MRT buyout: deal or no deal?

First of three parts - Oct 26, 2015

The key to effectively ferry vast numbers of people from one place to another is through mass-transit systems, such as railways. In Asia, the Philippines is proud to have been the first country to have developed such a light-rail transit system in the early 1980s. Its neighbors soon followed its footsteps, and started their own journey into building massive train lines to improve mobility and lessen traffic congestion.

But more than three decades into the inauguration of the first overhead train system in the continent, the Philippines now lags behind its Asian peers with only four working train systems—a heavy rail, two light rails and a commuter line.

Experts and business leaders agree that the government failed to keep up with the times. Underspending, underinvestment and under-the-table deals were tagged as culprits behind the deterioration of the rail sector in the Philippines.

Jose Regin F. Regidor, a transportation expert, lamented the “lousy service” provided by local railways systems.

“The overall state of railways in the Philippines is poor, since we have rail only in Luzon and much of it is in Metro Manila. The Philippine National Railways is still in a sorry state despite efforts within the agency and, so far, it has gotten only little support from the national government, especially from the transport department,” Regidor said.

Regidor, a research fellow at the University of the Philippines-Diliman National Center for Transportation Studies, noted that there have been proposals in Cebu and Davao for urban rail lines, and then there were the proposals to revive Panay Railways and construct Mindanao Railways.

“But, these all have not progressed since the last administration and has gotten little support from the present,” he said.
‘Worst in Asean’

Businessmen echoed the pundit’s observation, frowning at how the government had failed to improve the train systems despite having the money and time to do so.

“Philippine rail system has been left behind by the rest of Asia despite us, historically, having pioneered the light-rail transit in the region. While our neighbors followed our lead, they continued with their programs and ours was left to stagnate, resulting in the deteriorated state of rail today,” Makati Business Club (MBC) Executive Director Peter Angelo B. Perfecto lamented.

In terms of connectivity among different cities, the Philippines is considered as one of the worst not only in Asia, but in the world.

“Intercity is probably the worst in the world; of four Asean capitals with light rail lines— Bangkok, Kuala Lumpur, Manila and Singapore—Manila is the slowest to expand and has the poorest maintenance and most overcrowding,” American Chamber of Commerce Senior Advisor John D. Forbes observed.

Filipinos living in the capital are the patrons of the train lines; after all, these mass- transit systems still are the fastest means to go from one part of the city to another.

“The train systems are in bad shape and are in need of upgrades and expansions with urgency,” European Chamber of Commerce of the Philippines (ECCP) External Vice President Henry J. Schumacher noted.

The worst of them all, however, is the “middle child,” the 16-year-old Metrostar Line, more commonly known to the masses as the MRT.
‘Inappropriate’

Manila gave birth to the 17-kilometer  mass-transit system in 1999—almost a decade after it was first conceived—with the primary purpose of decongesting the capital’s main artery, the iconic Epifanio de los Santos Avenue (Edsa).

The build-lease-transfer contract was awarded to Metro Rail Transit Corp. (MRTC) two decades ago, when it acquired the company’s original contractor due to its botched agreement with the government.
The 25-year contract essentially provides that the private partner builds the line, the government leases the transport system, and the infrastructure will be transferred to the state at the end of the concession period.

When it was built, observers, at first, thought it was a flop, as its average daily ridership only hit the 40,000-passenger mark. Despite this, the private company that built the train system still insisted on major expansion programs to prevent congestion in the railway line.

The government, however, refused, saying that the train system must first hit the 350,000-passenger mark before it does anything as drastic as an expansion of the line. It hit its rated capacity in four year’s time, but still, the government failed to approve proposals to add capacity to the train system.

As the years went by and the Philippine economy grew faster and faster, the train line’s passengers increased until it hit its crush load, which in layman’s term, is it’s maximum capacity. Still, the government failed to hear the cries of both the consumers and the private partner for modernization.

This led to worse situations along Edsa, as the train line snakes through the middle of the thoroughfare, eating up at least three lanes in the process.

“We now know that a light rail system along Edsa was not appropriate, despite studies back in the 1990s that purportedly supported this. We should have built a heavy rail system along this corridor together with other rail lines proposed in the past that could have formed a good network of transit
lines,” Regidor said.  But it seems that it is too late to lament over this fact, and the government is now moving toward the improvement of the line, or so its officials claim.
‘There’s still time’

Aside from procuring P9.7 billion worth of improvement projects, the government is also moving toward the acquisition of the train line to end its obligations to the private partner and essentially improve the hellish ride that commuters have to face on a daily basis.

The takeover is enshrined in Executive Order 126 that was issued by President Aquino in February 2013. The order stipulates that the Department of Transportation and Communications (DOTC) and the Department of Finance (DOF) must execute an equity value buyout of the private company that owns the MRT to free the government from paying billions of pesos in equity rental payments (ERPs) to MRTC per year.

Transportation Secretary Joseph Emilio A. Abaya said the takeover will be instrumental to the modernization of the railway system that ferries more than 540,000 passengers daily.

Before the government can actually buy the private partner out, several steps must be undertaken to ensure that the takeover will be smooth sailing and is within the bounds of international laws.

To fully take over the line, the government must purchase all the shares and the bonds in the railway company. Another  requirement of the buyout deal is for the government and the private partner to strike up a compromise deal to end the ongoing arbitration case in Singapore that was lodged against the state in 2008 due to its failure, as the operator of the line, to pay billions of ERPs to the owner of the rail system.

But more than two years into the issuance of the President’s order, the DOF and DOTC have not moved an inch toward the implementation of a buyout. They encountered a number of roadblocks in the not-so-distant past—including a thumbing down of the takeover’s budget by lawmakers—that prevented them from moving forward with the transaction.

The government agencies are trying to get back on their feet and find “creative” ways on how to execute the buyout.

With only a few months left before the President bows out from office in June 2016, the transport chief expressed optimism that his camp can execute the transaction within the term of Mr. Aquino.

“We are keen on pursuing the buyout of MRT 3 from the private-sector  owner,” Abaya said. “I think there’s still time.”

But the chairman of the majority shareholder in the private company that owns the train line just laughed the idea off.
‘Nonsense’

MRT Holdings II Inc. (MRTH-II) Chairman Robert John L. Sobrepeña said that he is “amazed” at the persistence of the government—particularly Abaya—in undertaking the multibillion-peso takeover.

“I’m amazed that Abaya is still pursuing the so called buyout when he has failed to do this over the last several years. The reason he has failed, and will fail again, is that it just doesn’t make sense to spend P54 billion to buy the MRT bonds, which are already owned by the government through the Development Bank of the Philippines [DBP] and Land Bank [LandBank] of the Philippines,” he said.

The two government banks together hold roughly 80-percent economic interest in the MRTC by virtue of the bonds they purchased in 2009.  “In short, they are spending P54 billion to buy something which they already own, so that they can control MRTC, which they already have complete control of via the DBP-Landbank nominees in the board,” Sobrepeña said.  LandBank National Director Tomas T. de Leon Jr. currently sits as the chairman of MRTC.

“The worst is to spend all that money without a single peso going to much needed rehab and repair of the MRT 3,” the businessman said.

But for the transport chief, a close friend of President Aquino, the government is better left with the complete ownership of public utility instead of allowing the private sector own the facility.

He cited, for example, the current structure of the LRT Line 1 and the Mactan-Cebu International Airport, both of which are currently being managed and maintained by private proponents, but are still owned by the state.   “Managing the train system is really best left to private sector, then the government is regulator,” Abaya said. “Leaving the operations and maintenance to the private sector is the right solution for us.” To be continued

Why is Subic Bay successful?

When the United States military bases at Subic Bay and in Pampanga were brought back to the Philippines, it was—or should have been—a golden opportunity. But disaster, both natural and human, intervened to turn gold into lead.

The problem with the Philippines is not that everything is terrible, as so many would like us and the world to believe, but that there are so many inconstancies that favor negative assessments. Most social programs fail to achieve the desired results, and then we have the Pantawid Pamilyang Pilipino Program, which is a success. So many politicians are a disgrace to the country, and then we also have the like of the late Sen. Joker Arroyo and people like Blas Ople and Raul Roco as role models.

It is the inconstancies of accomplishment that is keeping us down in some areas and killing us in others. The Philippines is unpredictable. Foreign direct investment has been a bad joke for decades and yet, for example, the call-center business is a stunning and enviable success.

However, we are not the only nation with this problem. Thailand has been trying for 50 years to achieve political stability under its constitutional monarchy but cannot seem to get it together, needing regular political intervention by the military. Maybe it is simply a matter of geography being next to the US, but Mexico is a narco-state whether they like that description or not.

The Subic Bay Freeport Zone (SBFZ) should have been an economic and investment jewel in the crown from the first day. The reason it was not was because there was little vision, too much political power infighting, and no thought-out long-term plan. Was it to be a tourist zone, a shipping-transit harbor, or a manufacturing free port? Like a child wanting to eat the cake, ice cream and candy all at the same time, the government was not able to focus and develop a single goal.

Instead, the country saw a failure in all three areas.

Nevertheless, over time, the SBFZ has finally found its legs, and is moving forward. Once again, Subic has been counted among the world’s best by being crowned winner of the Asia region, as well as picking up the award for best zone in South Asia and Southeast Asia. This award is given by fDi Intelligence, a division of the Financial Times Ltd.

The SBFZ was commended also for its infrastructure and its ability to attract reinvestment. In our opinion, all the credit should go to the Subic Bay Metropolitan Authority. We offer our congratulations to its chairman, Roberto V. Garcia, and his team.

We will not second-guess why the SBFZ is doing so well in its appointed task. But we will note that the SBFZ is 110 kilometers north of Metro Manila. Maybe the key to success is to get as far away from the seat of the national government as possible. Perhaps, we should ask Gov. Joey S. Salceda of Albay or Mayor Rodrigo R. Duterte of Davao City about that.

source:  Business Mirror

Purisima Wants Public Float Increased to 30%

Finance secretary Cesar Purisima wants the average public float of listed companies to increase to 30 percent to deepen the domestic capital markets.

Purisima said on the sidelines of the SEC (Securities and Exchange Commission)-PSE (Philippine Stock Exchange) Corporate Governance Forum yesterday the average public ownership rule must be raised from the current average of 20 to 25 percent.

“Here in the Philippines, the float is still not deep enough. We need to further expand that,” Purisima said.

“The market needs to be deep enough so that there is true price discovery,” he added.

The PSE requires publicly listed companies to maintain a minimum 10 percent public float.

The PSE implemented the minimum public float rule to increase market liquidity and for the efficient price discovery in the stock market.

When the minimum public ownership was set at 10 percent in 2011, several listed companies decided to voluntarily delist themselves from the market.

Many foreign investors have complained that the number of shares traded in the country is limited.

The compulsory 10 percent float had long been considered as too small. 

The shallow float also makes price manipulation easier. 

Meanwhile, in the same event, Purisima said the Department Order (DO) issued by the Department of Finance in April which prescribes the “fit and proper rule” for directors of insurance and public companies is his recommendation.

“The DO is not an order in the real sense because it is very clear that it is a recommendation, it is not compulsory to adopt it. I just felt that I needed to share my thoughts on it,” Purisima said.

DO No. 054-2015 prescribes that covered entities have directors who are fit and proper to hold such positions in the interest of building a strong and stable financial system by virtue of upholding the highest standards in corporate governance.

“Good governance extends to corporate governance. We want our insurance and public companies to reflect the highest corporate standards of integrity and excellence. For company directors in the country to be ‘fit and proper’ is a given; this rule merely enforces good practice,” he earlier said.

The DO sets forth minimum qualifications of directors and independent directors. 

For directors, s/he must ideally be at least 25 years old and a college graduate or an individual with at least five years experience in the business. Ideally, s/he must also have attended a special seminar on corporate governance for board of directors conducted or accredited by SEC or the Insurance Commission (IC) as may be applicable. 

Lastly, s/he must be fit and proper for the position of a director of the covered entity, taking into account several factors including integrity or probity, competence, relevant education/training (e.g., financial literacy), physical and mental fitness, diligence, and knowledge or experience.

Meanwhile, the DO prescribes that an independent director is ideally an individual not more than 80 years old, unless otherwise found fit to continue serving as such by SEC or IC. 

Ideally, s/he must also not be (or has been) a member of the executive committee of the board of directors, or an officer or employee, of the covered entity, its subsidiaries, affiliates or related companies during the three years immediately preceding the date of his election.

An independent director must not be a “substantial shareholder,” i.e., does not own/hold shares of stock sufficient to elect one seat in the board of directors of either the covered entity, its subsidiaries, affiliates or any related companies of its majority corporate shareholders.

The DO prescribes the ideal minimum number of independent directors as at least 20 percent but not less than two members of the board of directors. 

For publicly-listed corporations, the DO holds that the number of independent directors shall be proportionate to the percentage of shares held by the public.

Further, the DO describes an ideal tenure as five consecutive years, after which re-election is possible after a “cooling period” of two years.

source:  Malaya

GSIS Family Bank stake sale fails again

PENSION FUND Government Service Insurance System (GSIS) has once again failed to dispose its majority stake in GSIS Family Bank after interested buyers were unable to comply with the agency’s bid requirements.

GSIS’ Investment Bids and Awards Committee (IBAC) declared the failure of the new round of negotiated sale for its thrift banking arm in Advisory No. 03-2015 dated Oct. 12 posted on its Web site.

“The Committee declared the failure of negotiated sale of all GSIS shares in GSIS Family Bank since no party fully complied with the requirements, as published on September 11, 2015,” the statement signed by GSIS’ IBAC Chairperson Severina L. Resurrection said.

This is the third time this year that the GSIS put its 99.5% stake in its thrift banking arm for sale and failed to clinch a deal.

GSIS had set the deadline for the submission of documentary requirements and financial offers for the latest round of negotiated sale last Oct. 5.

In its invitation to interested parties last September, GSIS sought more detailed plans on bids for its banking unit.

Interested bidders were required to submit a “detailed action plan with timelines to rehabilitate the bank,” GSIS said.

They also had to hand over projected monthly financial statements for the first 12 months of operations, together with assumptions. 
The floor price for the stake on sale remained unchanged at P501 million.

The negotiated sale was also subject to the condition that the remaining 0.5% of GSIS Family Bank belonging to private stockholders, represented by the heirs of former Cavite Rep. Renato P. Dragon (2nd district), will also be sold to the same buyer through a separate transaction.

In July, after the first round of its negotiated sale for GSIS Family Bank failed and during the second bidding process, GSIS President and General Manager Robert G. Vergara said the agency may have to consult its advisers should the its new attempt fall through. Still, it again put up the thrift bank for sale last month after the second round of bidding failed as well.

In the first round declared a failure in June, private equity company Altus Capital Partners Inc. submitted a P501-million offer for the government’s majority shares in the bank. During the second sale round deemed a failure last month, GSIS accepted the P502-million offer of Phindep Development Corp., a real estate firm based in Kawit, Cavite, the lone offeror to secure the consent from the Dragon family.

GSIS Family Bank was put back on the auction block in April after the pension fund cleared a legal stumbling block from a Makati Regional Trial Court.

The Makati court placed a restraining order against the bank’s sale based on a complaint by Mr. Dragon who claimed GSIS failed to rehabilitate the thrift bank. 

Mr. Dragon has a stake in the bank through Royal Savings Bank which he had owned. GSIS Family Bank was the result of several mergers, including that of Royal Savings Bank and ComSavings Bank. -- Imee Charlee C. Delavin

source:  Businessworld

Berjaya eyes more investments in PHL

MALAYSIAN conglomerate Berjaya Corp. Berhad is keen on expanding its businesses in the Philippines, as it sees the economy enjoying robust growth on the back of strong consumer spending, its founder said on Tuesday.

In an interview, Berjaya Founder and Advisor Vincent Tan said the Philippines is a “great” country to invest in, particularly for its core businesses.

“You have a great population which is great in our consumer business.

We think that outside Malaysia, the Philippines is a great place to invest,” Mr. Tan said.

He said Berjaya is looking at developing a sanitary landfill in the country, but admits securing government support may be difficult. 

“We hope we are able to build one by next year. What you need is sanitary landfill. We’re still talking but getting support from the government is a big challenge,” Mr. Tan said.

“We are definitely keen to invest in sanitary landfills in the Philippines if we can get the support of the authorities.”

Also, Mr. Tan said he sees good opportunities in the hotel industry.

“I think there is a good opportunity in Philippines’ resorts. You have beautiful waters,” he said.

Berjaya Philippines, Inc.’s business include gaming, distribution of motor vehicles, hotels and restaurants. 

Perdana Hotel Philippines, Inc. currently manages a 4-star hotel in Makati City, while Philippine Gaming Management Corporation leases online lottery equipment to the Philippine Charity Sweepstakes Office. 

Berjaya Philippines also acquired United Kingdom-based luxury car dealer HR Owen in 2013.

Its associate companies include Berjaya Pizza Philippines, Inc., which holds the Papa John’s Pizza franchise in the Philippines, and Berjaya Auto Philippines, Inc., which distributes Mazda vehicles. 

In Malaysia, Berjaya’s interests are diversified into several core businesses: consumer marketing, direct selling and retail, financial services, hotels, resorts, investment and development, gaming and lottery management, environmental services and clean technology investment, motor trading and distribution, food and beverage, and investment holding, among others. -- M.F.E. Flores

source:  Businessworld

JICA, MILF identify economic and logistics corridors in Midanao

CONOMIC and logistics corridors in Mindanao have been identified by the development arm of the Moro Islamic Liberation Front (MILF) and the Japan International Cooperation Agency (JICA), highlighting the channels which can be industrialized further to bring development in the conflict-affected areas in the region.

In a statement released by JICA on Friday, the development agency, together with the Bangsamoro Development Authority (BDA), identified these channels as the: Northern corridor: Cotabato City-Marawi City-Iligan (Lanao del Norte); Central corridor: Cotabato City-Midsayap-Pikit-Digos (Davao del Sur); and Southern corridor: Cotabato City-Shariff Aguak-General Santos (South Cotabato).

The three channels which were identified are pegged for development by upgrading arterial roads and improving ports and airports as planned under the Bangsamoro Development Plan (BDP), the plans for which were presented to different stakeholders this week.

The BDP is a six-year development plan (2014 to 2019) which provides a blueprint for development in conflict areas in Mindanao as mandated by the peace agreement between the Philippine government and the MILF.

According to JICA, 24 key development projects have been identified under the BDP and are set to be implemented starting mid-2016 to 2022, out of 60 projects in 15 programs under the comprehensive plan.

Aside from the upgrading of road networks, airports and seaports, projects such as communal irrigation support, goat-based integrated farming, and mixed field crops farming are also part of the upcoming development measures.

Talks between the Philippine and the Japanese government in the past have touched on improving peace and development in Mindanao, a region which has the highest poverty incidence in the country at 56% of its populace.

Japan has been extending assistance to the Philippines to achieve inclusive development in Mindanao as early as 2006, at a time when it launched the Japan-Bangsamoro Initiatives for Reconstruction and Development program. Japan has also given the Philippines P7.55 billion in funding assistance for Mindanao development through its Official Development Assistance (ODA) fund. -- Alden M. Monzon

source:  Businessworld

Productive Time Lost to High Cost of Doing Business in Ph

The high cost of starting and maintaining a business in the Philippines has resulted to lost productive time, which translates to an annual opportunity cost of more than P100 billion in the form of foregone income, taxes, and spending, the World Bank said.

In a Special Focus section in the World Bank’s Philippine Economic Update, the multilateral bank agency said that business regulations have long been a cumbersome process in the Philippines, posing obstacles to the development of micro, small, and medium enterprises (MSMEs) and job creation.

The World Bank said that one particular concern is the high cost imposed on MSMEs in starting and maintaining a business.  

“They not only have to pay for legitimate fees equivalent to 17 to 36 percent of per capita income (P21,000 to P45,000), they also spend a considerable amount of time moving from one agency to another and waiting in line to process their documents, often resulting in significant loss of productive time and income,” the report said.

“In some instances, businesses report that they need to pay bribes or give gifts to obtain various permits and government services,” it added.

The agency said that aside from the more than P100 billion estimated total opportunity cost from productive days lost annually, opportunity cost  of around P40 billion can also arise from discouraged Filipinos who could have started a business if only the cost was reasonable.  

The World Bank said that this translates to foregone employment of 62,179, or about five percent of new labor force entrants annually.

The multilateral bank agency said that simplifying and streamlining the business registration process in the Philippines would not only support job generation, but also improve transparency and accountability in the government.  

source:  Malaya Insights