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By Yvonne T. Chua and Luz Rimban Vera Files
Editor’s note: Part one reported that
the Quedancor Swine Program was like the billion-peso fertilizer
fund scam that diverted money to administration’s 2004 campaign.
Part two discussed how Quedancor was made into a so-called
“milking cow,” lending money to politicians and other government
officials.
Last of three parts
Two months before the May 2004 elections, the
Quedan and Rural Credit Guarantee Corp. (Quedancor) obtained a
P5-billion syndicated loan from Equitable PCIBank and Land Bank of
the Philippines but only needed at most a fifth of the money it
borrowed.
It also presented “bloated figures” of its
operations, including an “unachievable” repayment fee, in order
to get the loan. And it had been offered better terms by the two
banks but ignored or changed these. The terms were so
disadvantageous that Quedancor got less than half of P5 billion.
The loan is one of the main reasons Quedancor,
the credit guarantee arm of the Department of Agriculture, is now in
financial distress.
An internal audit on the beleaguered state firm,
interviews with its officials and employees, and documents obtained
by VERA Files show that when Quedancor negotiated with the banks, it
was already in the red because of its various failed lending
programs.
It had also suddenly expanded operations under
the Arroyo administration, creating regional, district and extension
offices. Mass hiring caused the Quedancor bureaucracy to balloon
from 520 in 2001 to 1,721 in 2004.
The firm was scouring for money to finance
pending loan applications of up to P759 million, but there was no
firm assurance of fresh funds coming from the national government,
its traditional source of money.
New fund sources
It was at this point that the 11-member
Quedancor board, chaired by then Agriculture Secretary Luis Lorenzo,
approved a proposal to tap the capital market, where long-term
funds, such as bonds and stocks, are traded.
Quedancor, however, “availed [itself] of [a]
much bigger amount compared to the needed funds to finance its
losing operations,” revealed the internal audit done last year.
The audit report, copies of which have been
submitted to the Quedancor board, Malacañang, the Office of the
Ombudsman and the Commission on Audit, said the state corporation
only needed from P491 million to P946 million, and not P5 billion,
to cover its shortfall.
The Quedancor board appeared to know just how
much—or how little—it needed to borrow at the time. The board
issued Resolution 125 on February 3, 2004 limiting the
corporation’s direct borrowings to P1.5 billion.
But in a strange twist one month later, the
board issued another resolution—Resolution 194—this time raising
the ceiling to P10 billion “at any given time” to be borrowed
from the banks listed in Resolution 125 and “other banks/financial
institutions willing to negotiate with Quedancor.”
Quedancor officials said the resolution enabled
the state firm to not only enter into the P5-billion loan agreement,
but also to borrow more from Land Bank and transact with Equitable
PCIBank (now merged with Banco de Oro).
The February memo limited borrowings to P250
million from the Development Bank of the Philippines, P800 million
from Land Bank, P50 million from Manilabank, P200 million from
Allied Bank and P200 million from other banks.
The board’s flip-flopping led internal
auditors to conclude that “Quendancor’s decision to avail
[itself] of funds from the capital market was unfounded and
unwarranted due to the absence of a corporate plan and a sound
financial forecast.”
To convince the board to approve the P5-billion
loan from the two banks, Quedancor executives led by President
Nelson Buenaflor presented what the internal audit described as
“very unrealistic and operational financial operations.”
Projections prepared by Senior Vice President
Niels Patrick Riconalla assured the board that Quedancor could repay
the loan and even earn income from it, according to the internal
audit.
But auditors said this was because top
management based its projections on a lower interest rate—9.15
percent—and did not take into account other expenses, in
particular the upfront arranger’s fees, taxes, and legal and
trustee fees included in the loan.
In reality, the interest rate alone reached
nearly 12 percent, equivalent to the rate of the 91-day Treasury
Bill or government bond plus an extra 2.75 percent, the auditors
said.
Quedancor executives also reported that the
corporation was recovering 95 percent of loans it had given out in
its various programs, when its actual repayment performance,
according to internal auditors, was less than half.
Quedancor’s management submitted the same
repayment figures to Equitable PCIBank and Land Bank obviously to
entice them to invest in agriculture, which is known to be a
high-risk sector, the auditors said.
Financial advisers
What puzzled internal auditors was why the
Quedancor board and management settled for the P5-billion loan when
they had earlier gotten better offers separately from Equitable
PCIBank and Land Bank.
One key to the puzzle is ONL Consultants, a
private group that acted as Quedancor’s financial adviser in
negotiating for the loans. Records show that Buenaflor, Riconalla
and Senior Vice President for Finance Leticia Santos had been
meeting with ONL owners, including Norberto Ong, since September
2003, months before ONL and the banks submitted their proposals in
2004.
On January 23, 2004, Equitable PCIBank and ONL
proposed a P2-billion loan to be given in two releases. The interest
rate would be floating, equivalent to the 91-Treasury Bill rate plus
a spread of 2 percent for the first release. The spread would be
2.25 percent for the second release.
The interest would be secured through a
guarantee from the Trade and Investment Development Corp. of the
Philippines or PhilEXIM.
On February 10, 2004, Land Bank and ONL
submitted the same terms also for a P2-billion loan.
Land Bank deal
But the picture drastically changed on March 1,
2004. Instead of entertaining the separate offers, Quedancor started
negotiating with the Land Bank and ONL for the P5-billion syndicated
loan.
Agriculture Undersecretary Jocelyn “Joc Joc”
Bolante, who has been implicated in the P728 million fertilizer fund
scam, was a director of Land Bank at the time. Jose Nograles, a
brother of Speaker Prospero Nograles, was then the head of the
bank’s trust department that packaged the loan.
Under the deal, P3 billion would come from Land
Bank and P2 billion from Equitable PCIBank, with floating interest
that included a spread of 2.75 percent over the base rate—the
91-day Treasury Bill rate in this case—and would be repriced every
quarter.
Quedancor also wouldn’t get the entire P5
billion. The banks required Quedancor to deposit with Land Bank an
initial P130 million—the interest for the quarter—or a
“holdout on cash deposit” as security for the interest.
The banks likewise required Quedancor to invest
in zero-coupon bonds worth P2.718 billion, or more than half the
loan, to ensure that the P5 billion principal would be fully paid
after seven years. This means only P2.017 billion would actually be
released to Quedancor.
Zero-coupon bonds are bought at a price lower
than their face value. The face value is repaid when the bonds
mature.
“Some of the terms and conditions of the
proposals made by LBP, EPCIB, together with their adviser, ONL
Consultants, such as the interest rate, security for the interest
etc. were changed and/or were not followed, which is to the
disadvantage of Quendancor,” the internal audit said.
What further bewildered internal auditors was
Quedancor’s decision to have the whole P2.017 billion released in
one go in April 2004 instead of spreading the releases over 10
months as proposed by the banks.
Had it opted for staggered releases, Quedancor
could have programmed its releases and saved on interest charges,
they said.
The auditors said Quedancor has been losing an
average of P237 million every year since 2004 because of these
terms. This is because it pays P508 million in interest and fees
every year on the P5 billion loan, but earns only P271 million from
the P2.017 billion it actually got.
The board members who approved the loan were
Lorenzo, Buenaflor, Agrarian Reform Secretary Roberto Pagdanganan,
Cooperative Development Authority chairman Ruben Conti, Bangko
Sentral ng Pilipinas Deputy Governor Alberto Reyes, National Food
Authority administrator Arthur Yap, Gov. Rodolfo del Rosario of the
League of Provinces, Nellie Ilas of the Rural Bankers Association of
the Philippines, Guillermo Cua for the cooperatives, Romeo Lanciola
for the fisherfolk, and Jesus Simon for agricultural workers.
Loans from government
Until it obtained the P5-billion loan, Quedancor
had borrowed heavily from the national government through agencies,
such the Department of Agriculture, Department of Agrarian Reform
and Agricultural Credit Policy Council, which is attached to the
Agriculture department. The interest rates were much lower than what
the banks had demanded.
A P1-billion loan fund from the Agriculture
department’s Agricultural Competitiveness Enhancement Fund, for
example, charges a 2-percent annual interest. Loans from the fund
totaling P667 million bear interest rates ranging from 1.75 percent
to 4 percent a year. The Agrarian Reform department extended a
P150-million non-interest-bearing loan.
In 2005 Quedancor took out more loans—P1.5
billion from the United Coconut Planters Bank for its multi-series
bonds and P1 billion from Land Bank for its corporate notes—under
terms that the internal audit considered more advantageous than the
P5-billion loan it earlier got.
Internal auditors estimated the effective or
compound interest rate on the P5-billion loan at 25.52 percent and
those on the multi-series bonds and corporate notes both at 10.64
percent.
Unlike the P5-billion loan, Quedancor this time
need not invest in zero-coupon bonds or open a holdout on cash
deposit for its interest payment. It thus received P2.474 billion
out of the two new loans compared to P2.017 billion from the
P5-billion loan.
Internal auditors also said that while the
P5-billion loan carried a 2 percent or P100-million upfront fee,
including arranger’s fee, the new loans charged only 1 percent.
Payment of huge arranger’s and trustee fees is
not unique to Quedancor, however.
The National Food Authority, then under Yap, had
been borrowing from the capital market since 2003, and paying
upfront fees that the Commission on Audit said further contributed
to the already high cost of financing.
In 2004, the National Food Authority paid
P342.65 million in arranger’s and guarantee fees for P8.5 billion
in loans from Equitable PCI Bank, Metro Bank and Land Bank. Like
Quedancor, it also invested in zero-coupon bonds to back up the
principal. ONL was also one of its financial advisers.
In 2005, ONL served as financial adviser and
Land Bank the trustee and arranger for P8 billion in loans that the
National Food Authority borrowed from Equitable PCIBank, Philippine
National Bank, the Development Bank of the Philippines and the
Philippine Veterans Bank.
On April 26, 2004, three days after receiving
the P2.017 billion from Equitable PCIBank and Land Bank, Quedancor
started releasing the money to its field offices. But the entire sum
was not spent on programs.
Of the P1.725 billion listed as having been
released when 2004 ended, close to P250 million went to no- or
low-interest activities, including Quedancor’s operating expenses
of P21.4 million.
“You don’t borrow to pay for your
operations,” said a Quedancor executive, aghast at how the money
was spent. “This happened because no plan was ever made and
presented for the loan.”
Quedancor also lent P24.4 million to its
Provident Fund and charged only 6-percent interest, or half the rate
it is paying Equitable PCIBank and Land Bank. The sum, in turn, was
released from June to November 2004 to Quedancor officials and
employees in the form of emergency and other loans.
Records show that of the 163 loans released
during the period, P12 million or about half the money went to 43
high-ranking Quedancor officials including Buenaflor, Executive Vice
President Federico Espiritu and Senior Vice President Leticia
Santos.
Seven vice presidents—Alberto Guevarra, Ma.
Teresa Dimo, Chito Cifra, Apolinar Gonzales, Teresita Pineda, Delano
Anover and Maximo Padual—one regional assistant vice president, 15
assistant vice presidents and 17 district supervisors also got
loans, ranging from P50,000 to P1 million in the case of Buenaflor
and Santos. By the time ordinary employees wanted to borrow from the
fund, the money had been used up.
Buenaflor, Dimo and Cifra, who was the first to
avail himself of a loan, are incorporators of the Provident Fund.
In January 2006, more than a hundred Quedancor
employees wrote Buenaflor and the Provident Fund board to protest
the lack of transparency. They questioned the basis for granting the
loans and demanded publication of the Fund’s financial statement.
VERA Files is put out by veteran journalists
taking a deeper look into current issues. Vera is Latin for
“true.”
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