Tuesday, September 25, 2007 Speak out: Against all odds By Amado Cabaero Founding Chair, PARP
THE Supreme Court has recently decided as “moot and academic” the case filed by a group led by then senator Serge Osmeña III against the sale by the Social Security System (SSS) of its 187.84 million shares in Equitable PCI Bank (EPCIB) via public auction with “Swiss challenge.”
The beneficiary of the Supreme Court ruling is Banco de Oro (BDO) owned by retail magnate Henry Sy, which had offered, despite the pendency of the case, to buy the EPCIB shares at P92 in a negotiated sale, in lieu of auction, causing the moot and academic decision of the Supreme Court.
Thus ended the long drawn out fight of the Philippine Association of Retired Persons (PARP) against the SSS and BDO to protect the interest of the 27 million SSS members. PARP had wanted the SSS to sell the shares in an open public auction without Swiss challenge to take advantage of the rising market value of EPCIB stocks which, on the date it was pulled out of the Philippine Stock Exchange, had hit P120 per share.
The fight started on May 11, 1999, when then SSS president Carlos Arellano invested P7.5 billion in 25,855,382 shares of PCIBank, which was then on the block due to internal problems of the bank. When SSS ignored PARP’s repeated requests for details, PARP confronted Arellano and raised a howl when PARP discovered that the investment was done without due diligence and in violation of Section 26(i) of the SSS law which provides: “…Investment of Reserve Funds with skill, care, prudence and diligence necessary under the circumstances then prevailing…that a prudent man would exercise.”
PARP hounded Arellano further when it discovered that the purchase was laced by an overprice of P1.2 billion when he paid P290.075 whereas the market price on date of purchase was P250 per share.
Arellano later admitted publicly having been forced to purchase the stocks, and in the process, had violated internal investment procedures, bypassed investment committees, indulged in “after-the-fact” documentation of trading transactions, as determined by independent auditors, with the passive cooperation of his investment officers and the SSS Commission. Up to the present, Arellano is still in hiding unpunished, but, I am sure, tortured by a guilty conscience, if any. A man of conviction but has not served time.
The other SSS officials responsible were: Horacio T. Templo, chief actuary and EVP; Leopoldo S.Veroy, EVP; Edgar B. Solilapsi, VP for investments; and other lesser officials and the SSS commissioners then. To PARP’s dismay, the only punishment imposed on them for all their sins, almost just a penance, was a tap-on-the-wrist penalty of one month salary, payable in installment pa.
The second chapter of the story, started at midnight on Dec. 30, 2003, a holiday desecrated notoriously, when SSS president Corazon de la Paz signed a Letter of Commitment to sell the entire SSS holding of 187.84 million EPCIBank shares to Banco de Oro in a negotiated sale at the bargain price of P43.50 per share, payable in installment for six and a half years, including a 30 percent premium.
PARP stopped the sale in court and demanded that the sale be by open public bidding where several other local and foreign investors had indicated willingness to participate because of the better than expected profitability record of EPCIB.
To appease PARP, SSS agreed to sell in an auction but with Swiss Challenge which, by its terms, actually favored Banco de Oro and discouraged the other interested investors. PARP saw through the scheme and did not withdraw the case. Osmeña and four other senators, after a thorough and revealing Senate investigation, took the cudgels for PARP and brought the case to the Supreme Court to question the legality of the Swiss challenge auction in shares of stock transactions.
While the case was pending, de la Paz had allowed the SSS-owned shares, yet without compensation, to be voted in favor of a merger between BDO and EPCIB. The merger was approved and the EPCIB stocks were converted to BDO at the conversion rate of 1.80 BDO shares for every EPCIB share. (first paragraph, p.9 of SC decision). Then BDO offered to buy all outstanding EPCIB shares at P92 per share. SSS accepted the offer, without premium, despite the fact that its block of 187.84 million shares represented 25 percent equity holding.
Had it turned out otherwise, SSS would have fully recovered its investment, which reached P20 billion, and the “opportunity loss” which at six percent per annum for eight years would have been at least P9.5 billion, since no dividends were ever received.
Nevertheless, the leaders of PARP, their pro-bono lawyers, senators Osmeña, Rodolfo Biazon, Alfredo Lim, Jamby Madrigal, Juan Flavier, SSS members Luis F. Sison and Patricia C. Sison who filed the case in the Supreme Court and all the others who helped PARP through it all deserve our thanks and appreciation for helping PARP try to get a fair share for the members.
God knows that PARP had tried its best with its limited resources to defend the interest of the SSS members. It was a lonely fight all the way against all odds, but, as we say in part in our PARP prayer: “All these (wisdom, strength, courage) we ask of you dear Lord, to help us serve our fellowmen —while still we can our best afford, we may not have the chance again.”
