Landbank Official Statement on The Alleged Anomalous PhP9-B Meralco Shares

The Land Bank of the Philippines maintains that there was no violation of the Anti-Graft Law over transaction of its MERALCO shares because the sale between LANDBANK and Global 5000 did not materialize. Hence, there is no basis for a criminal indictment or administrative sanction against former members of the LANDBANK Board of Directors including some incumbent Bank officers.

This is in response to the recent news report on the Office of the Ombudsman’s (OMB)’s announcement that LANDBANK executives, among others, could face multiple graft charges over the block sale of MERALCO shares to Global 5000.

LANDBANK stated that even prior to OMB’s announcement last Thursday, incumbent LANDBANK executives had already filed their joint counter-affidavits on February 16, 2015 in response to the complaint filed by the Field Investigation Office of the OMB in November 2014.

Sale price not disadvantageous to government

The complaint was in connection with the sale of LANDBANK’s 46.59 Million MERALCO shares of stock to Global 5000 Investments, Inc. (Global 5000) for P4.916 Billion or at P90/share, thru a Share Purchase Agreement (SPA) executed on December 2, 2008.

At the time of the signing of the SPA, the MERALCO shares were trading at P58 per share. Clearly, LANDBANK could have earned trading gain of about 210% or about P2.8 Billion, more or less, exclusive of the fixed interest of P554 Million provided in the SPA.

The Department of Justice issued Opinion No. 86 series of 2012 on Dec. 15, 2012 explicitly stating that the implementation of the SPA is not in violation of RA 3019. The Justice Secretary opined that “… the contract was entered into in December 2008 where the prevailing market price of the shares of stocks is valued at P58.00 per share. The SPA provided for a purchase price of P90.00 per share which is considerably much higher than the prevailing market price of P58.00 per share. Had the transaction been pursued as scheduled, it cannot be denied that the government would certainly be earning P32.00 per share from the proceeds of the sale.”

Illegal transfer of MERALCO shares

The sale of LANDBANK’s MERALCO shares did not push through mainly because unknown to LANDBANK and Global 5000, LANDBANK’s 42 Million shares in MERALCO were illegally transferred to Josefina Lubrica (Lubrica), assignee of Federico Suntay (Suntay), on November 28, 2008 to satisfy the 2001 decision of DAR Adjudicator Conchita Miñas (Miñas) awarding P157 Million to Suntay, as just compensation for an agricultural land in San Jose, Occidental Mindoro, which was acquired pursuant to the Government’s land reform program. Although the judgment award in favor of Suntay was only P157 Million, LANDBANK’s 42 Million shares in MERALCO, then valued at about P2.4 Billion, was illegally garnished, cancelled and transferred to Lubrica.

SC ruling restores LANDBANK ownership of MERALCO shares

Then the Supreme Court, in a decision dated 14 December 2011, in G.R. No. 188376 , ruled that the 2001 decision of Miñas is not yet final and executory and cannot be implemented, and that the 42 Million Meralco shares are LANDBANK’s corporate assets that cannot be garnished to satisfy a judgment in a just compensation case. In that ruling, the Supreme Court also directed MERALCO to restore LANDBANK’s ownership of the 42 Million shares of stock. LANDBANK has so far recovered 38.63 Million shares out of the 42 Million shares illegally transferred to Lubrica.

It was after the Supreme Court decision became final and executory in September 2012 that one Emilio Suntay III reportedly filed a complaint before the Office of the Ombudsman against officials of LANDBANK and Global 5000 for alleged violation of the Anti-Graft Law in connection with the execution of the SPA in December 2008. Obviously, the said complaint is a reaction to the Supreme Court decision which paved the way for LANDBANK’s recovery of its lost shares, filed clearly with the intention to vex and harass LANDBANK officers after LANDBANK obtained that favorable decision from the Supreme Court.

Since the sale did not push through, LANDBANK fully retains ownership over the MERALCO shares including the dividends that had been declared from the time the SPA was executed until today. LANDBANK’s earnings from its dividends from the MERALCO shares now amount to about P2.1 billion.

LANDBANK did not surrender its voting rights to Global 5000 because the latter did not tender or pay the down payment as agreed upon in the SPA.

Terms of sale protected LANDBANK’s interests

The report that “LANDBANK officials gave unwarranted benefits, advantage or preference to Global 5000” has no basis. The SPA, aside from the fact that it was never implemented, provides for ample protection to LANDBANK in case Global 5000 fails to comply with its obligations. First, possession and title to the MERALCO shares remain with LANDBANK until full payment thereof. Second, any amount paid will be forfeited in LANDBANK’s favor in case of non-payment of the purchase price. Third, the SPA provides for LANDBANK’s entitlement to fixed interest of P554 Million or 13.2% of the purchase price. The capitalization of the buyer in a contract to sell therefore is not important. In other words, the SPA was not a loan transaction, but a sale transaction.

As to the allegation that Global 5000 had no track record having been incorporated 10 months prior to the transaction, LANDBANK explained that Global 5000 (now SMC Global Power Holdings Corp, a wholly owned subsidiary of SMC) is allied with SMC, which also purchased other GFIs’ substantial number of holdings in Meralco, even before the LANDBANK’s SPA was executed. The persons or incorporators (i.e., Roberto Ongpin, Iñigo Zobel, Joselito Campos, Jr.) behind the company are all well known in the business community; thus, there could not have any doubt on Global 5000’s ability to source the funding for the sale.

Further, on the claim that the transaction was undertaken in a matter of 10 days, LANDBANK clarified that it made the proposal to sell the MERALCO shares on November 7, 2008 but the SPA was executed on December 2, 2008. Prior to these dates however, LANDBANK had already been in constant negotiation with other parties for the said sale.

Lopez Group sold lowest premium vs GFIs

The last major group who sold their MERALCO shares was the Lopezes’ First Philippine Holdings Corporation (FPH) also at P90/share in March 2009. Given that the Lopezes were the strategic shareholders of MERALCO for a very long time and who understood clearly the value of the business, LANDBANK’s transaction was clearly at the fair price. In fact the Lopezes got the smallest premium over market at 8% compared to GFIs more than 50% premium.

Finally, the SPA has never been the subject of any COA and BSP exception, in so far as LANDBANK is concerned. The MERALCO shares, being publicly listed, are considered as “merchandise or inventory” held for sale in the regular course of business of LANDBANK and thus, exempted from the requirement of public bidding under COA Circular No. 89-296 dated January 27, 1989. This has been confirmed by no less than LANDBANK’s statutory counsel, Office of the Government Corporate Counsel (OGCC).