Tagud camp airs side on 2GO accounting fiasco

The camp of former 2GO Group Inc. CEO Sulficio Tagud Jr. came out swinging Thursday amid an accounting fiasco that has cast doubt on the company’s financial condition during the tail-end of his seven-year career at the helm one of the country’s largest logistics players.

Tagud, who retired from 2GO in April following the entry of new owners led by businessman Dennis Uy and the Sy family’s SM Investments Corp., issued a statement containing a series of allegations likely to deepen the controversy that involved major accounting firms SyCip Gorres Velayo & Co. and KPMG-R.G. Manabat & Co.
The issue has directed the spotlight on the varying financial interpretations external auditors could make using the same set of numbers.

This prompted the Securities and Exchange Commission to launch a major probe and has increased investors’ scrutiny on the upcoming P8-billion initial public offering of Uy’s Chelsea Logistics, which has a 28-percent economic interest in 2GO.

An SGV & Co. special audit, sought by the new owners, showed that 2GO had understated debt, inflated non-cash assets and added almost P1 billion in profit in each year for 2015 and 2016.

Early this week, 2GO restated figures going back two years, a period that was audited by KPMG-R.G. Manabat & Co., which had repeatedly said it stood by its findings.

Among the claims from Tagud’s camp was an apparent “major disagreement” with SGV in 2013, 2GO’s external auditor since 1977, over a deferred tax asset. 2GO hired KPMG-R.G. Manabat & Co. the following year.

Tagud’s group also noted its failed attempt to increase its stake in 2GO with support from a $120-million loan supposedly approved by the SM Group’s BDO Unibank Inc., which was and remained 2GO’s largest creditor.

Above all, Tagud’s side sought to defend itself against the perception that it had committed any wrongdoing, citing “nasty reactions from the public.”

“The former management of 2GO Group Inc., led by Sulficio O. Tagud Jr., strongly denies any such misstatement and brands any insinuations of fraud as utterly false and malicious and as an attack on the integrity of all officers of 2GO Group Inc. during the aforesaid period,” the statement showed.

It added that it welcomed any inquiry by the Securities and Exchange Commission and Philippine Stock Exchange “as a chance to clarify matters and to set the record straight.”

The group held fast to KPMG-R.G. Manabat & Co.’s reputation, saying the accounting firm had adhered to the Philippine Financial Reporting Standards. It added that 2GO’s former chief financial officer Jeremias Cruzabra “was not fired but has voluntarily resigned because he refused to sign the restated financial statements.”

Moreover, the Tagud camp alleged that SGV & Co. did not grant KMPG the “courtesy procedure” to discuss its restatement and “seek concurrence.”

To defend itself, the group said the due diligence activities on potential investment deals were proof that 2GO’s financial position were not manipulated.

“[Tagud] negotiated with BDO and, after conducting the necessary due diligence examinations, BDO approved a $120- million loan to purchase the shares of the foreign partners, the very same shares now owned by the SM Group and Dennis Uy,” the statement alleged, without elaborating.

“The due diligence examination did not contain any finding as to the overstatement of income in 2GO,” it added.

“More importantly, the purchase price of the foreign partners’ shares would have obviously been based on the income of 2GO, thus, it would not make sense at all for Tagud to agree to any overstatement of income under the circumstances,” it added.

A BDO spokesman could not immediately confirm those details but a filing with the Philippine Competition Commission dated Nov. 24, 2016 showed that Tagud’s group had attempted such an investment.

The antitrust body approved the proposed $275-million acquisition by Tagud-led Negros Holdings & Management Corp. of China Asean Marine B.V., a foreign fund with an indirect stake in 2GO.

Tagud’s camp did not say why that deal did not push through.

SM Investments, a property, retail and banking conglomerate, eventually acquired a 34.5-percent interest in Negros Navigation Co. Inc. (Nenaco), which owned over 88 percent of 2GO. Nenaco is controlled by Uy, who entered after buying out a Kuwait-linked fund.

SM Investments sees logistics playing a key role in its sprawling empire while Uy sees a complementary business with his other interests, which include Phoenix Petroleum and Chelsea.