PCGG gets P56.5 B for sequestered SMC shares

MANILA, Philippines - The Presidential Commission on Good Government (PCGG) remitted yesterday P56.5 billion to the National Treasury representing San Miguel Corp.’s payment for 24-percent sequestered stock that the firm bought back after the shares were declared government-owned by the Supreme Court (SC).

The preferred shares – more than 753 million – were in the name of the Coconut Industry Investment Fund (CIIF) established for coconut farmers.

Andres Bautista, PCGG chairman, said the amount constitutes the largest single recovery of the PCGG to date.

“The plight of our coconut farmers has long haunted our country. We trust that this recovery will be used to ease their burdens in a concrete and significant manner,” Bautista said.

“Along with the escrowed dividend payments and accrued interest which total an additional P13.44 billion, these monies are to be used ‘only for the benefit’ of all the coconut farmers and for the development of the coconut industry,” a PCGG statement said.

The SC, in an 11-0 decision last Jan.24, ruled that CIIF block of shares had been purchased using coconut levy funds and therefore should be treated as public funds. The SC unanimously denied the Motion for Reconsideration filed by COCOFED last Sept. 4.

The government had tendered its preferred, non-voting shares at a controversially low “lock-in” price set by SMC of P75.

SMC common, voting shares closed yesterday at P109.90 at the Philippine Stock Exchange. The price reached a record high of P189.50 in 2011.

With the conversion of the SMC shares into preferred shares, SMC can redeem the preferred shares at P75 any time it wants, with holders of the preferred shares getting only an assured eight percent dividend in exchange for converting their shares.

In an audit report conducted by the Bautista-led PCGG, the SMC stake conversion was found to be a “mistaken” move, especially in the light of the recent surge in the stock price of SMC shares, reaching a high of P159 in 2011.

“The determination that the conversion was advantageous to the National Government on a purely financial standpoint has, in the light of subsequent events, proven to be mistaken,” an audit report done by the Bautista-led PCGG in 2010 said.

The SMC offer for conversion, which was taken up in this case, provided that “the SMC Common Shares shall be converted at an exchange ratio of one SMC Series 1 Preferred Share for every one SMC Common Share tendered; each SMC Series 1 Preferred Share shall have a par value of P5 per share and an Issue Price of P75 per share. The average market value prevailing at that time was approximately P66 per share. As of 30 November 2010, the value of said common share is pegged at P120,” the report said.

“Based on the description of the exchange offer found in SMC’s disclosure statement relating to the offer, it is SMC which has the option to redeem the SMCP1 shares,” the PCGG audit report noted.

“Moreover, the enumerated ‘risk factors and other considerations’ in said disclosure provides that there is no stated maturity date and SMC has the sole right to redemption,” it said.

The PCGG during the previous administration invoked the fact that the conversion had been approved by no less than the Supreme Court.

In a full court decision issued on Sept. 17, 2009, the High Tribunal granted the government’s motion seeking the conversion of the 24 percent sequestered common shares of SMC – registered under CIIF and its holding companies – into Series 1 preferred shares.

In a 33-page decision penned by Associate Justice Presbitero Velasco Jr., the SC held that the conversion “is advantageous to the public interest or will result in clear and material benefit to the eventually declared stock owners, be they the coconut farmers or the government itself.

“Respondent Republic, thru the PCGG [Presidential Commission on Good Government], is hereby directed to cause the CIIF companies, including their respective directors, officers, employees, agents and all other persons acting in their behalf, to perform such acts and execute such documents as required to effectuate the conversion of the common shares into SMC Series 1 preferred shares, within 10 days from receipt of this resolution,” the SC ordered.