Biz Buzz: Anticompetitive port buyout?

Amid the father-versus-son corporate dispute between Reghis Romero II and Michael “Mikee” Romero, a new corporate entity has come out of nowhere and acquired the disputed port assets.

Biz Buzz learned that the elder Romero has sold the land on which Harbour Center Port Terminal Inc. (HCPTI) undertakes its port operations to Port Capital South East Asia Holdings Inc. (Port Capital SEA) in May 2016 through a so-called “sale and leaseback agreement.”

The buyer, Port Capital SEA —which has a paid-in capital of only P6.25 million—paid P1.75 billion and assumed HCPTI’s loan obligations (secured by a mortgage trust indenture between the seller and Asia United Bank trust and investments group) amounting P257 million, bringing the total property deal to more than P2 billion.

The transaction involves four pieces of land with an aggregate area of 10 hectares, or at only P20,000 a square meter.

Similar transactions involving properties in the same area valued properties between 50 percent to 75 percent more than the HCPTI sale, or between P30,000 and P35,000 a sqm. This means that the Port Capital SEA-HCPTI transaction may have been agreed upon at a generous discount of as much as P1.5 billion. Wow.

Under the leaseback portion of the agreement, HCPTI will pay rent to Port Capital SEA for a period of 10 years at a monthly rate of P12 million (P144 million a year with an annual escalation rate of 5 percent).

The agreement entered into by R-II and Port Capital SEA is an unusual transaction in that it values the property way below market prices and, more importantly, gives Port Capital SEA the right to own all of the permanent improvements on the property upon expiration of the agreement, without an obligation to pay additional consideration to HCPTI.

Moreover, based on Securities and Exchange Commission documents and a simple Google search, the shareholders of Port Capital SEA and Malay Bulk Handling Phils. Inc. (Malay Bulk), the port operator nominated by R-II to run HCPTI, all appear to be closely associated with another large port operator.

Whoopsie. Someone is clearly trying to kill the competition by buying them out. But who? And will the Philippine Competition Commission be able to summon all the courage to take a closer look at this deal? Abangan! —DAXIM L. LUCAS

Done deal

From all indications, the long-awaited unification of the country’s capital market infrastructure is moving forward. An approval in principle has been obtained from both the buyer (Philippine Stock Exchange) and the seller (led by the Bankers Association of the Philippines) to proceed with the transaction to merge the PSE and Philippine Dealing System Holdings Corp.

PDS Group is the holding firm for fixed-income trading platform Philippine Dealing and Exchange Corp. (PDEx), Philippine Depositary and Trust Corp. (PDTC) and Philippine Securities Settlement Corp.

As to the lawsuit slapped by the group of former congressman Luis Villafuerte against PDEx (complaining what was described as a monopoly in government securities or GS trading), we heard from reliable sources that a compromise was in the works. Villafuerte has agreed in principle to withdraw his petition at the Supreme Court for as long as the over-the-counter (OTC) trading of GS would revert to the government. Only the mapping out system—the process by which GS transactions are reported by banks—would remain with PDEx. As a result, the consolidated PSE-PDS will have to define its suite of products once that small but substantial segment is carved out.

The PSE doesn’t seem to mind giving up the OTC trading of GS, except that the final purchase price for PDS will have to go down slightly from the earlier tag of P2.25 billion to reflect the carving out of the GS business. What the PSE would like to focus on instead is to develop a real working exchange for corporate bonds within PDEx. Of course, PDTC is also a big incentive for the PSE to proceed with this acquisition as this accounts for at 70 to 80 percent of the PDS’ net income.

But speaking of PDTC, there’s a contingent tax liability issue that the exchange still needs to resolve, covering some P150 million in tax obligation that PDTC is questioning at the Bureau of Internal Revenue. This tax issue is the only remaining hurdle to the PSE-PDS union, which is backed by no less than Finance Secretary Carlos Dominguez.

Now, with a more challenging future if and when this long-due merger is closed, the PSE is now working on a major reorganizational realignment. PSE president Hans Sicat will have his hands so full as the chief integrator officer of the prospective merger with the PDS such that it’s deemed timely for the board to come up with succession planning. This could unfold in the coming weeks or days. —DORIS DUMLAO-ABADILLA