Guaranty contracts were reviewed and amended and corrective measures were instituted, to strictly enforce the conditions for guaranty enrollments and guaranty call payments. These reforms are embodied in new guaranty contracts to prevent the excesses of the past. As a result, in 2010, approved guaranty calls were only P5.33 million and P7.46 million in 2011, equivalent to a payout rate of 0.01 percent for each year.

“What we are also doing now” according to Sanchez, “is recovering HGC’s other assets and going after those who have illegally enriched themselves at the expense of HGC and the government. And we are anticipating lots of legal battles.”

HGC has been involved in a series of legal battles in its bid to recover from previous losses. Most prominent of which is the Smokey Mountain project, a joint venture between the National Housing Authority (NHA) and R-II Builders Inc.  R-II Builders.