The Senate smells something fishy about the P660M loan that DBP extended to businessman Roberto Ongpin to acquire the Philex shares that he subsequently sold to another businessman, Manuel V. Pangilinan. A lot of people also smell something fishy although, like me, they are as clueless as the blind man who wandered into a fish market, sniffed, and said, “Good morning ladies.”
Inquirer business columnist Conrado Banal III defended the deal:
At the start of his takeover bid, MVP already acquired a 20-percent interest in Philex, made up of treasury stocks accumulated by Philex over the years. MVP also announced he would go to the stock market to acquire 20 percent more. It was clear that MVP intended to take controlling interest.
In such a scenario, the DBP management (led by its former president, veteran banker Reynaldo David) started acquiring Philex shares, garnering about 120 million shares at an average price of P5 per share, about 2 percent of the outstanding shares, meaning, not enough for even just one board seat in the company.
At the same time, market talk had it then that the GSIS also started to take position in Philex, buying even at a much higher price of P9 per share. When the Philex price reached P11 per share in the market, the DBP unloaded 10 million shares, apparently in a bid to average down its costs.
In the market, meanwhile, it was known that Ongpin was also buying Philex shares. He even partnered with a well-known mining man, Walter Brown. And so when Ongpin learned that DBP was unloading, he offered a much higher price to the bank (P12.75 per share vs P11 in the market) for 50 million shares.
Such a “block sale” is always good for the seller that is holding a relatively large chunk of shares, such as DBP. Unloading 50 million shares into the market would always push down the price. Always. If DBP had cashed in it profits by selling the shares in trickles, it would also tend to dampen the market price. No seller would want that, of course.
Now, as part of the deal, Ongpin asked for a loan package from DBP, amounting to P660 million. The DBP management committee nevertheless asked Ongpin for P80 million cash upfront to pay for the shares. Also, Ongpin was to pledge the entire block to the bank as collateral to the loan.
In other words, in case Ongpin went bust and could not pay for the loan, DBP would still have the 50 million Philex shares, and it would even be richer by P80 million, which was Ongpin’s down payment.
The 50 million shares that Ongpin acquired from DBP, in effect, brought up his holdings in Philex to about 7 percent. So Ongpin could now turn around and offer his swing block to MVP.
The negotiations between Ongpin and MVP took only two days—on a weekend. In any financial market, that is usually how fast the big players make decisions. For in the market, anything can always happen. Fund managers in fact make buy or sell decisions in a matter of seconds.
The thing is, Ongpin and MVP agreed on a price of P21 per share—versus the P12.75 per share that Ongpin offered to DBP.
In effect, our bright senators were saying that DBP should have gone straight to MVP to sell also at P21 per, instead of making the deal with Ongpin. How stupid the DBP management! They could not even look into the crystal ball to predict that MVP would agree on a price of P21 per!
Nobody was saying of course that the block held by Ongpin was rather attractive to MVP. It would give MVP the controlling interest. For such a transaction, deal makers like MVP and Ongpin are always willing to pay for a premium. I doubt if the DBP shares of 50 million (acquired by Ongpin) could command a similar premium. They were only about 1 percent of Philex, versus the 7 percent block of Ongpin.
The story goes that the SSS, still headed by Romulo Neri at that time, hearing of the deal between Ongpin and MVP, offered to sell its Philex shares. MVP rejected the offer. He already had controlling interest because of his deal with Ongpin.
As part of the deal, Ongpin asked MVP to buy the rest of the DBP shares (the remaining 60 million shares, out of the 110 million the bank acquired in the market) at the same attractive price of P21 per.
Here is the thing: Without the Ongpin deal, DBP would not have been able to ride with his P21-per-share deal with MVP.
That is clear. Contrary to the bright assessment of some senators, DBP could not have done it alone. It did not have enough shares. It could only be a rider.
Because the Ongpin deal allowed DBP to sell to MVP at P21 per (which SSS was not able to do) the bank made a cool P1.4 billion in the trading of Philex shares—in less than a year. On top of it, the bank earned P15 million in interest from the loan package it gave to Ongpin.
Meanwhile, former investment banker and management consultant, Leo Alejandrino, asks three questions:
1. Why did DBP not offer its Philex shares to Pangilinan? The latter had officially announced five months earlier his desire to acquire upto 40% of the company. David, described by Ongpin as “one of the smartest bankers in the country”, had the legal responsibility particularly for an asset this size to get the best price through a transparent and competitive bidding process; yet he chose to deal exclusively with his friend -and now business associate and defender- Ongpin. The haste of the DBP loan further suggests the deal was wired all the way.
2. Ongpin admits the loan was expedited because the market price of Philex was already at P12.75 thereby threatening the deal. Rather than fast track the loan should this not have prompted DBP to slow the process and rethink the price?
3. Was there a conspiracy to defraud and by whom?
Why didn’t Manny Pangilinan buy DBP’s Philex shares at P11? Why didn’t he buy the shares held by GSIS and SSS? If he had done that, Ongpin would have no swing block to pump up the price of his shares to P21.
Thanks to Manny Pangilinan who announced early on that he wanted to acquire control of Philex but did not take measures to ensure his balls would not be caught in the vise of Ongpin and David, the DBP made money and Ongpin made even more money. Pangilinan controls Philex. Everybody happy. But why do I still smell fish?