Bill seeks to curb duty-free liquor, tobacco

Duty Free Philippines will be made the sole importer of tax- and duty-free cigars, cigarettes and distilled spirits if House Bill No. 3007 introduced by Quezon Rep. Danilo A. Suarez were to be passed into law. This will mean that privately owned duty free shops operating within the Subic and Clark ecozones in Central Luzon will no longer be allowed to import these goods but, will instead have to buy them from Duty Free. Mr. Suarez noted that privately owned duty free shops, by importing large amounts of tax- and duty-free cigars, cigarettes and distilled spirits, have become detrimental to the viability of local manufacturers and retailers. "The influx of imported cigars, cigarettes and distilled spirits in the domestic market is reportedly comprised of brands which were imported tax-and duty-free by duty free shops," Mr. Suarez said in his bill's explanatory note. "By such a scheme, imported cigars, cigarettes and distilled spirits are being brought into the local market without the payment of basic customs duties and taxes, thereby depriving the government of much-need revenues. "Local manufacturers are threatened by the proliferation of imported brands of cigars, cigarettes and distilled spirits in the local market as imported products tend to directly compete with locally-manufactured products." Duty Free, however, will not be given free rein to import cigars, cigarettes and distilled spirits. Mr. Suarez suggested basing importations on the estimated number of tourists, overseas Filipino workers and expatriate workers who will be coming to the Philippines in a given year.

The Department of Finance and the Department of Tourism will be tasked to set the maximum amount of importations in a given year. Mr. Suarez said Trade and Industry Secretary Cesar V. Purisima has given his support to House Bill No. 3007. The DTI, through the Board of Investments, is pushing for the rationalization of fiscal incentives given to investors in a bid to raise revenues for the National Government. A total of PhP174.698 billion in potential revenues was lost to fiscal incentives granted between 1999 and 2003, including tax- and duty-free importations of duty free shops. -- Judy T. Gulane

Finance, Trade still at odds over investor perks

The Department of Finance (DoF) and the Board of Investments (BoI) are at loggerheads over how a bill rationalizing fiscal incentives granted to investors is to be proposed in Congress. The Finance department is averse to giving the BoI wider powers and flexibility in determining which sectors are entitled to incentives, and also wants to make sure it has a say on the matter. For instance, the DoF wants to clearly indicate in the bill that it must be consulted in the drafting of the Investments Priorities Plan (IPP), a listing of the government's preferred economic activities which are entitled to incentives. The department also wants the IPP limited to seven to 10 industries. But limiting the IPP to seven to 10 industries would be "surplusage," the BoI said. The DoF said the BoI should not be allowed to amend the IPP at any time and that amendments should be the product of a consultation process rather than a "unilateral action."

Finance strongly opposes provisions allowing the Trade Secretary, under whose aegis the BoI falls, to award "customized" incentives and the BoI to grant tax credits and exemption from the value-added tax (VAT), restrict importation of certain goods, and recommend the waiving of the Filipino nationality requirement on certain projects. To be competitive with other Asian countries, the BoI wants its chairman, the Trade chief, to be able to grant "other incentives" to activities "that exhibit high social and economic returns and require large investments that will significantly contribute to the country's economic development." Such incentives should include, "but shall not be limited to," an income tax allowance that can be deducted from taxable income, double deduction for training expenses, and double deduction for research and development. "Congress may consider this proposal as an arrogation of their power to grant tax exemptions," the DoF said. "We also think that this proposal will result in serious instability in the fiscal incentives system. There will be a lot of discretion and unpredictability in the structure. It will dangerously lead us to the 'race to the bottom' trap that the government cannot afford."

The BoI said the provision will not undermine Congress as the incentives would be spelled out in the bill. "BoI will only grant [the incentives] if an enterprise meets all the criteria laid down in the law and the same is approved by the President," the agency said. "There will be no discretion and unpredictability because a criteria is already set out in the law dictating to the BoI whether the said enterprise is eligible to this incentive or not," the BoI added. The DoF also rejected the proposal to exempt from the VAT on services enterprises outside special economic zones, saying it "[could not] appreciate the policy consideration." But the BoI said it only wanted to level the playing field between ecozone and non-ecozone companies. It pointed out that since ecozone and non-ecozone firms compete for the same market, the latter should also be VAT-exempt. Finance likewise said the plan to allow the BoI to recommend to the President the suspension of the nationality requirement on certain cases should be carefully reviewed in the context of the constitutional limitation on foreign ownership of corporations. The BoI argued that such a mechanism is already in place and that the agency can suspend the nationality requirement, upon approval of the President, for projects with ASEAN (Association of Southeast Asian Nations) content. Under Republic Act No. 7888 approved in 1995, such investments are treated as Filipino investments. "Considering that the Philippines is currently negotiating with Japan and China for [an] economic partnership agreement, the bill merely envisions that [the] same treatment be extended to such worthy regional partners," the BoI said.

The BoI also said it wants to be able to restrict the importation of goods such as used vehicles and parts to support the Motor Vehicle Development Program, as well as other goods and commodities subject of the rationalization program. "We think the BoI could be a recommendatory body in this respect but the policy decision may rest on a higher policymaking body," the DoF said. The BoI replied that as the agency taking charge of rationalization, "it has all the information and data [and] material[s] for the determination of industries that may be rationalized so as not to prejudice industries that greatly contribute to our economic development." The BoI, nonetheless, said it could be a recommendatory body to the President on such matters. The fiscal perks bill, expected to be finalized this month, is one of four priority measures the President has asked Congress to pass before the end of the year. -- Felipe F. Salvosa II

Global-National Steel deal closed

By FELIPE F. SALVOSA II, Reporter

National Steel Corp.'s sale to an Indian-owned steel company has finally been closed. Representatives of the Global group handed over the PhP1-billion down payment, which had been held in escrow, last Friday with National Steel's creditors delivering the remaining documents required to close the deal. While an asset purchase agreement was signed last Sept. 10, after which Global deposited the initial payment to an escrow account, a number of approvals had to be secured, Global said in a statement. The Bangko Sentral ng Pilipinas has issued a certificate of eligibility which entitles the sale to incentives, such as tax exemptions, under the Special Purpose Vehicle Act of 2002.

National Steel's creditor-banks have yet to settle the revived steel firm's obligations to the National Power Corp. (Napocor), but the state-run power firm has issued a letter stating that it would not run after Global. Lawyer Danilo Castro, senior vice-president of the Philippine National Bank (PNB) which heads the group of creditors, said Global wanted to be assured before the deal is closed that it won't be held liable for National Steel's debts to Napocor. "We have a letter from [Napocor] saying that the matter of the arrears is something between the creditors, the liquidator, and [Napocor], and should not involve [Global]," Mr. Castro said. Earlier, the creditors reached an agreement with the Iligan city government on National Steel's unpaid real estate taxes, under which all interest and penalties would be waived and only the principal amount would be paid. Neither the banks nor Global wanted to shoulder the full amount, which has reached over PhP900 million. The debts to Napocor had been estimated at PhP270 million, and to Iligan, PhP171.2 million. Mr. Castro said payments to Iligan have been scheduled over an eight-year period.

On Napocor, the banks have submitted a proposal and have requested for a waiver of all interest and penalties. This is also a matter for Congress to decide, Mr. Castro said, and the creditors "are willing to go through this process." A "sharing agreement," which outlines how proceeds of the sale would be distributed to the banks and the shareholders, was signed last Friday. A few more banks which could not make it last weekend are scheduled to sign today, Oct. 18. The PNB official represented the secured creditors last Friday and was accompanied by lawyer Danilo L. Concepcion, National Steel's liquidator. Global Steelworks International, Inc., the Global group's operating company, and Global Ispat Holdings, Inc., the land-owning vehicle, were represented by Sushant Das, president, and Ramesh Bhosale, director.

The Global group's mother company, Mumbai-based Ispat Industries, Ltd., owns one of India's biggest private steel operations. Mr. Castro said only about half of the PhP1 billion downpayment would be left for the creditors to share after deducting expenses such as payments to Napocor and Iligan, advances of the liquidator, and payment for the lawyers. An omnibus agreement also signed last Sept. 10 appointed the PNB's trust banking group as facility agent and collateral trustee for the transaction. As earlier agreed, Global will pay a total of PhP13.25 billion over an eight-year period. The next payment is at the end of year two, with the end of Oct. 15 considered as the start of year one, Mr. Castro said. Mr. Castro added there were no more problems with the initial payment except for minor documentation expenses to be shouldered by Global. The PhP250-million standby letter of credit, which the banks can withdraw if Global walks out of the deal, is also in order. Now that Global has completed the "total acquisition," Mr. Das said "full commercial operations will now start." Mr. Das said the rehabilitation of the Iligan steel mill, which began last Feb. 1, has almost been completed.

Global Steelworks International, the new name of National Steel, intends to produce in the next six months 1.0 metric tons (MT), and by the end of 2005, 2.0 MT. The steel mill has a rated capacity of 1.2 million MT per annum of steel products such as hot-rolled coils and plates, cold-rolled coils and plates, tinplates, and billets. Commercial production of hot-rolled coils will start at 30% to 40% of capacity in the first month, to be increased in the third month, Mr. Das said. "Total direct employment to be generated upon the start of commercial operations will be 1,000, while total employment in the City of Iligan and surrounding area is expected to be a significant multiple of this number due to the positive spin-off effects of the plant's start-up on local suppliers and service downstream industries," Global said. This is the fourth time for National Steel to change owners.

The government, through the National Development Co., privatized the steel firm in 1995 and sold 82.5% of the shares to Malaysia's Wing Tiek Holdings Berhad. Two years later, Wing Tiek sold to Hong Kong-based Hottick Investments, Ltd., subsidiary of another Malaysian firm, Renong Berhad, which spent about $800 million for the acquisition. National Steel was forced to shut down in 1999 when the Malaysians failed to settle its financial obligations, displacing close to 2,000 workers. Subsequently, Pengurusan Danaharta Nasional Berhad, Malaysia's national asset management firm, absorbed Hottick's non-performing loans. President Gloria Macapagal-clArroyo's state visit to Malaysia in 2001, wherein National Steel was included in bilateral talks with then Prime Minister Mahathir Mohamad, paved the way for the signing of a restructuring agreement in November 2002.

Foreign direct investments up 13.4% in 3Q

Foreign investments committed and approved for Philippine projects grew 13.4% to PhP8 billion in the second quarter this year from the PhP7.05 billion registered in the same period in 2003. The National Statiscal Coordination Board (NSCB) reported that the increase in foreign direct investmtns (FDI) commitments for the second quarter was boosted by commitments to the manufacturing and the services sectors. Japan continued to be the leading source of FDIs with PhP4.2 billion worth of commitments or a 31% improvement from PhP3.2 billion last year. Investment commitments from the United States dropped by nearly 92% to PhP251 million in April to June 2004, from the PhP2.8 billion committed by American investors a year ago. South Korea was the second largest foreign investor in the country for the period as it pledged some PhP1.8 billion worth of investments.

NSCB, an attached agency of the National Economic Development Authority (NEDA), noted that FDI commitments in the manufacturing sector accounted for almost half (46.2%) of total FDIs for the period. "While FDI pleges in the manufacturing sector decreased to PhP3.7 billion from the PhP5.6 billion registered in the same period last year, it remained the top recipient of approved FDIs for the period," NSCB noted in its report. NSCB reported that FDI commitments for the services sector in the second quarter surged to PhP2.9 billion or a seven-fold increase from the PhP328.9 million it registered a year ago. "This increase was propelled by the approved operation of a resort complex project in the Clark area worth PhP1.5 billion," the NSCB said.

Total commitments for the information and communication technology, the agency said, also registered a year-on-year increase of 476.2% to PhP2.5 billion for the period. "Both Filipino and foreign investors were bullish, infusing PhP745.7 million and PhP 1.7 billion worth of investment commitments, respectively," NSCB said. On a per agency basis, total FDIs approved by the Philippine Economic Zone Authority amounted to PhP4.8 billion, which account for more than half (59.5%) of total FDIs for the second quarter of 2004. NSCB, however, noted that FDIs approved by PEZA for the period dropped by nearly 20%. FDI pledges through the Board of Investments, NSCB said, also dropped by almost 45% to PhP401 million from the PhP723.4 million it registered a year ago. It was a different story for the Subic Bay Metropolitan Authority (SBMA) which topped the list of agencies that registered the most number of approved FDIs. "Pledges to SBMA amounted to PhP1.3 billion, which is approximately 22 times the PhP57.6 million reported in the second quarter last year," the NSCB said. Clark Development Corp. also recorded an increase in the FDIs it approved for the period, as it gave its go signal to PhP1.6 billion worth of investments or a 346.7% increase from the PhP354 million it registered a year ago. On a semestral basis, approved FDIs reached PhP123.4 billion in the first half of 2004 which is eight times higher than the PhP13.4 billion recorded for January to June of 2003. -- Jennifer A. Ng

Japanese automakers to stay put

Two Japanese automotive trade groups have given assurances that they won't pull out investments from the Philippines once a Japan-Philippines Economic Partnership Agreement (JPEPA) is forged. The anticipated trade pact is expected to significantly lower, or even lift, tariff rates between the two countries. And some quarters earlier speculated this could encourage Japanese vehicle firms to stop producing here and just opt to ship products manufactured in Japan.

In a joint statement, the Japan Automobile Manufacturers Association (JAMA) and the Japan Auto Parts Industries Association (JAPIA) pushed for the "early conclusion" of talks for the JPEPA and doused cold water on fears their members would prefer to produce vehicles and parts in Japan because of the lifting of tariffs. "Speculations that the lifting of tariffs accompanying the signing of the [economic partnership agreement or EPA] would prompt an immediate withdrawal of investment by Japanese automakers and parts makers from the Philippines are completely off the mark," the Tokyo-based trade groups said. "On the contrary, closer economic partnership through such an agreement would reinforce the ties between the automotive industries in both our countries to a greater degree than ever before."

However, JAMA and JAPIA said the Philippine automotive industry must make sure that it continues to be competitive vis-´-vis neighbors in the Association of Southeast Asian Nations (ASEAN) as well as other countries to remain a viable production base. "The crucial issue at this point is how the Philippine auto industry can maintain its competitive strength both within ASEAN region and worldwide," the Oct. 8 joint statement read. "From that viewpoint, the Japanese auto industry and the Ministry of Economy, Trade and Industry of Japan have up until now been working together to provide support in the development of human resource skills and other key areas in this important sector. It must be emphasized here that JAMA and JAPIA fully intend to continue this collaborative work in future to make a substantive, sustained contribution to the progress of the Philippine automotive industry."

JAMA and JAPIA also pointed out that free trade agreements (FTA) with China and India are being hammered out by ASEAN countries aside from promoting the ASEAN Free Trade Area, and if the JPEPA is not signed beforehand, Japanese investments could be placed at the losing end. "[W]e understand FTA negotiations are already under way with the giant market nations such as China and India, creating the potential for bilateral trade liberalization with these countries by 2010. Taking this into consideration, we believe that the early conclusion of the Philippines-Japan Economic Partnership Agreement that entails early liberalization including tariff elimination in the automotive sector is a vital step in ensuring that Japanese manufacturers' business activities in the Philippines are not placed at a competitive disadvantage versus their US and European counterparts," they said.

The two groups stressed that the Philippines would benefit from a "strengthened partnership with Japan" which would "help stimulate the intraregional economy through trade and market expansion and bolster the international competitiveness that is so essential to the sound advance of the Philippine automotive industry in the years ahead." "For over forty years, Japan's automobile and parts manufacturers have acted as partners for local automobile industries in ASEAN countries, particularly in the Philippines. Through their production and sales activities, they have worked to transfer technology and business expertise to the Philippines, while energetically contributing to the development of its parts industry," JAMA and JAPIA said. "The EPA, by its very nature, provides an institutional framework that can furnish support on the business practices established in the region. JAMA and JAPIA are furthermore convinced that...[it] would accelerate integration between our two countries and be instrumental in forging a sounder, more effective infrastructure for Japan-Philippines cooperation." -- Felipe F. Salvosa II

Tighter rules for import perks in AFMA readied

Implementing rules for duty-free importation of farm and fishery imports are being tightened to rid the system of abuses and at the same time improve the chances of smaller enterprises to avail of privileges offered under Republic Act No. 9281. This law extends the five-year duty-free privileges granted under the Agriculture and Fisheries Modernization Act (AFMA) until 2015. A Finance official said that the Department of Agriculture and various agencies, including the Department of Finance are finalizing the executive order that will prescribe the IRR on the duty exemption importation of agriculture and fishery inputs and Finance Secretary Juanita D. Amatong wants to include a number of safeguards to prevent companies from abusing the law.

Under the draft executive order, all entrepreneurs and investors who would like to avail of incentives provided by the law would have to secure a certificate of eligibility from the DA regardless whether they are importing "exclusive or non exclusive" agriculture or fisheries inputs, the official said. This is in response to concerns on abuses perpetrated by some firms that avail of AFMA perks. Under the old rules, importers of inputs classified as "exclusive" to farm and fishery sectors were not required to obtain a certificate of eligibility from the DA. The official said that the EO would likewise provide a single list of agriculture and fisheries inputs that will be covered by the duty free incentives.

At present, the official explained that the rules differentiates items that are used exclusively by agriculture and fishery enterprises and those that are not used exclusively by agriculture and fishery enterprises. This, in effect will also streamline the procedures and will make it easy for the farmers and entrepreneurs to obtain the needed inputs and equipment, the official said. Small and medium enterprises would have wanted to put a limit on the size of companies that can import agricultural inputs duty-free under the AFMA but the DA rejected the proposal. The SMEs earlier complained against large business conglomerates that had allegedly tapped most of the fiscal incentives dangled before them by the government under AFMA from 1999 to 2003. According to the finance official a huge portion of the PhP8.7 billion worth of agricultural inputs imported from 1999 to 2003 were animal feeds or feed ingredients. The new rules will also provide for the use of import consolidators to improve the chances of SMEs to avail of the said tax free privileges.

The AFMA law provides tariff exemptions for the agriculture sector in the importation of their materials and machineries. The law was passed to prepare the farm and fishery sector for the tariff reduction program of the Philippine government under the World Trade Organization. The DA claimed that the extension of AFMA is needed to allow the agriculture sector to modernize and become competitive in the globalization period. Under Section 109 of R.A. 8435, all enterprises engaged in agriculture and fisheries shall be exempted from the payment of tariff and duties for the importation of all types of agriculture and fisheries inputs, equipment and machinery. The law specifically identified the following products: fertilizer, insecticide, pesticide, tractor, trailers, trucks, farm implements and machinery, harvesters, threshers, hybrid seeds, genetic materials, sprayers, packaging machinery and materials, bulk-handling facilities such as con veyors and mini loaders, weighing scales, harvesting equipment, spare parts of all agricultural equipment, fishing equipment and parts thereof, refrigeration equipment and renewable energy systems such as solar panels. -- Karen L. Lema

Proposal to have new BIR top-level post gets support

Finance Secretary Juanita D. Amatong supports the request of Bureau of Internal Revenue (BIR) Commissioner Guillermo Parayno for the President to appoint another BIR official to handle the day-to-day operations of the tax agency. "If he needs it...for me he knows his operations better than I do," Ms. Amatong told reporters last week. Mr. Parayno earlier suggested to President Gloria Macapagal Arroyo that she appoint another official to the bureau that will only take care of the daily operations so he could concentrate on building the capacity of the agency. He said he was having a difficult time attending to daily needs of the agency while trying to institute long-term reforms in the BIR. "Administration has a day-to-day component and the other one is the need to develop an organization that is responsive to the future needs and thinking of how to bridge the tax gap. To bridge the PhP200-billion tax gap needs a lot of things," Mr. Parayno has said. "What I am saying is I think it would not be the best arrangement for the bureau that I do both, address the day-to-day [operations] and develop the organization's future," he said. And if he had his way, Mr. Parayno said that he would also want to widen the functions of the National Tax Research Center (NTRC). He said it should be allowed to help in the administration of taxes. Mr. Parayno earlier offered to resign but eventually decided to stay after Mrs. Arroyo persuaded him to remain in her government.

The former naval officer and customs chief was appointed to the BIR in August 2002. Under Mr. Parayno's nearly two-year tenure, the BIR has improved its tax collection and put in place a new system for monitoring tax evasion, although analysts say it still suffers from corruption and fails to collect billions of pesos in tax. Reports had it that Mr. Parayno's desire to leave the BIR was prompted by mounting pressure against his effort to clean up the agency under the Revenue Integrity Protection Service of the Department of Finance. "The problems are so many and it is hard to draw a balance between the immediate need of raising revenues and the need to come up with long-term solutions to problems," Mr. Parayno was quoted earlier as saying. "How do you make an organization the center of good governance and make it a corrupt-free organization? It is a very difficult job but sometimes I feel unhappy to develop the organization or implement long-term solutions but I am forced to go short term."

Several lawmakers have rejected the President's proposal to impose new taxes arguing that the government must first improve its tax collection effort. The BIR aims to collect at least PhP476.3 billion in taxes this year. It has to raise PhP121 million in the last three months of the year to achieve its goal. Mrs. Arroyo has pledged to wipe out the country's PhP200-billion annual budget deficit by the end of her new six-year term by raising revenues and streamlining the government bureaucracy. Analysts have warned that if the government does not raise revenues through more efficient tax collection or via new taxes, international credit rating agencies might downgrade the Philippines, Asia's most active sovereign debt issuer. -- Karen L. Lema

Lawmakers urged to drop bill setting borrowings cap

Former Finance Undersecretary Romeo L. Bernardo expressed concern about a bill imposing a limit to domestic and foreign borrowings to ensure that debt service payments continue to be affordable within the context of budget priorities. The energy of Congress is better used thinking of improving revenue measures through new legislations, he said during the business and economic forum sponsored by Rizal Commercial Banking Corp. (RCBC). "It is very hard to craft simplified rules on capping the debt. The best they were able to do [was] in Switzerland where they put a cap on the deficit more than the debt. At the end of the day, the debt is just a function; a stock of the deficit accumulated overtime. Sometimes, it is not just the deficit but other things that made the debt accumulate such as depreciation and contingent liabilities," Mr. Bernardo said.

In a bid to instill fiscal responsibility in government, the debt cap bill was re-filed in the 13th Congress by Senate President Franklin M. Drilon. Five separate debt cap bills were filed during the previous Congress. The proposed legislation calls for the establishment of a threshold level for public debt to assure that debt servicing does not affect expenditures for important social and physical infrastructure. Taking into account different scenarios, Mr. Bernardo does not think the debt cap really works. "There is a lot of different scenarios one can spell out. It is very hard to anticipate. If it is too strict I can create problems and a situation where it has nothing to do with the quality of financial management. If you have good people, and you tied their hands, then they may not be able to do the right things when a surprising thing happens. If you make it flexible, it becomes useless," he said. The bill seeks to mandate that the consolidated debt of the National Government and government-owned and controlled corporations do not exceed nominal gross domestic product (GDP) in five years' time. -- R. A. M. Rubio

Central bank gets GSIS protection vs lawsuits

By IRIS CECILIA C. GONZALES, Reporter

The Bangko Sentral ng Pilipinas has secured a liability insurance from the Government Service Insurance System (GSIS) to protect its top-level officials against lawsuits and damage claims from troubled banks in the course of performing their job. Alberto V. Reyes, Bangko Sentral's deputy governor, said the agreement that the central bank signed with GSIS last July took effect in August. He said the liability insurance will cover the central bank's monetary board members, deputy governors and directors who carry out its supervisory and regulatory functions. The central bank is already working on expanding insurance coverage to include bank examiners and other officials. "GSIS will cover payment of attorney's fees and damage claims [filed by banks]. These are for work-related claims," Juan De Zuñiga, Bangko Sentral's assistant governor and general counsel, said over the weekend.

The central bank did not disclose the amount of premiums and possible insurance claims. Mr. de Zuñiga said these will be in "accordance with industry standards." Other government agencies such as the Philippine Deposit Insurance Corp. also have similar insurance coverage from the GSIS. Owners of some troubled banks, found to be engaged in irregular activities, have sued central bank officials for ordering the closure of their establishments. Officials of the defunct Urban Bank, for instance, have filed several cases against the Bangko Sentral after the monetary regulator decided to close the bank in April 2000. Mr. de Zuñiga said the Bangko Sentral got a good deal from the insurer as it would encourage bank officials to continue with their efforts to ensure a healthy banking industry. "It's a good deal. It encourages directors and board members to be diligent with their work," he said.

Bangko Sentral is in the process of having its charter amended. It is working on strengthening its charter to protect its officials from lawsuits. Two bills amending the charter are pending at both Houses of Congress. Albay Rep. Jose S. Salceda filed a bill at the House of Representatives while Sen. Sergio R. Osmeña III filed the one at the Senate. Mr. de Zuñiga said the liability insurance and an amended charter will complement each other. The lack of legal protection for regulators has also worried the International Monetary Fund. The IMF said in a recent report on the Philippines that giving regulators and supervisors extra protection will strengthen the banking sector.

Timetable for adopting new bank standards okayed

The Bangko Sentral ng Pilipinas will require banks to adopt better business standards and practice effective risk management to help strengthen them and prevent their financial collapse. Alberto V. Reyes, the central bank's deputy governor, said the policy-making Monetary Board approved on Thursday a schedule for banks' compliance with the new international capital adequacy rules, collectively known as the Basel II accord, starting this year until 2010. Adopted last June, the accord sets new international standards for banking practices. A group of central bankers and banking regulators around the globe met at the Bank for International Settlements in Basel, Switzerland to adopt the new accord. They agreed on its implementation by 2007.

According to the timetable approved by the central bank's Monetary Board, banks will gradually phase in certain provisions of the accord starting this year. For instance, Philippine banks will adopt a lower risk weighting for highly rated corporate loans by the fourth quarter of the year. Risk weight refers to the amount of funds a bank must set aside to back up loans to guard against possible default. Banks, however, will need to set aside more funds for past due loans effective next year as the accord requires a higher risk weighting for past due claims, the Bangko Sentral said.

The Basel accord agreement requires regulators to align the capital measurement framework with sound contemporary practices in banking. It promotes improvements in risk management, and is intended to enhance financial stability. Regulators will draft implementation guidelines on all other Basel II provisions by the first quarter of 2005 and issue the final implementation guidelines by end of next year instead of end-2006. This will give banks enough time to adjust to the implementation of the accord's other provisions by 2007. "Philippine adoption [to the accord] will obligate banks to adopt high standards. They'll have two years. Capital requirements will have to be raised for some banks," said Amando M. Tetangco, Jr., the central bank's deputy governor. -- Iris Cecilia C. Gonzales

Peso seen near 56.45

The Philippine peso this week is expected to move within a safe range against the US dollar, boosted by Filipino workers' foreign exchange remittances and some help from the central bank, traders said. This does not mean, however, that the market would hold off any speculative cushioning amid lingering economic woes. Days after matching its record slump of PhP56.45 in about two weeks, the peso barely recovered and stayed near its all-time low, traders said. They said the peso has remained and will remain between PhP56.35 and PhP56.45. "View it this way, we are seeing inflows [and] at the same time demands. Remittances from overseas are... [still] small and these are not enough to balance purchases and hedging ahead of more crude oil price hikes at the world market," a trader at a local bank said. Oil prices slipped further to around $53 a barrel during last week's trading.

The central bank reported on Friday that remittances from overseas Filipinos went up 45.9% in August to $791 million, bringing the eight-month tally to $5.5 billion. It further said a steady growth is expected leading to the Christmas holidays, and that the remittance target of $8.1 billion will be met. However, other traders said the inflow would not be able to support the high demand from banks as well as oil and manufacturing companies in expectation of more fiscal worries led by threats of a credit downgrade for the country. Officials from foreign credit rating agencies are set to visit the country to check its progress in pushing revenue-generating measures. Representatives from Fitch Ratings Services will arrive next week while those from Moody's Investors Service are expected next month.

Standard and Poor's Ratings Services earlier warned the country of possible downgrading if Congress fails to enact tax measures. "I think we will be downgraded. We will be [downgraded] before the year ends, across the board. Just look at the exchange rate, [at] how bond yields are behaving, how we are being assessed by the World Bank right down to our own economic officials," another trader said. Traders also pointed out that key economic officials have said that the exchange rate may breach the PhP57-to-the-dollar psychological barrier. "While the central bank is still there to intervene anytime, the local unit has already been exposed and battered by such outlook -- no less from the central bank," the trader said. -- Ira P. Pedrasa

Smart gets greenlight to borrow $104M

By IRIS CECILIA C. GONZALES, Reporter

The Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) has given the green light to cellular phone giant Smart Communications, Inc. to borrow $104 million from a Finland-based bank to finance its capital requirements for the rest of the year. "The Monetary Board has approved the loan," BSP Deputy Governor Amando M. Tetangco, Jr. told reporters over the weekend. He said the BSP's policy-making body approved on Thursday the $104-million, five-year loan from Finland's Finnish Export Credit Ltd. to finance Smart's planned network expansion. Finnish Export Credit extends loans to the private sector. It also provides export credits to foreign buyers of Finnish products and services with Finnish interest. The clients and partners of the company include exporting companies in Finland, Scandinavia and international banks active in Export and Project Finance. Smart told monetary authorities that it will also tap internally generated funds to finance its other requirements on top of the $104-million loan. "They have a combination of mixed-financing," Mr. Tetangco said.

Smart President Napoleon L. Nazareno has said the $104 million may be enough to cover the company's financing needs for the rest of the year. Earlier, Smart also unveiled two components to the GSM or global system for mobile communications expansion project. The expansion will start this year and be completed next year. The first involves the improvement of the coverage in densely populated areas like Metro Manila, including villages and indoors. The second component involves the roll-out in remote provinces nationwide, including the Autonomous Region for Muslim Mindanao and other parts of the island. Smart earlier earmarked a capital expenditure budget of PhP15 billion this year, mainly for the roll-out of additional cell sites. With demand showing no signs of slowing down, Smart has extended its network of 32 switches and over 4,200 base stations to cover 92% of the population. The mobile operator has already spent PhP3.5 billion in the January-March quarter and ended the period with a net income of PhP5.2 billion, up 86% year on year, buoyed by the growth of its subscriber base. Smart had more than 16 million subscribers at the end of June although its system can accommodate 18 million subscribers. Last year, Smart was the country's most profitable company with PhP16.1 billion in net income. Officials expect the company to surpass its 2003 income this year.

As telco says profit stable in 3Q

Leading cellular phone player Smart Communications, Inc. said its performance for the third quarter mirrored the strength it showed at the beginning of the year. But Smart President Napoleon L. Nazareno said the firm got some extra income from the partial acquisition of sister firm and soon-to-be subsidiary Pilipino Telephone Co. (Piltel). "The third quarter is the same as the first quarter in terms of recurring income. There are some nonrecurring profits from the consolidation of Piltel and Smart," Mr. Nazareno said.

Smart posted a net income of PhP5.2 billion in the first quarter, 86% higher than the profit it booked for the same period in 2003. The income was boosted by revenues of PhP14.7 billion from January to March. Officials earlier said the growth was due to the increase in subscriber base during the period. The firm closed the first quarter with almost 12 million subscribers. Smart has over 17 million subscribers as of the latest count. This includes about 23,000 offshore subscribers to its 1528 Smart service in Hong Kong. The leading cellular phone firm has started tapping the market of Filipino workers abroad. Sources from Smart earlier said the firm is planning to expand its service by teaming up with Mobile One of Singapore and another telecommunications firm in Italy.

Meanwhile, Smart eyes to complete the acquisition of 92% of Piltel shares by yearend. It currently holds 59 million convertible Piltel shares. By acquiring majority of Piltel shares, Smart will be able to take advantage of Piltel's tax credits. Piltel has about PhP13.5 billion in net operating loss carryover, which can bring PhP4.3 billion worth of tax savings for Smart until next year. -- Anna Barbara L. Lorenzo

Metro Pacific allots PhP13.6M for tender offer for Nenaco

By ROULEE JANE F. CALAYAG

Metro Pacific Corp. has allocated PhP13.6 million to buy back 85 million common shares of subsidiary Negros Navigation Co., Inc. (Nenaco) for PhP0.16 each. The tender offer, which will start on Oct. 20 and end on Nov. 17, is being made in compliance with the requirements for the delisting of Nenaco. Metro Pacific signified last week its intention to acquire 100% of the fully diluted share of Nenaco. The firm currently owns 97.19% or 2.9 billion shares of Nenaco's outstanding capital stock. The tender offer paves the way for Metro Pacific to acquire the remaining 2.81% or 84.9 million common shares of Nenaco which will be crossed on Nov. 29 subject to the approval of the Philippine Stock Exchange (PSE). Every Nenaco shareholder on record as of Oct. 15 is entitled to tender all or a portion of their shares for acceptance and purchase by Metro Pacific.

PAYING AGENT

Metro Pacific has designated ATR-Kim Eng Securities, Inc. as its paying agent. Metro Pacific will pay the tendered and accepted shares on Dec. 3, the 12th business day after the close of the tender offer. Nenaco scrip shareholders or those holding stock certificates are instructed to submit their duly endorsed stock certificates, accomplished applications and other requirements within the tender offer period to ATR-Kim Eng Securities. Scrip shareholders based in Visayas and Mindanao may tender their shares at the Cebu and Davao branch offices of ATR-Kim Eng Securities or the Bacolod office of Nenaco not later than Nov. 10. Shareholders whose shares are lodged with the Philippine Central Depository Nominee Corp. should instruct their brokers to transfer electronically their shares to ATR-Kim Eng. However, those tendering shareholders can withdraw their shares at any time during the tender offer period by sending a written notice of withdrawal.

The shares, to be acquired by the bidder, are listed at the PSE and were last traded during the first quarter of 2004. The shares reached a high of PhP0.44 and a low of PhP0.34 during the period. When the shares began trading at the bourse in 2002, they traded at their highest at PhP1.70 apiece on the first quarter and their lowest of PhP0.07 in the same period. Last year, prices for Nenaco's shares hovered at the range of PhP0.33-PhP0.55. David C. Nugent, Metro Pacific vice-president for media and corporate communications, told the exchange that Nenaco will no longer be subject to the reporting requirements of Rule 17 of the Securities Regulation Code if all of the shareholders will tender their shares and all tendered offers are accepted, and if Nenaco does not have at least 200 shareholders owning 100 shares each after the tender offer.

Cityland, unit to issue PhP750M in debt papers

Land Developer Cityland Development Corp. and its subsidiary City & Land Developers, Inc. are asking the Securities and Exchange Commission (SEC) to approve plans to issue short-term commercial papers totaling PhP750 million to pay maturing obligations. In separate applications filed at the SEC, Cityland and City & Land said the commercial papers will be offered to the public "at face value." In its application, Cityland said that of the PhP635 million it expects to raise from the sale of the commercial papers, PhP363 million will be used to pay maturing obligations. As of June 30, the company's outstanding loans total PhP922 million, of which a principal payment of PhP200 million is set to mature on May 23, 2005 and a principal payment of PhP250,000 is set to fall due April 15, 2005. The rest of its obligations had fallen due last July. Another PhP236.5 million from the proceeds will be used for "project-related costs," or the development costs of the Cityland Makati Executive Tower I and II, the Corinthian Executive Regency, and other projects that the company will launch this year.

Meanwhile, PhP35 million will be used for operating expense, the company said. "If the proceeds obtained is substantially less than the above maximum proceeds, the plan of the company is that it will just opt to renew all maturing obligations from the existing financial institutions that extended the loans or tap existing lines with the banks," Cityland said. City & Land, meanwhile, said that of the PhP115 million it plans to raise from offering short-term commercial papers, PhP54 million will be used to pay maturing loans. It said PhP46 million will be used for the Cityland Vito Cruz Tower 2, while PhP15 million will be used for operating expenses. The two companies will offer 10% of the commercial papers to local small investors and 30% of the issue amount to institutional buyers. Meanwhile, 60% of the papers to be issued will be offered to the general public, they said. -- Jennee Grace U. Rubrico

No clear trend seen for local stocks

By ROULEE JANE F. CALAYAG, Reporter

A combination of small gains and negligible losses will cap a lackluster week for the Philippine stock market. "There will be small ups and downs for the market as it moves few points [here and there]. It will be a sideways movement," said Irving Ackerman, president of I. Ackerman and Co., Inc. Mr. Ackerman said there is no clear trend for the stock market at this time especially due to the unending worries over oil supplies and the corresponding effects on its prices.

INCREASING OIL PRICES

"The oil picture may get worse if it does not end right away. The United States is coming into the cold or winter season. It makes more demand for heating oil. The Philippines may be affected," explained Mr. Ackerman. Since the Philippines is an oil importer, whatever changes in the global market that will tighten oil supply and raise prices will adversely affect the country. Crude oil futures tilted toward the higher $55 range last Friday in reaction to the declaration of the United States that its inventory of heating oil declined. Although the drop was not sharp, some groups were worried that this may send oil prices to a steep range in the coming weeks.

The decline in US inventory rocked a market already on edge over tight supplies, high demand and unrest in key oil-producing countries. For the past couple of months, analysts in the US who were commenting on the market and the economy dwelled on a single thread of discussion -- the unstoppable effects of the relentless increases in oil prices. Their comments had sent some shockwaves to fragile economies all over the world, among which is the Philippines. "The situation is becoming serious. Oil price has gone up over the $40 per barrel [limit] and it creeps up $0.75 every day. This is no joke. It could affect the Philippines," said Mr. Ackerman. "The US is a good customer of the country. If it catches a cold, the Philippines may also catch the same," he added.

MINING

Despite the gloomy outlook, some stocks may shine this week. "Some stocks may look better due to the depreciation of the peso and inflation," he said. Mining stocks, said Mr. Ackerman, may outshine most stocks. "Some investors may use mining stocks as a hedge against inflation and the depreciation of the peso. Because of that, we may see some movement in that index," he said. A few good issues will also prop up trading at the local bourse. "Those stocks that have something special [will cause the market to move up by few points]," said Mr. Ackerman.

RESILIENT

The country may have been subjected to unfair criticism, particularly in the ways it tries to shed its fiscal burdens. But it has remained resilient despite changes in the world economy. A recent survey of the World Economic Forum saw the Philippines sliding 10 notches in the Growth Competitiveness Index. It currently ranks 76th among 104 countries surveyed. The Philippines failed to improve its standing due to the perception that its macroeconomic environment has deteriorated. There was some disappointment on the state of its public institutions and technological readiness. "Basically, we are not doing badly despite the remarks on the country. The criticisms may be exaggerated but we should take those with a grain of salt," said Mr. Ackerman. In an earlier interview, Rommel Macapagal, chairman of Westlink Global Equities, Inc., said the "market is resilient on its own."

THREAT OF A DOWNGRADE

Threats of a downgrade from credit rating agencies have been floating in the market for a fortnight now. While these sent some investors shivering, most buyers chose to look at the bright side. "[The threats of a ratings downgrade] have been announced for some time so these are largely discounted in the market. Only when it happens will the market react," said Mr. Macapagal, adding that the lingering concerns have not diminished the bullish outlook for the Philippine market. Presidential spokesman Ignacio Bunye, Jr. had said worries of a possible credit downgrade will spur the implementation of needed reforms. Any changes in the country's credit rating will be anchored largely on how committed the government is to meeting its goals.

INDICES

The benchmark Philippine Stock Exchange composite index (Phisix) closed the week lower as it slipped 15.89 to 1,781.41 last Friday. Only mining and oil bucked the trend. Mining made spectacular gains of 277.85 at 2,204.81, probably driven by the exaggerated concerns over inflation. Investors that snapped up mining stocks may use these as a hedge against inflation.

PLDT

Philippine Long Distance Telephone Co. (PLDT), the country's major telecommunications firm, sold last Friday a special block amounting to 32,950 shares at PhP1,450 each for PhP47.8 million. The special block sale accounted for 10.66% of the market. PLDT had the most number of transactions for 44,000 shares valued at PhP64 million. Its market share when it closed down at PhP1,425 was 14.28%.

SAN MIGUEL

San Miguel Corp., the leading food, beverage and packaging conglomerate in the Philippines and Southeast Asia, did not make it to the list of 20 most active stocks. The price of its "A" shares slipped to PhP57.50. Even the price of its "B" shares slackened at PhP72.50. A news wire report quoted the Malay Mail as saying that San Miguel Corp. will scrap its plan to build a brewery in Malaysia. The firm has not yet issued a statement confirming the report. A few months ago, its president Ramon S. Ang told reporters here that everything was ready for the brewery plant to be built in Johor Bahru, Malaysia just across the causeway from Singapore.

In other news, Semirara Mining Corp. acquired and reverted to treasury the 359.3 fractional shares resulting from the decrease in its capital stock which was approved by the Securities and Exchange Commission (SEC) last July 2. Aries Prime Resources also had its stock symbol changed from EBE to APR effective Oct. 21.

Tax bureau targets delinquent Chinese-Filipino businessmen

The Bureau of Internal Revenue (BIR) knows the billionaires and multi-millionaires from the Filipino-Chinese Chamber of Commerce and Industry Inc. (FCCCII) who have not been paying their taxes and appropriate actions have been undertaken to make them comply with their obligations. BIR Commissioner Guillermo Parayno Jr. issued this statement after the FFCCCII lobbied Congress to lower the proposed tax amnesty rate, saying this would lead to more volunteers for the program and thus higher collections. Mr. Parayano said the tax bureau has in fact tagged 68,809 business establishments since last year as conducting business without a BIR registration and therefore not paying taxes. He did not say how many of these firms belong to the FCCCII but confirmed that a great number are owned by Filipino-Chinese businessmen. "The Bureau of Internal Revenue beleives it has the names of most of the business establishments of the multi-millionaires referred to by the Federation of Filipino-Chinese Chamber of Commerce and Industry Inc. as being in the underground economy and therefore not paying their business taxes," Mr. Parayno told reporters in a press conference in Quezon City yesterday.

Of the number, Mr. Parayno said 40 have already been charged in court and 200 more tax evasion charges "that would run to billions" are along the way. The BIR chief said he cannot reveal the identities of the businesses until charges have been filed in court. But he said many of these business establishments are found in Metro Manila. Valenzuela accounts for 4,231; Manila, 4,991; Quezon City, 3,052; and Makati, 3,541. Mr. Parayno said 10,710 of these establishments were caught this year, while 56,099 were tagged from April to December last year through the BIR's nationwide Tax Compliance Verification Drive. Of those apprehended, Mr. Parayno said only 27,950 businsses had registered. Of this, 21,329 have started to file tax declartions and pay taxes. The remaining 48,580 have defied the bureaus's order. "Instructions were issued to close down the establishments after intensive enforcement action," Mr. Parayno said. "The verification drives are continuing while the Tax Fraud and Special Investigation Divisions of BIR are identifying the billionaires and multi-millionaires not in the taxpayers database or, if included, are paying very small amounts so it is a matter of time before everyone else is identified," Mr. Parayno said.

The tax bureaus 19 regional directors and 112 Regional District Offices were instructed to do the same in their respective jurisidictions. "BIR is at war with these cheats," Mr. Parayno said. The FCCCII earlier told a Senate hearing that that it has 50 billionaires and more than 40,000 multi-millionairers who are willing to avail of the tax amnesty program under a tax rate of 1% of their net worth. The FFCCCII's Guillermo de Joya said these businessmen are willing to come out and pay the correct taxes if the government abandons its proposal for a tax rate of 3%. Mr. Parayno challenged the FFCCII to exercise suasion over its "errant members to be above board, to start paying taxes and do so faithfully." "Why play a cat and mouse game with BIR, why wait for an amnesty law and why only a measly 1% if they say ours is the only country they have and love?," Mr. Parayno said. -- Karen L. Lema

Time running out for RP to prove reform commitment

The peso's sickly performance and looming visits from rating agencies signal time is running out for the Philippines to show its creditors and international markets that it can match years of reform talk with action. Three months into her new term, President Gloria Macapagal Arroyo has yet to convince investors she can push through painful reforms needed to end the country's addiction to debt. Rising global interest rates and oil prices are exacerbating pressure on the country's ratings and currency. With ratings agencies starting to voice concern over the lack of progress, another three months of inaction on plugging the $3.6 billion annual budget deficit could be fatal, analysts say.

A one-notch downgrade on the country's $56 billion foreign debt pile to three notches below investment grade would sharply raise borrowing costs, diverting more resources away from spending and making it even tougher to cut the deficit. The peso, which touched its record low of 56.45 to the dollar for the second straight day yesterday, would inevitably suffer. The Philippines, which has run fiscal deficits in 10 of the last 14 years, pushed back on Monday its target date for achieving a balanced budget to 2010 from 2009. "So far, the progress has been underwhelming," said Adam Le Mesurier, vice-president of Asia Pacific economic research at Goldman Sachs in Singapore. "The tone of comments coming out of Manila in the last month or so has suggested some delay or backtracking in terms of the schedule of fiscal reforms." Ms. Arroyo said in August that the Philippines was in fiscal crisis, but some analysts believed she was using shock tactics to win enough political support for new measures aimed at raising an extra PhP100 billion in revenues each year.

Lawmakers have been grumbling about eight bills that Ms. Arroyo wants Congress to pass in order to raise one of Asia's lowest tax takes and trim some fat from the bloated bureaucracy. The legislature, now on a month-long break, is running short of time with another week-long recess due in November and an adjournment for Christmas on Dec. 20. "There is no doubt that there is a sense of urgency," Sen. Ralph Recto, the head of the Senate's ways and means committee, told Reuters. "The only problem is the type of tax bills that were submitted to Congress." Mr. Recto said he was confident that three of the bills would be passed this year: a tax amnesty, the long-awaited indexation to inflation of "sin" taxes on tobacco and alcohol, and a law improving accountability among infamously corrupt tax collectors. But he said there was strong opposition to other bills, including an extra tax on petroleum products that he described as "obnoxious" because it risked raising inflation and slowing growth.

Standard and Poor's said last week that it may reconsider its stable outlook on the Philippines, Asia's most active issuer of sovereign debt, if there was no action on the tax bills or a power rate hike this year. It may be beaten to a downgrade by rival Moody's, which is sending a team to the country next month and already has a negative outlook. Rising global interest rates and surging oil prices are adding to pressure on the oil importing nation. The stakes are high. Foreign investors have gambled on Ms. Arroyo's success since her May election win, helping to push Manila stocks up 25% on the year. "For the next three to six months, investors will be watching very closely," said Mike Moran, regional economist for Standard Chartered Bank. "They (the government) can't just rest on their laurels after one or two measures."

Analysts are particularly worried by the rapid rise in off-budget liabilities driven by loss-making state bodies, the biggest of which is National Power Corporation (Napocor). Government debt is around 80% of gross domestic product, but that figure balloons to nearly 140% when Napocor and other public sector debts are included. Analysts say Ms. Arroyo needs to push through the privatization of Napocor and secure rises in its power rates, which remain well below the true cost of producing electricity. That will be difficult politically in a country whose citizens have gotten used to subsidies. -- Reuters

Return to monthly power rate adjustments OK'd

Consumers having to deal with frequent fuel price hikes now have another cross to bear: a return to monthly adjustments in power rates. The Energy Regulatory Commission (ERC) has allowed distribution utilities to automatically increase or decrease their charges without prior approval, with the new rules to take effect next month. "We've taken into consideration the monthly recovery of power costs. In effect, this scraps the Generation Rate Adjustment Mechanism (GRAM) but there are conditions to be complied with," ERC chairman Rodolfo B. Albano told BusinessWorld.

The ERC earlier announced it was reviewing the GRAM to allow for monthly adjustments by state-run National Power Corporation (Napocor) and power distributors like the Manila Electric Company (Meralco). The GRAM allowed power firms to recover fluctuations in fuel prices and in the cost of power bought from independent power producers (IPPs) every three months. An application for an adjustment had to be filed with the ERC. Ironically, GRAM was established to replace the much-criticized Power Purchase Adjustment (PPA) scheme, which also allowed utilities to adjust rates without ERC approval. The automatic adjustments were meant to reflect fluctuations in generation costs due to movements in fuel prices and the exchange rate. Mr. Albano said that under the new guidelines, Napocor and distribution utilities can implement automatic rate adjustments to recover power costs without having to seek prior approval. However, the power firms will required to justify any adjustment. "Ten days before every month, they should have estimates of power costs. They should file a report before their implementation but they don't need to wait for approval from the ERC," Mr. Albano said. Power firms will be using an ERC pre-approved formula to compute the automatic adjustments.

The ERC will review whether the calculations are correct within a six-month period. If the Commission does not find any miscalculations, the adjustment is deemed reasonable. A refund will be ordered if the ERC rules that the adjustments were not fair. Meralco president Jesus P. Francisco said the decision to scrap the GRAM was a welcome move. "We're very happy with that decision because GRAM, which postpones passing on of costs in as much as six months, will be very burdensome to us distribution utilities," he said. Since Napocor rates are also increasing, it would be good to send correct signals to consumers as soon as possible, he said. "This move will allow faster recovery of adjustments in generation cost. This would be available to us within November," he said. Industry players who requested anonymity also welcomed the move. "This is good news because with GRAM, there was deferral [of cost recovery]. Every time there's an increase in generation costs, it could not be recovered right away," they said.

In Meralco's case, the GRAM was used to pass on fluctuations in generation charges from Napocor and IPPs. The ERC on August approved the utility's 17.37 centavo/kilowatt-hour GRAM application. But since Meralco has to pay its suppliers on a monthly basis, the power company said it had already advanced the difference. -- Bernardette S. Sto. Domingo

Central Bank holding up NSC sale?

The multi-billion peso sale of National Steel Corporation (NSC) to an Indian-owned steel firm remains in limbo as concerned parties have failed to secure a crucial certificate from the Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP). Sources said NSC creditor banks had committed to secure a certificate of eligibility from the BSP by October 8. The certificate entitles the transaction as eligible under the Special Purpose Vehicle (SPV) Law of 2002 to avail of tax perks. "The deadline lapsed, but concerned parties have not secured a certificate from the BSP," the sources said.

Under the asset purchase agreement between creditor banks and Indian steel firm Global Infrastructure Holdings Inc., the two groups were supposed to close the deal this month and have the certificate ready by October 8. Sources said the deal cannot push through without the crucial BSP certification. The BSP had earlier approved the PhP13.25-billion sale of the Iligan-based steel plant as an SPV transaction. Although Global Infrastructure reopened the plant in March, the closing of the deal has been delayed owing to the huge amount of money involved in the transaction and the failure of concerned parties to thresh out transaction issues.

A BSP official confirmed yesterday that the monetary authority has not issued the certificate, saying it is "still being processed." A law firm had asked the BSP not to certify the transaction, claiming that it is an illegal sale. In a letter to BSP Governor Rafael B. Buenaventura, the Roque and Butuyan Law offices said National Steel is not a qualified institution under the SPV law. Only the BSP, banks, financing firms, investment houses, government financial institutions, government corporations and quasi-banking institutions are qualified to avail of SPV perks, the law firm argued. While the creditor-banks have said they would handle the SPV application, the law partnership said it is NSC that would sell its assets to Global. The five-page letter was signed by lawyers Napoleon C. Reyes, Gary Sa. Mallari and Romel B. Bagares. "We are still waiting for the BSP's reply," Mr. Bagares yesterday said. -- Iris Cecilia C. Gonzales

October inflation seen to hit 7.5%

By JENNIFER A. NG, Reporter

Inflation for October may hit a range of 7%-7.5% due largely to the recent round of oil prices and expectations that oil prices will continue to increase in the coming weeks, a source from the National Economic and Development Authority (NEDA) said. A BusinessWorld source at the agency said that while inflationary pressures coming from food prices have somehow eased in the past months, oil prices would continue to put pressure on inflation. "We don't really see much pressure coming from food prices (for October)," the source said.

Oil companies on Wednesday increased the price of gasoline products, citing "substantial" under-recoveries that they need to recoup. Petron Corp., for one, has already hiked prices for diesel and kerosene by 35 centavos a liter. It noted, however, it would not make adjustments for gasoline until Monday. Prices of petroleum products sold locally continue to increase as oil prices in the international market continue to shoot up due largely to a tightening in supply. The unabated increases in oil prices starting June of this year have exerted much pressure on inflation, with oil prices causing the June inflation rate to rise by 1.5 percentage points.

The inflation rate for September was pegged at 6.9% as NEDA said core inflation, a measure of long-term inflationary pressure, rose 6.6% in September from 6.2% in August using the 1994 base year. This prompted the government to revise its inflation target of 4%-5% to 5.4% for the whole year. The holiday season looks bleak for local consumers as NEDA expects inflation for October to December to average 7% mainly because of the increase in oil prices.

Gov't won't rescue sugar producers from price fall

By ROMMER M. BALABA, Reporter and ROBERT LEONORAS

Agriculture Secretary Arthur C. Yap yesterday said he was not giving in to the request of sugar industry leaders for government to help in preventing the price of sugar from falling due to a supply glut. He said there was no way the government could continuously support the industry by buying its excess output considering the present state of public finances. "It is an endemic reality that they would be producing more, so I guess they have to diversify," Mr. Yap told reporters in yesterday's launch of the 11th Agrilink and Foodlink trade fair. The Confederation of Sugar Producers Associations has appealed to the Agriculture department for the National Food Authority (NFA) to buy the local sugar industry's excess inventory for the year.

In Bacolod City, Presidential Adviser for Western Visayas Rafael Coscolluela said sugar industry leaders would personally request President Gloria Macapagal Arroyo to intervene when they meet with her on October 19. He said industry leaders are apprehensive because the price of sugar, which is currently between PhP750 and PhP805 per 50-kilogram bag (Lkg), could drop again because of an excess supply of 450,000 metric tons. They want the NFA to absorb at least half a million tons of sugar, similar to what was done when the price of sugar dropped to as low as PhP670 per Lkg. early this year, Mr. Coscolluela said. The sugar industry is also asking for the resignation of James Ledesma of the Sugar Regulatory Administration. "In fact, a white paper was circulated and furnished the President. There are some groups in the industry who are unhappy with the current sugar price and felt that SRA is not adopting adequate measures to address the situation," Mr. Coscolluela said.

Under the set-up proposed by industry leaders, the Sugar Regulatory Administration would classify at least 10% of the 2.28 million metric ton production this year as "C" or reserve sugar and hold it in reserve. The NFA would consequently offer to buy this inventory, of which a PhP1-billion fund was suggested. "The millgate prices are expected to go down further as the volume of production increases when all the mills are already operating... the NFA program of buying "C" sugar helped stop the downward spiral of millgate prices and subsequently helped the sugar farmers," a portion of the Confed proposal said. Mr. Yap, however, said this proposal has yet to reach his office, even as he hinted he would first engage them into a closed-door discussion before making a decision.

'RP credit ratings not hinged on tax bills'

The threat of possible credit downgrade for the country should not be used to pressure Congress into enacting tax proposals from the Executive branch of government, a lawmaker said yesterday. In the next few weeks, representatives of credit ratings agencies are scheduled to visit the country reportedly to review the status of tax reforms that are seen to help the country ease its fiscal woes and, more specifically, rein in the budget deficit. Senate ways and means committee chairman Ralph G. Recto, however, said that the power rate increases to be granted by the Energy Regulatory Commission (ERC) to ease the debt of state-run National Power Corporation (Napocor) is an equally important factor for a positive credit rating. "They are equally if not more concerned about the ERC rate increases. The first increase of 98 centavos is only provisional which means that the rate increase is not yet assured. To recover the debt of Napocor what we need is [a] PhP2.30 increase. Those rate increases [are] already PhP80 billion or more. That is half the problem already with the PhP80 billion in new taxes. It is actually both that [ratings firms] are looking at," he said in an interview.

Fitch Ratings Services maintains a "BB" grade with a stable outlook for the country but it pointed out the need for key reform measures by next year. Moody's downgraded the country's credit rating in January to "Ba2" with a negative outlook from "Ba1" which means substantial credit risk. Mr. Recto added that sound investment policies to increase dollar earnings is another important factor for the credit rating agencies. "They are not saying that we should pass inflationary, regressive taxes. They are saying that we have to raise PhP80 billion in revenues but they are not saying from specific type of taxes which may lead to the economy slowing down. We are so much focused on the fiscal policy issue. We are forgetting trade and investment policies which are equally important in the eyes of creditors and investors," Mr. Recto said "We can be downgraded not because of fiscal policy alone. We can be downgraded if the peso depreciated, if we don't have the right investment priorities plan, if we don't have enough foreign exchange earnings," he added.

The lawmaker, however, expressed optimism that Congress will be able to pass four of the eight Malacañang-backed tax proposals within the year. These are the tax amnesty composed of the amnesty itself and the mandatory filing of SALN (statements of assets, liabilities and net worth), lateral attrition bill, sin taxes bill and fiscal incentives bill which is not only a revenue measure but an investment plan, Mr. Recto said. The four other revenues measures President Gloria Macapagal Arroyo wants Congress to pass are the gross income taxation, additional PhP2 per liter excise tax on petroleum products, franchise tax on telecommunication companies, and review of the value added tax. The eight revenue measures are expected to raise PhP83 billion annually.

Meanwhile, Mr. Rector said Congress would not enact a bill for the implementation of a general tax amnesty program that will raise revenues lower than PhP12 billion. He said the Department of Finance should revise the tax gain estimates from the proposed measure for it to get Congressional approval. "With the tax amnesty, the computations of the Department of Finance are very conservative. I don't agree with their computations. I think we can generate a low of PhP15 billion to a high of PhP75 billion from the tax amnesty," Mr. Recto said in an interview. "If it is anything less than PhP12 billion, it is not worth the exercise with all the moral hazards involved. They have not been able to adequately defend their estimates," he added.

The administration lawmaker noted that based on the data from the National Tax Research Center, PhP250 billion is lost annually in nonpayment of income taxes. Mr. Recto added that in ten years' time, the lost taxes could hit PhP2.5 trillion. The application of a 3% amnesty rate on this figure would mean PhP75 million in revenues, he said. Finance Undersecretary Emmanuel P. Bonoan has said the imposition of a 3% tax amnesty rate will raise a low estimate of PhP8 billion in revenues, medium estimate of PhP13.86 billion in revenues and high estimate of PhP20.4 billion in revenues. -- Carina I. Roncesvalles

Bill seeking tax exemption for workers worries DoF

The Department of Finance has cautioned lawmakers against passing the proposal of Partido ng Manggagawa Partylist Rep. Renato B. Magtubo to exempt from income taxes workers whose daily earnings do not exceed PhP600. If lawmakers give in to the proposal, they will be exempting from taxation "a lot of people," Finance Undersecretary Emmanuel P. Bonoan said. Even the Bureau of Internal Revenue (BIR) opposed it because this would undermine tax collection. "It is a revenue loss measure. I thought we would like to raise revenues because of the fiscal crisis," BIR Deputy Commissioner Kim J. Henares told reporters.

House Bill 2985 filed by Mr. Magtubo seeks to "exempt all workers, whose total annual compensation does not exceed PhP219,000 from income taxes... and logically from the witholding of tax upon all income less than PhP219,000." Mr. Magtubo arrived at the amount by multiplying the current estimated cost of living for a family of six, which is PhP600 by 30 days and multiplying the product by 365 days. "This proposal will definitely cost the government forgone revenues annually but where this concern comes into a balance against ensuring workers' welfare, premium should undoubtedly be placed on the latter," the explanatory note to the bill said. The bill added "opportunity loss in revenues can be more than made up for by more efficiency in terms of cost of forms, manhours and personnel which can be turned to better account in the tax collection from so-called large taxpayers who acount for more than half of Bureau of Internal Revenue's aggregate intake. Much of the tax leakage of PhP250 billion is traceable to inefficiencies in the tax collection efforrt from among the large taxpayers." Labor groups have sought additional economic relief from the government in the form of tax exemptions given the fact that regional wage boards are unlikely to grant any request for a wage increase at this point. -- Karen L. Lema

General's bank accounts, vehicles held

... pursuant to Anti-Money Laundering Law

The Court of Appeals (CA) 12^th division yesterday ordered the freezing of the bank accounts and holding of several vehicles of Maj. Gen. Carlos F. Garcia, the former Armed Forces of the Philippines (AFP) comptroller who was earlier suspended for unexplained wealth. Marina L. Buzon, CA associate justice, penned a nine-page resolution directing heads of financial institutions to freeze the accounts specified in the Anti-Money Laundering Council (AMLC) request. The freeze order on the accounts in the Land Bank of the Philippines (LandBank), Allied Banking Corp., Armed Forces of the Philippines Savings and Loan Association, Inc. (AFPSLAI), Banco de Oro, Bank of the Philippine Islands (BPI), United Coconut Planters Bank (UCPB), and Planters Development Bank is good for 20 days. In an October 13 pleading, the Philippine government represented by the AMLC asked the appellate court to issue a freeze order covering accounts in eight different banks and vehicles registered under the name of his sons, Ian Carl and Carlos, and his wife, Clarita.

PROBABLE CAUSE

"Based on the gathered evidence and the initial investigations, there is reasonable ground to believe that probable cause exists that the subject monetary instruments and properties are related to the respondent's [Mr. Garcia] acts constituting violation of the Anti-Graft and Corrupt Practices Act and Plunder," the 34-page application said. According to the AMLC, in the year 2003, there was a blatant discrepancy between the amounts of money his family transacted and Mr. Garcia's declared assets and liabilities.

In his Statements of Assets, Liabilities and Networth, Mr. Garcia's net worth amounted to PhP1.3 million, but the monetary transactions he and his family engaged in totaled to approximately PhP185.5 million. The PhP185.5 million does not yet include the value of Mr. Garcia's New York condominium, the vehicles registered in the names of the members of his family, his AFPSLAI investment, Ohio residence and funds in the bank. "The only conclusion that can be reached by mere mathematical calculation is the fact that he has approximately PhP185.5 million at his disposal, an amount way beyond his legitimate shares and allowances as an AFP general," AMLC said.

PRIME NEW YORK PROPERTIES

On Dec. 19, 2003, US authorities discovered $100,000 from Ian Carl and Juan Paulo, sons of Mr. Garcia. The money was found in 10 envelopes recovered from the pockets of the jackets and shoes of the brothers. Any foreign currency in excess of $10,000 taken out of the country should be declared. The Garcias made no such declaration. In an attempt to recover the seized $100,000, the Garcias said the money would be used to purchase a condominium unit at Trump Park Avenue Condominium, 502 Park Avenue, New York for $765,000 or PhP42.8 million. The purchase agreement was consummated sometime between January and March 2004.

Within this period, the investigation of AMLC showed that Mr. Garcia made three outward dollar remittances with his wife as the beneficiary. The remittances, totaling $886,957.15 or PhP50 million, were made on Jan. 29 ($357,435.15) and Feb. 3 ($265,695.03) and Feb. 20 ($ 263,826.97). Also, Currency Monetary Instruments Reports filed with the US Customs and Border Patrol stated that from 2002 to 2004, the Garcias have brought to the US a total of $660,230 or PhP37 million. Mr. Garcia has PhP45 million in one bank alone, the AMLC said. In the United States, officials found that Mr. Garcia has two other real estate properties aside from the Trump Park Avenue condominium in New York; apartment 2202 at 222 East 34th Street also in New York with an estimated value of $750,000, and a property in Ohio at 625 Vancouver Drive, Westerville. The value of the Ohio property is undetermined.

LEGAL COMPENSATION

According to the records, for the years 2000 and 2002 the gross compensation income of Mr. Garcia were PhP635,695.29 and PhP965,708.47 respectively. Aside from his basic salary of PhP170,362 in 2001 and PhP198,708 in 2002, Mr. Garcia as a trustee of AFPSLAI received allowances of PhP460,333 in 2000 and PhP767,000 in 2002. With regards to Mr. Garcia's AFPSLAI investment, it had a balance of PhP6.5 million, as of April 27, 2004. It earned PhP5.8 million in dividends from June 2000 until December 2003. Mr. Garcia's wife Clarita and three sons Ian Carl, Juan Paulo and Timothy Mark do not have any known or documented income. Mrs. Garcia and Ian Carl are stockholders and directors of two family corporations, IJT Mango Orchard and IJT Katamnan Corp. Audited financial statements of IJT show a net loss of PhP1.3 million for the fiscal year 2003.

SMOKING GUN

In a sworn statement of Mrs. Garcia submitted to US special agent Matthew C. Van Dyke, her family's income was from "four sources: two corporations, a day care center, her husband's job as a two-star general in the Philippines. The family has 80% interest in two corporations and earn a monthly income equivalent to $8,000. The day care school brings in more money, perhaps $10,000 per month." In the statement, Mrs. Garcia also said her husband "receives gifts and gratitude money from several Philippine companies that are awarded military contacts to build roads, bridges and military housing." AMLC said Mrs. Garcia in effect admitted that the salary of her husband was not sufficient to cover the seized $100,000.

BANK ACCOUNTS GALORE

In another letter to Mr. Van Dyke, Mrs. Garcia said the money came from two time deposits with Allied Bank, one for $75,000 and the other for US $30,000. The AMLC is seeking to freeze five accounts in the LandBank Greenhills Branch. These are dollar savings No. 0554-0017-00 under the name Carlos F. Garcia; dollar time deposit No. 0559-0023-13 under Carlos F. Garcia or Juan Paolo Garcia; dollar time deposit No. 0559-0023-48 under Carlos F. Garcia or Clarita Garcia; dollar time deposit No. 0559-0023-30 under Carlos F. Garcia or Timothy Mark Garcia; ESP No. 0551-0419-64 under Carlos F. Garcia. Mr. Garcia has another account in LandBank Camp Aguinaldo Branch Regular No. 1671-0407-55.

The Garcias have 12 accounts in Allied Bank: Clarita D. Garcia -- Philippine Peso Account No. 3200115800001583004197; Clarita D. Garcia -- Philippine Peso Account No. 3200115800001580017693; Clarita D. Garcia and/or Timothy Mark and/or Ian Carl -- Philippine Peso Account No. 3200115800001585004584; Clarita D. Garcia -- Philippine Peso Account No. 3200115400001543008444; Clarita D. Garcia -- Philippine Peso Account No. 3200115400001540061707; Clarita D. Garcia -- US Dollar Account No. 3200215400000001548001084; Clarita D. Garcia and/or Juan Paulo -- US dollar Account No. 3200215400000001548001378; Clarita D. Garcia and/or Timothy Mark, Ian Carl -- US Dollar Account No. 3200215400000001548001386; Clarita D. Garcia -- US Dollar Account No. 3200215400000001548001394; Clarita D. Garcia -- US Dollar Account No. 3200215400000001548001505; Clarita D. Garcia and/or Timothy Mark, Ian Carl -- US Dollar Account No. 3200215400000001548001491.

In the AFPSLAI, the Garcia couple has two accounts each. Mrs. Garcia has Accounts No. 01-352947-7 and No. 02-010570-4, while Mr. Garcia's accounts are No. 01-019009-6 and No. 02-008173-2. In Banco de Oro, they have Account No. 1138003-1246 in the name of Clarita D. Garcia and/or Timothy Mark, Ian Carl Garcia There are also two accounts in BPI: US Dollar Account No. 0200293000000-9304002546 under Clarita D. Garcia and/or Ian Carl, Juan Paulo, Timothy Mark; and US Dollar Account No. 020021070000000-1074010985 under Clarita D. Garcia and/or Ian Carl, Juan Paulo, Timothy Mark .

In the United Coconut Planters Bank, the accounts are No. 1161236755 and No. 1161235880 under Clarita D. Garcia; No. 1161236780, No. 1161235775 and No. 1161235787 under Timothy Mark Garcia; Philippine Peso Account No. 1161236767, No. 1161235738, and No. 1161235740 under Ian Carl Garcia.

In Planters Development Bank the accounts are all US dollar accounts. They are Account No. 009860001459, No. 009860001460, No. 009860001461, No. 001660007001, and No. 001660007003. The vehicles included in the requested freeze order are: a 1995 Toyota truck, a 1995 Isuzu Elf truck, a 2001 Honda CRV, all under the name of Ian Carl; and a 1997 Honda Civic Car, a 1997 Mitsubishi L300 van, a 2001 Toyota RAV4, a 1998 Toyota Hilux, and a 1983 Toyota car, all under the names of Carlos and Clarita.

TOO SICK TO FACE PROBERS?

Members of the House of Representatives committees on national defense and on banks and financial intermediaries went to the University of Sto. Tomas (UST) along España, Manila yesterday as planned, but Mr. Garcia was reportedly too sick to meet them. In a letter read by committee chairman Roilo S. Golez of Parañaque City (southern Metro Manila), Mr. Garcia said he regretted not being able to attend yesterday afternoon's continuation of the investigation called by the committees on national defense and on banks and financial intermediaries, as he had not yet fully recovered. The risk of complications arising from attending the investigation, he said, was "significant." He added he was still willing to be questioned by members of the committee, but preferably with him not leaving his hospital bed and with his attending physician on hand.

SPECIAL TREATMENT

Acting chief of staff, Vice-Admiral Ariston V. de los Reyes, who was tasked to make sure Mr. Garcia would be available yesterday, said he went up to Mr. Garcia's room at 1:30 p.m. "Mr. Garcia was advised by the hospital not to go down because of his present condition." Mr. Golez castigated Mr. De los Reyes for failing to transfer Mr. Garcia from the UST Hospital, a private hospital, to the V. Luna General Hospital, a military hospital, as should be since Mr. Garcia was technically under arrest after the Armed Forces of the Philippines (AFP) decided to instigate court martial proceedings against him. Mr. Golez said the AFP's handling of Mr. Garcia reeked of "special protection." Mr. De los Reyes explained that he had ordered the AFP Surgeon General, Col. Rafael Regino to verify the condition of Mr. Garcia on Tuesday, and to coordinate his transfer to V. Luna in compliance with the AFP's order of arrest. But Mr. Regino was not able to examine Mr. Garcia, as he was not allowed to by Mr. Garcia himself.

Bukidnon (Northern Mindanao) Rep. Teofisto D.L. Guingona III thereafter moved that the chief of staff, or the acting chief of staff, take "physical possession" of Mr. Garcia and "cause his transfer to V. Lunaotherwise the chief of staff or acting chief of staff will be held in contempt." Muntinlupa (southern Metro Manila) Rep. Rozzano Rufino B. Biazon suggested that the committees hold their investigation through video-conferencing instead. "We might cause a lot of stress with the forcible removal of Mr. Garcia," he said. "I am not prepared to be responsible for whatever will happen to him if we do this." In the end, permission was granted by the UST Hospital medical director, Dr. Rolando E. Cabatu, for Mr. Regino to examine Mr. Garcia but with Mr. Garcia's attending physician, Dr. Ivan N. Villespin, on hand. The examination was to determine whether Mr. Garcia was fit to appear before the two committees and whether he was fit to be transferred to V. Luna.

HIGH BLOOD PRESSURE

Meeting reporters outside the CME (Continuing Medical Education) Auditorium of the UST College of Medicine, Mr. Villespin said Mr. Garcia's condition worsened shortly before 1:30 p.m. but members of the committee chose to ignore this. "Dr. Cabatu called me to see Mr. Garcia as something had happened. I went up and he was very red in the face. His blood pressure had gone up to 150 over 90," he said. He also doubted whether Mr. Garcia could withstand the "rigor" of facing the committees. "I was ready to discharge him this week, but this acute event happened," he said. "It is very dangerous. Mr. Garcia suffers from metabolic syndrome, which arose from three conditions: obesity, high level of bad cholesterol and hypertension. These three increases the risk for a heart attack. In addition, Mr. Garcia is suffering from obstructive sleep apnea. This plus metabolic syndrome double the risk of a stroke."

'NO UNREST'

In a related development, President Gloria Macapagal-Arroyo yesterday shrugged off talks of civil unrest and destabilization attempts supposedly stemming from charges of high-level corruption in the military. "We are dismissing outright any suggestions of civil unrest. The government has acted firmly and decisively across the whole range of vital issues," the President said in a statement. The President expressed confidence that plots to destabilize the government would fail, arguing that the government has been continuously working to address the legitimate grievances of soldiers. Carolina Hernandez, the Presidential Assistant on the Implementation of the Recommendations of the Feliciano Commission, yesterday reported that the government had made significant strides to address the various issues plaguing the military. Ms. Hernandez said a grievance board has been formed that allows lower-ranked soldiers to air their complaints against their superiors. She added that the tenure of military finance, procurement, logistics, and comptrollership officers have now been limited to three years. -- Ma. Elisa P. Osorio, Judy T. Gulane and J. O. Valisno

Market traders warned versus spurious investors

By ROULEE JANE F. CALAYAG, Reporter

The Philippine Stock Exchange (PSE) has warned traders against persons posing as investors and transacting with spurious documents to take advantage of the bullish outlook for the market. In a memoradum, PSE president Francis Lim reminded all brokers of the "Know Your Customer" or KYC rule, urging them to take extra measures to establish the true identities of their clients. "The exchange has been informed that there are persons who have been dealing with unsuspecting broker firms with the use of spurious transaction documents," said Mr. Lim in his memorandum. No particular incident was cited but Mr. Lim said it was crucial that broker firms protect themselves from such suspicious persons by double-checking official identification cards presented, and verifying addresses and other contact details. "We understand that taking the suggested precautionary measures may cause some inconvenience to you. However, such measures are necessary to protect the interest of both the brokers and the investing public," said Mr. Lim. He also asked for their support by reporting suspicious incidents immediately to the Market Regulatory Group, formerly the Compliance and Surveillance Group.

Ron Rodrigo, senior analyst at Accord Securities, Inc., said the stock market management may have issued the reminder to tighten the implementation of the KYC rule to "avoid what happened during the BW Resources era." "It is a reminder because most clients may be buying beyond their limits," said Mr. Rodrigo. The Philippine bourse is still recovering after the BW Resources fiasco in the year 2000 threatened to crash the market due to alleged price manipulation and insider trading by Dante Ang, a close friend of former President Joseph Estrada.

A stock exchange committee then found Mr. Ang to have opened numerous accounts with stock brokerages to buy and sell BW shares. By doing so, he created a scenario where there was an overwhelming demand for BW shares, giving him leeway to manipulate prices. However, it backfired on him and the Philippine bourse when he ran out of BW shares to cover for other transactions. "The market is more volatile now than two years ago. It is back to the levels [observed during] 1996 to 1998," said Mr. Rodrigo. The resurgence of a bull run this quarter projected by various research firms may have prompted some individuals to dupe some brokerage firms to cash in on the market's gains.

Central bank chief lists foreign investor concerns

Foreign investors are waiting for concrete results from the Macapagal Arroyo administration's efforts to solve the country's fiscal woes, said Bangko Sentral Governor Rafael B. Buenaventura yesterday. Mr. Buenaventura led the US leg of the government's recent international roadshow. "I would say the roadshow was very positive, except that they were looking for milestones," he told reporters. Immediately after the roadshow, government officials said investors were dismayed over the latest $1-billion bond issuance and even threatened to snub the country's future borrowings. The central bank chief, however, said investors' main concern were on the fiscal crisis. He said they were quite happy that the government has finally recognized the problem.

Economic managers led by Mr. Buenaventura, Finance Secretary Juanita D. Amatong and Trade and Industry Secretary Cesar V. Purisima went on a roadshow in Asia, Europe and the United States to convince businessmen to invest in the Philippines. Foreign investors stressed the need to pass new tax measures to help the government balance its budget by 2009 and upgrade infrastructure and social services that would help improve business conditions in the country. The Macapagal Arroyo administration is asking Congress to pass eight tax measures that would raise PhP83 billion yearly.

The measures include a two-step increase in the value-added tax rate, a tax on telecommunications, the rationalization of fiscal incentives, higher excise on sin products and a measure that would grant a general tax amnesty. He said investors zeroed in on two concerns such as the need to fix the fiscal problem and the power sector, particularly the money-losing National Power Corp. (Napocor). "All the reforms are important but two are most urgent," he quoted investors as saying. He said investors were relieved to hear of the Energy Regulatory Commission's decision to grant Napocor a 98-centavo rate increase. At the same time, he said investors are waiting for the approval of the second tranche of the PhP1.87-per-kilowatt-hour tariff increase. Mr. Buenaventura quoted investors as saying that the privatization of Napocor would help ease the pressure on the government.

Aside from concerns over the country's fragile fiscal position and the power sector, investors were said to have criticized the government's $1 billion bond issuance. Mr. Buenaventura simply said the decision was a "judgement call" on the part of the Department of Finance. -- Iris Cecilia C. Gonzales

SM Prime to give cash payout worth PhP5 billion

Mall developer SM Prime Holdings, Inc. yesterday declared a special cash dividend of PhP0.50 per share or a total of almost PhP5 billion. In a statement, the country's largest shopping mall developer and operator said a special cash dividend of PhP4.9 billion, equivalent to 50% of the par value or PhP0.50 per share, will be paid on or before Dec. 1 to stockholders on record as of Nov. 12. The special cash dividend, approved by the board last Oct. 13, brings SM Prime's total dividend payout in 2004 to PhP6.4 billion with payout ratio of 154% against 2003 net income. In April, the firm declared a PhP0.15 per share cash dividend amounting to PhP1.5 billion. "We would like to keep our stakeholders happy by maintaining good shareholder value," said Jose T. Sio, senior vice-president for finance.

The firm which develops and operates the leading shopping malls in the country has 18 operational malls across the Philippines. It will open SM City Batangas in Batangas City next month. The newest addition to SM malls will have a gross floor area of 70,820 square meters. Several existing malls are undergoing renovations and improvements. These include construction of additional and improvement of existing taxi and jeepney bays, exterior façade improvements, pedestrian over- and underpasses, and additional parking spaces. SM Prime's total gross floor area this year will total 2.5 million square meters. -- R. J. F. Calayag

Destiny Cable-Global Cable merger gets SEC clearance

The Securities and Exchange Commission (SEC) has cleared the merger of cable companies Destiny Cable, Inc. and Global Cable, Inc., allowing for more efficient operations of the surviving company. In a resolution approved by the commission en banc yesterday, the SEC said the merger was approved subject to the condition that Destiny, the surviving company, will disclose for a period of one year the effect of the merger on its financial condition. "All the documentary requirements like the articles of merger and plan of merger have been submitted. Evaluation of said documents showed that they were executed in conformity with the provisions of the Corporation Code," the SEC said.

The two companies said the merger would be "desirable and advantageous" since it will result in economies of scale and efficiency of operations. They said the merger will lead to enhancement of businesses and will allow the procurement of financing and credit facilities under "more favorable terms." Under the plan of merger, all the assets and liabilities of Global Cable will be transferred to and assumed by Destiny. "No new shares shall be issued from the unissued capital stock of the surviving company nor shall it undertake an increase in its authorized capital stock," the SEC said. It said no shares of stock will be issued by Destiny to Global Cable since the company to be absorbed is insolvent. "The rights of the creditors of The Global Cable, Inc. will be impaired by the merger and in this connection, (submitted) are the written consent to the said merger of its creditors," the SEC said.

The commission said Global Cable has already settled PhP660,501 out of PhP84.535 million in total liabilities. It added that 99.97% of the company's creditors, holding PhP83.849 million in debts, consented to the merger. Destiny Cable was registered on Jan. 23, 1995 to provide cable or community antennae television system networks and multimedia training systems and other related services in the Philippines and other countries and territories. It is a major company of businesswoman Elena S. Lim's Solid Group, Inc. As of October 2003, the company had a 15% market share. It had said it aims to reach 25% with its merger with Global Cable.

Lopez company Beyond Cable Holdings, Inc. had earlier wooed Destiny to merge with it, but the company refused, saying the merger would create a monopoly in the Metro Manila cable TV market. Global Cable was established in 1993 to run radio and television broadcasting stations and establish telephone and cable on a commercial basis. It has managed to survive despite the presence of bigger players. Global Cable has operations in Manila, Makati, Pasay, Mandaluyong and San Juan. The firm has a tie-up with Taiwan-based cable service provider and cable program provider and content distributor Eastern Multimedia. In October 2003, the two companies merged, allowing for the expansion of their data business and cable operations. Earlier reports said with the merger, Destiny would be able to concentrate on the data business, while Global Cable would take care of the cable business. -- Jennee Grace U. Rubrico

Energy chief scores Transco bidders for gripes on auction

The Energy department yesterday justified the government's move to terminate discussions with investors for the sale of the National Transmission Corp. (Transco), saying the government has the right to reject any offer and modify the privatization mode. In a statement, Energy Secretary Vincent S. Perez, Jr. said investor groups involved in the Transco discussions knew the government reserves the right to reject any or all the term sheets submitted, and to modify or change any aspect of the privatization process at any time. "The government had always been transparent with interested investors when it asked investors to submit nonbinding term sheets. It was also repeatedly made clear the progress of discussions with interested groups would depend on the evaluation of the acceptability of the term sheets, and, moreover, that the price offers would not be the sole factor to be considered in the evaluation as the proposals would be compared in terms of net expected value for government," Mr. Perez said.

The consortium that offered the highest price to operate Transco at $3.4 billion earlier said the government was not transparent in its decisions. The group, led by the Electricity Generating Authority of Thailand (Egat), with Thai and Filipino investors as members, said the four consortia were supposed to clarify the bids they submitted to Power Sector Assets and Liabilities Management Corp. (PSALM) on Wednesday. PSALM is the government entity overseeing the privatization of power generation and transmission assets. Mr. Perez, however, announced Tuesday that PSALM terminated the negotiations with the four prospective concessionaires even before any clarifications were made. But Mr. Perez said the investor groups may still participate in the public bidding for the state-run firm and that their time and effort during discussions with the government are "appreciated." "The investors' serious interest in Transco was reflected in their submissions, which were, as I stated before, highly unique and complex. I cannot overemphasize the government's appreciation of the investors' efforts in the discussions," the Energy chief said. "It is in the best interest of all concerned to award the concession through bidding, considering the major differences in the term sheets submitted," he added.

Economists, for their part, said the public bidding will create a more transparent and competitive environment among interested bidders. "The privatization of Transco operations through bidding would also more fully satisfy expectations of transparency from all sectors," Mr. Perez said. The government, through PSALM was previously in discussions with interested investors who submitted term sheets on Aug. 6 in response to a publicized invitation from PSALM. -- Bernardette S. Sto. Domingo

Gov't blacklists 235 construction firms

A total of 235 construction firms are banned from participating in bids for public projects, of which 151 are also not allowed to transact business with both the government and the private sector, the Department of Trade and Industry (DTI) yesterday said. The names of the banned contractors were released to the media yesterday by the Construction Industry Authority of the Philippines (CIAP), an attached agency of the DTI.

Trade Undersecretary for Consumer Welfare Adrian S. Cristobal, Jr. said most of the contractors were blacklisted by the government for various grounds such as "abandonment of the project, or too much delay caused by the constructor in contrast to the agreed period for the completion of the project." The DTI said the blacklist, updated as of Sept. 30, was released "to guide government agencies in the eligibility screening of construction firms for the bidding and awarding of construction project contracts." It explained that 151 of the 235 construction firms had their licenses denied, revoked, or suspended by the Philippine Contractors Accreditation Board for failure to comply with Republic Act 4566 or the Contractors' License Law.

Authorities noted that most of the firms banned misrepresented their sustaining technical employees, which meant that purported full-time and regular technical employees were simultaneously employed by more than one construction company. These companies will only be removed from the blacklist once they have served their suspension. Kathryn T. dela Cruz, CIAP director, said contractors without licenses from the contractors' accreditation board cannot participate in the pre-qualification, bidding and undertaking of any government and private project for a certain period. But contractors banned by government agencies but still possess a valid license can still do businesses with the private sector. Under the CIAP list, 84 firms have licenses but committed a number of offenses under the "Uniform Guidelines for Blacklisting Constructors Involved in Public Construction." "When these contractors have fulfilled their obligations with the government agency which blacklisted them, then the agency will issue a delisting order and they will be taken out of the blacklist," Ms. dela Cruz said. -- F. F. Salvosa II

Third liners lead markets' climb

By ROULEE JANE F. CALAYAG, Reporter

Philippine share prices sustained their upward momentum yesterday, building on the market's earlier gains. Most of the trading was dominated by third liners. "The market tried to challenge the 1,800 level after it bounced back from the support level of 1,780. It will likely hover at this level," said Rommel Macapagal, chairman, Westlink Global Equities, Inc. Mr. Macapagal asserted that the market remained resilient despite lingering concerns over oil price increases and other economic issues -- the usual suspects behind a downturn.

DOW JONES

"The market was resilient on its own despite the peso at its all-time low. However, the performance of the Dow Jones could affect the local market," said Mr. Macapagal. The Dow Jones Industrial Average was down 74.85 or 0.74% to 10,002.33. The Nasdaq also went down by 4.64 or 0.24% to 1,920.53. The Standard & Poor's (S&P) 500 was not spared. It bled 8.19 or 0.73% at 1,113.65. In contrast, trading at the Philippine bourse was healthy. The buying spree continued as an optimistic fervor ruled the market, sending the indices upward, except for banks and financial services.

BULLISH

The Philippine Stock Exchange composite index (Phisix) inched a few knots higher, up 6.57 to 1,797.30. It eased from its opening level of 1,798.78. Its intra-day low was at 1,793.17 while its highest level for the session was 1,806.06. The banks and financial services counter dipped 1.06 to 502.21. Property sealed its early gains by posting another round of profits, rallying 16.04 to 640.38. Mining recovered and cornered 10.36 to maneuver a close at 1,926.96. The commercial-industrial also reversed its direction, gaining 2.60 at 2,849.39. Oil was little changed, up 0.01 at 1.74. The all-shares continued its climb, higher by 4.22 at 1,126.46.

All indicators were pointing to a resurgence of a bullish sentiment in the market with advancers gaining some lead over decliners at 33-30 but issues that clung to their previous levels totalled 51. Trading value shrank to only P979 million from over a billion the other day. The number of shares traded decreased to 2.3 billion. Total trades also went down to 3,785. The sum of shares for the cross transactions at the main board was 517 million, equivalent to PhP340 million. Foreign participation, a closely monitored stock market indicator, was strong. Total foreign buying totalled PhP479.4 million, almost twice the total foreign selling of Ph225.3 million. This brought net foreign buying to P254.1 million. Philippine Telegraph & Telephone Corp. (PT&T) led gainers, up 12.5% at PhP0.45.

SM PRIME

Except for SM Prime Holdings, Inc. (SMPH) of retail tycoon Henry Sy, Sr., all the other gainers were third-liner issues. SMPH was the fourth top gainer, trading 6.2 million shares at PhP7.10 for PhP43.8 million. It was also the fourth among the top 20 actively traded stocks, cornering a market share of 4.47%. The company's board of directors approved a special cash dividend of 50% of the par value or PhP0.50 per share totaling close to PhP5 billion in favor of stockholders on record as of Nov. 12. The dividend will be paid on or before Dec. 1. This brings the company's total dividend payout for the year at PhP6 billion. It paid out dividends worth PhP1 billion last April. The special cash dividend lent inspiration to the market as it boosted the sentiment of investors. "The special cash dividend was an incentive for buyers so the stock rose during trading," explained Mr. Macapagal.

MOST ACTIVE STOCKS

Metro Pacific Corp., a subsidiary of Hong Kong-based First Pacific Corp., outranked other issues as it recorded the most number of transactions during the session. It slipped to its previous level of PhP0.46, down PhP0.01, after the sale of 930.2 million common shares or 5% of First Pacific's stake in Metro Pacific was completed last Wednesday. The sale accounted for 41.26% of the market. Philippine Long Distance Telephone Co. (PLDT), another First Pacific subsidiary, cornered 15.48% of the market. It was unchanged at PhP1,450 with 104,000 shares worth PhP151.6 million. Its American Depositary Receipts in New York was up $0.11 or 0.43% at $25.90.

The Gokongweis' Digital Telecommunications Philippines, Inc. was the third most active. Interest in the stock was still buoyed by excitement over the prospect of Hutchison Whampoa's signing a deal with the company despite official statements denying any such deal. It closed lower at PhP1.36. International Container Terminal Services, Inc. rounded off the top five. It rose at PhP5.30. Other active stocks were Ayala units Bank of the Philippine Islands, Globe Telecom and Ayala Land, Inc. ABS-CBN Holdings Corp. Philippine Depositary Receipts were unchanged at PhP20.75. PLDT's mobile phone subsidiary Pilipino Telephone Corp. was also unchanged at PhP2.50.

Meanwhile, Semirara Mining Corp. said a regional trial court yesterday granted its request for a temporary restraining order on a case filed against it by HGL Corp. Grand Plaza declared a cash dividend of PhP0.20 per share to stockholders of record as of Nov. 3.