Pay cuts, cap on bonuses for bosses asked from firms seeking gov't rescue
MANILA, Philippines — A paycut on senior executives and limits to dividends are among the Duterte administration’s conditions to companies seeking taxpayers’ money to recover from the financial collapse caused by the coronavirus disease-2019 (COVID-19) pandemic.
The conditionalities, Finance Secretary Carlos Dominguez III said, would also constrain firms to be rescued from hiking existing bonuses and allowances, prohibit the dilution of equity, and putting a cap on “luxury” expenses, including renovations, during the period when the government is on board.
In extreme instances, Dominguez said clawback provisions on bonuses already granted would be stipulated, while the government, as a stakeholder, would also say no to “golden parachutes,” an instance when executives needing to leave office after a takeover get substantial benefits.
Further details on the equity rescue plan remain hazy. But what is clear is that the Duterte administration wanted its entry on firms “critical to national interest”, whether through “preferred shares or ordinary common shares,” to be time-bound and strategic. These limitations help ease some concerns that government’s involvement in the board room would be disadvantageous to taxpayers.
“The government securing equity stakes in businesses can have merit and be used to achieve its goals of sustainable economic development only if certain conditions are met. This should not be in any enterprise just because they are distressed,” said Sonny Africa, executive director of non-profit think tank Ibon Foundation Inc.
Bankrolling recovery
Equity infusions on troubled companies are part of the state’s broader recovery plan from the pandemic which saw big airlines, hotels and hospitals asking for government rescue. Under the proposal, state-run Land Bank of the Philippines and Development Bank of the Philippines (DBP) would establish a joint venture (JV), meaning a separate company, to be capitalized by taxpayers’ money. The JV would then be used as vehicle to buy stakes in troubled companies.
The two banks are already seeking a combined P50 billion in fresh capital through Senate Bill 1564, funds meant to bankroll loans to micro, small- and -medium enterprises (MSMEs) in need of liquidity. For those with bigger solvency problems, Dominguez said the JV would be the responsible in extending help through equity.
The plan for a JV, however, was shut down by some senators discussing SB 1564 last week over fears the government entering boardrooms and making business decisions would not be a good idea. While the bill’s provision was removed due to the reservations, Senate Minority Leader Franklin Drilon, who supports the plan, said current laws provide for a work-around.
“I am of the view that under the GCG Law which we authored, the establishment of a holding company, as a subsidiary of DBP/Landbank can be done upon approval of the President,” Drilon said in a text message, pertaining to Republic Act 10149 that established the Governance Commission on GOCCs (GCG) and which can reorganize offices and operations of state-owned firms with the president’s approval.
Who will be assisted?
The concerns over government equity, however, are valid. During the time of dictator Ferdinand Marcos Sr., DBP was used by Marcos to extend behest loans to favored firms, particularly those owned by the dictator’s cronies. The current proposal to infuse equity is still bereft of details nearly three months into the pandemic.
“There’s a new proposal now to buy equity. From whom? And what industries? I may not be totally against the proposal, but we should also provide assistance to MSMEs where most of the jobs are created. A balance is needed,” Senate President Pro Tempore Ralph Recto said in a text message.
Dominguez, for his part, made it clear that not all troubled companies will be qualified for government help.
“Banks cannot solve solvency problem whereby the company already borrowed so much that lending more will be devastating. That is where you need investment… I suspect that they will be companies in the transportation industry, manufacturing…But right now, I don’t have a definite answer to that,” the finance chief said.
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