Sell it

Next month, we will be celebrating the 21st anniversary of the Edsa Revolution.

So much has been said about how slow the wheels of justice grind in this part of the world. How long it has taken to recover the ill-gotten wealth amassed by tyrants and cronies.

Finally, we are getting around to recovering some of the corporate assets believed to be ill-gotten. The Sandiganbayan ruled with finality that 46% of the Philippine Telecommunications Investment Corporation (PTIC) was acquired with ill-gotten wealth. The court ordered the sequestered shares in this corporation to be turned over to government.

The Department of Finance (DOF) lost no time setting up the bidding process for the disposal of the acquired assets of PTIC. On November 13, 2006 the DOF published an invitation to bid in three newspapers. The invitation was republished 15 more times in the following days to ensure full transparency in the process.

In addition, the detailed rules for the bidding process were made available to all interested parties free of charge. A total of 11 individuals and corporations asked for and received copies of the terms of reference. In order to ensure optimal participation in the bid process, the DOF extended the bid deadline from December 4 to December 8.

It was not expected that a large number of bidders would actually come forth. A bid bond of P300 million was required to be posted to ensure the financial capacity of the participating bidders. There are not many entities that have both the industry exposure and the financial capacity to raise money in the vicinity of P25 billion for a single block purchase.

The minimum selling price for the block was established by the DOF on the advice of experts from the DBP. It was determined based on the study of the average trading price of PLDT shares in the heaviest trading days of that stock between November 13 and December 4. In the interest of fairness, the minimum selling price was made public only two days before the deadline for the submission of bids.

On the advice of the experts, the DOF offered a 15% discount on the sale. The PITC shares are not listed in the stock market and are therefore less liquid. The buyer assumes higher risks for buying unlisted shares than he does when he buys listed shares. Listed shares can be resold easily in the stock exchange.

The DOF closely studied the previous sales of large blocks of shares of listed companies such as Metrobank, Universal Robina, Megaworld, Chinabank and Robinson’s Land. All these large block sales happened in 2006. On the average, the discount for these large blocks of listed shares was 8.5%.

There is no local precedent for large block sales of shares in a holding company that is not listed in the stock exchange. The comparison will have to be done with similar deals in other economies in the Asia-Pacific region. For comparable regional block sales, the average discount to net asset value for listed holding companies was 22%.

On the basis of that comparison, the 15% discount on the large block of unlisted PTIC shares indeed looks more than prudent. It facilitates the disposal of a large block of assets recently turned over to the government. The proceeds from the sale would boost government revenues and enable us to arrive at a balanced budget within two years, much earlier than planned.

The bidding of 46% of PTIC shares, representing an indirect stake of 6.4% in PLDT, was won by Parallax which put out a bid of P25.2 billion ($508 million). The winning bid was P300 million more than the second-running bid of Pan Asia Presidio Capital. First Pacific, which controls the majority of shares in PLDT has the right to match that bid according to the PITC’s rules of incorporation..

The result of that bidding is, indeed, very good news for the Philippines. It represents a significant boost for government revenues and a smaller deficit. It also means a major inflow of dollars into our economy that will help reinforce the peso’s strength.

But as things are in this badly gridlocked country, expect the politicians to barge in on any major deal – even if it means denying the nation good news.

As soon as the bidding outcome was announced, the politicians started making strange noises. They complained about the fact that there were only two bidders – even as the law and accepted practice states clearly that a bid is successful if two bidders participate. They made noise abut the 15% discount on the asset sale – despite the fact that, as mentioned above, the discount for an unlisted holding company is more than favorable to the government.

One senator, exemplary for his appetite for grandstanding, wanted a public hearing called on the deal. All that accomplishes is to spook the investors, delay the infusion of revenues to the public coffers and, if worse comes to worse, scuttle a deal that would force government to lose opportunities and credibility and be left holding for years and years a bag of assets it should have disposed quickly for the public benefit.

Some of our legislators are trapped in a mindset that encourages them to see the world as operating in the same manner they skim off their pork barrel funds. That encourages them to look at even the most transparent, technically adequate deals, with a tinge of malice.

Or else, they don’t want the administration to benefit from an asset disposal that enables government to improve even more on its already exemplary fiscal management. Had the sale been booked quickly, government would be reporting a fiscal deficit that is even less than what is being reported now. That is too much of a success for them to endure.

What is reassuring is that, in the face of an attempt to grandstand at the Senate at the expense of the country’s good, a bipartisan group at the House passed a resolution welcoming the outcome of the block sale and urging "the prompt resolution of all purported issues with respect to the transaction."

The bipartisan group was led by Deputy Majority Leader Eduardo Gullas and supported by both Minority Floor Leader Francis Escudero and Deputy Minority Leader Gilbert Remulla.

Singapore’s leader Lee Kuan Yew once came over and, to our faces, said that our problem is that the way we do democracy gets in the way of our country’s progress. The attempt at cheap grandstanding, unsupported by the facts, in the case of the PTIC deal is added evidence to Lee’s thesis.