Villar: Trouble with hellos
NP bet used influence to twist stock market rules
By Gerry Lirio
Philippine Daily Inquirer
(First of two parts)
MANILA, Philippines—Hello Fe! Hello Francis!
Sen. Manny Villar called Fe Barin, chair of the Securities and Exchange Commission, and Francis Lim, then president of the Philippine Stock Exchange, many times sometime between May and June 2007, the Philippine Daily Inquirer has learned.
But the calls, according to SEC and PSE lawyers and brokers interviewed by the Inquirer on separate occasions, were “too many to be easily dismissed and forgotten.”
They couldn’t forget about the calls either, they said, most especially because Villar, then Senate President, wanted the SEC and PSE officials “to throw the exchange rules out the window.”
Villar was seeking the release from escrow of about 1.2 billion of the 5.3 billion secondary shares of Vista Land & Lifescapes Inc. in June 2007 so these could be offered both as primary and secondary shares at the same time, or several days apart.
The Senate President not only made the calls, he also appeared before SEC and PSE board meetings, the lawyers said.
Villar and his wife Cynthia, the Las Piñas representative, are majority stockholders of Vista Land, the couple’s flagship company.
The couple became P6.75 billion richer from the secondary offering of 985.9 million shares that began on July 26, 2007, or within the escrow period of 180 days from the date of initial offering.
Lawyers said this violated article III, part D, section 7, of the exchange’s revised listing rules, which provides for a 180-day lockup on the secondary shares.
Vista Land, formed only in February 2007 to oversee operations of decades-old real estate brands Camella, a listed firm, Crown Asia and Brittany, made P14.5 billion from the sale of 2.12 billion primary shares.
Despite a weak showing in early trade, share prices soared to more than the offer price of P6.90, or up to as much as P7.50 per share. Share prices subsequently took a dive and hardly recovered since the secondary offering.
Simply put, Villar wanted the secondary offering held at once, despite the 180-day lock-up rule. He wanted to seize the day while the market was bullish. And he got it.
180-day lock-up rule
The rule, according to a PSE document obtained by the Inquirer, requires a company to cause its shareholders owning at least 10 percent of its issued and outstanding capital to enter into an agreement not to sell, assign, or in any manner dispose of their shares within the 180-day period from the listing of the shares.
The 180-day rule effectively puts the secondary shares in escrow mainly to allow the public buying into the primary shares to have their due course, stabilize the market share of prices, and to prevent the majority stockholders from abandoning the company which could take place during a secondary offering.
“It is an assurance that the majority stockholders are not selling just because they want to abandon ship and that they want to first jump from it,” an SEC lawyer said.
It also allows the SEC to check a company’s tangible assets of any legal encumbrances and, if so, if it is worth stopping the public offering.
How Villar managed to get his wish shocked some SEC and PSE lawyers and stockbrokers. Five of them talked to the Inquirer separately at the height of the controversy surrounding an ethical complaint lodged by Sen. Jamby Madrigal against the billionaire-senator last year in connection with the multibillion C-5 road diversion controversy.
Lobbying for private business
The trouble with Villar’s phone calls, the lawyers said, was that these were “unethical and inappropriate” because he was a high-ranking government official personally lobbying for his private business interest. “These exerted so much pressure on the PSE board,” a lawyer added.
An initial public offering is often undertaken by younger and smaller companies looking for new capital to fund expansion plans, though some large privately owned companies may also look to enter public trading.
A secondary public offering is an opportunity to welcome new investors into the company. But more importantly, it gives the selling shareholders the chance to cash in on their holdings with minimum tax payments.
This is allowed, but the shareholders need to observe the 180-day lock-up period after the initial offering.
The PSE approved the application of Vista Land for initial listing on May 24, 2007, subject to the fulfillment of certain conditions, among which was compliance with article III of its revised listing rules.
As indicated in their signed offer terms sheet, the selling shareholders (or the Villars’ holding companies) namely, Adelfa, and Polar, offered to the public a total of 1,265,000,000 Vista Land in secondary shares.
To comply with the requirement, Vista Land and the shareholders executed an agreement with its agent ATR Kim Eng Capital Partners Inc. placing in escrow 5,320,192,648, representing the Villars’ 82.28 percent stake on June 20, 2007.
Broken down, the shares belonged to Fine Properties, 3,042,615, 495 (47.63 percent); Adelfa Properties, 1,554,961,666 (23.34 percent); Polar Property Holdings Corp., 722,615,487 (11.31 percent).
But on June 21, 2007, Vista Land requested the PSE in a letter to waive the 180-day lock-up period, according to the PSE document. The letter asked the PSE board to allow the exclusion and release from escrow of the secondary shares.
According to an SEC lawyer, Villar called Barin at least twice in the middle of an SEC board meeting. The SEC chair later revealed to the board that Villar had made other calls at other times.
The Inquirer tried to reach Barin, but a ranking SEC official said Barin had rejected many requests to talk publicly about Villar’s request.
But as if his calls were not enough, Villar made what the SEC lawyer called an “unprecedented” move. Along with Francis Lim, Villar went to the SEC board meeting “unannounced and uninvited” and right there and then, with Lim’s help, “made a pitch for a relaxation of the 180-day lock-up period before the board” which was “a no-no,” he added.
“Villar came too strong to get his wish,” the lawyer said. “He wanted Chair Barin and the board to swallow the rules.”
The five-person SEC board rejected Villar’s request. “The decision was made because there were a number of other IPOs during the period and they did not want to send a bad signal to investors,” the SEC lawyer said.
“The lockup is essentially a sign of sincerity of the original owners,” he said. “The rule not allowing the original stockholders would prevent them from taking advantage of high prices and not get out. So, investors would not be hoodwinked.”
Quick PSE decision
Under its rules, the SEC can give “exemptive” relief which is an “extraordinary” procedure.
The SEC lawyer said this called on the PSE to write the SEC’s market regulation department for it to refer the exemption to the SEC en banc. However, Villar made a shortcut because the market was bullish.
The lawyer said that to his knowledge, no exemption had been granted to anyone, or at least in the last four years.
The SEC disapproval prompted Lim, according to a PSE lawyer, to call for an “emergency meeting” of the PSE board several days before the offering to address Villar’s predicament.
“There at the meeting, Senator Villar threw his weight around and tried to twist the arm of the PSE board to get his wish,” the lawyer said.
“Anyway, you don’t always follow your rules,” the lawyer quoted Villar as telling the board. “Why can’t I get an exemption? Magtulungan na lang tayo (Let’s just help each other).”
Shocked PSE board
It was rare, according to the lawyer, that Lim had called for an unscheduled meeting. It was even rarer that a person, especially the then Senate President with a pending personal request, was made to appear before them and to argue his case, he added.
At least two PSE board members—Eusebio Tanco and Alejandro Yu—expressed shock and dismay over Villar’s overtures during the meeting, according to the lawyers.
The Inquirer tried to reach Tanco and Yu, but was told that they wouldn’t want to talk about it publicly, citing the exchange’s Old Boy network, the downside of esprit de corps.
Some PSE lawyers tried to dissuade the PSE board from granting Villar’s wish.
“Such secondary shares are currently held in escrow pursuant to the lock-up requirement discussed in the item above. The offer period is expected on July 16 to 20, 2007, which is within the escrow period,” the document said.
“By allowing Villar to break the rules,” the PSE document added, “the reputation of the exchange, particularly the consistent and equitable application of the rules, may be questioned if the said request will be granted.”
Despite the SEC disapproval, the PSE and Vista Land, then still having no IPO track record, went ahead with the secondary offering.
“There are a number of ways to skin a cat,” said a ranking SEC official when asked how this was done. While the SEC approves its rules and exemptions from it, he added, the PSE is a self-regulatory body.
In a statement e-mailed to the Inquirer, Lim said the secondary shares offered under Vista Land’s follow-on offering was not part of the shares that were the subject of the 180-day lock-up.
“It is important to point out that the Vista Land offering was done in connection with its listing by way of introduction. The PSE rules on listing by introduction contemplate that the company be as widely held as possible by the investing public,” he said.
“The PSE Board’s approval of the listing application merely implemented a rule on listing by introduction. This rule requires the applicant company to conduct a public offering of its shares within one year following the listing by introduction,” he added.
But Lim didn’t explain why Villar had to gatecrash an SEC board meeting to follow up his request and why he had to accompany him. Neither did Lim say anything about calling for an emergency PSE board meeting to tackle the same.
Lim turned down Inquirer’s repeated requests for an interview to clarify all other questions.
$2 billion in foreign orders
On July 1, 2007, Vista Land went on a road show to attract foreign buyers in Hong Kong, Singapore, the United States and London. The road show was successful. Mostly foreign investors bought into the secondary offering, according to Vista Land president Jing Serrano.
Of the total offering, 70 percent was allocated to foreigners while the rest was sold to an otherwise lukewarm local market that found the prices too high, according to a broker.
Foreigners snapped up shares of Vista Land during its offer period, generating $2 billion in foreign orders. The company had UBS Investment Bank as sole global coordinator and bookrunner with ABN Amro Rothschild as co-lead manager while BDO Capital and Investment Corp. was the lead domestic underwriter.
Because share prices took a dive and had hardly recovered to its highs since the secondary offering, a local broker said, some minority stockholders raised concerns to BDO, but because they were not organized, nothing came out of it.
Likewise, because of Villar’s surprise visit at the PSE, the scheduled public offering of other companies either was delayed or took a back seat, she added. “By breaking the rules, Vista Land was allowed to break the line.”
By tradition and rules, the PSE lawyers said, the corporate body never allowed public offering of secondary shares and primary shares simultaneously, or a few days apart.
Look who’s calling
They recalled the public offerings of equally prominent companies such as Metro Pacific Investments Corp. and Petro Energy Resources Corp., which were made to follow the same rules. Metro went public in November 2006, Petro in August 2004.
“The lock-up rule has been one of the symbols for the minority of the majority shareholders commitment to its business. It has been respected and observed by all companies that have listed,” the PSE document said.
An SEC lawyer tried to rationalize Villar’s overtures, saying the SEC receives many calls from different people each day either following up papers or lobbying a favorable response for their businesses from the regulatory body.
“It’s some kind of a routine,” the lawyer said. “We get calls from any Tom, Dick and Harry each day. They are free to do that. It’s no big deal. It’s a different story if they ask us to do something illegal. But we do what is just and right here. If you can’t stand the pressure, you shouldn’t be here.”
The PSE lawyer thought otherwise.
“Senator Villar was not just any Tom, Dick, and Harry here,” he said. “He was the Senate President.”