Dirty hurry

A few of our beloved senators, taking the side of the present “bosses” at DBP—including their politically connected principals—already saw a lot of wrong in the Philex deal between the bank and a private investor named Roberto Ongpin.

As the headlines indicate, the Senate just started an “investigation” of the deal, giving media a field day. Even before the investigation was done fully, our senators already made some terrific accusations.

Among them were as follows: that the parties in the deal were guilty of insider trading; DBP acted foolishly and hurriedly on the transaction; and members of the DBP management committee were stupid.

In fact, the DBP officers were so stupid that the bank earned about P1.4 billion out of the transaction. This, to any bank either foreign or local, should already be a terrific coup. And so our beloved senators could only counter that the bank could have earned more than the amount.

Also, some wags insisted that the DBP officials showed “undue haste” in approving the loan to Ongpin, which was a major part of the deal.

As a newsman, I have been covering the financial system for more than 30 years now, and I cannot remember where it is written that a bank should not act fast on a deal in which it stands to make a lot of money.

Another insinuation from our senators was that DBP entered into the deal with Ongpin because Ongpin was “close” to former First Gentleman Miguel Arroyo.

Let us say that, indeed, Arroyo had something to do with the deal. That fact that DBP made a cool P1.4 billion out of it means the deal could stand on itself. Thus, if Arroyo pushed for it, he actually did the bank a favor.

It all started when, in 2008, the group of Manuel Pangilinan, a.k.a. MVP, started to take control of Philex, a listed mining firm that at that time had just risen from the dead. Metal prices were going up. Philex also bought a mine in Surigao, since its copper mine in Benguet was almost depleted. The stock market therefore took interest in the issue.

At the start of his takeover bid, MVP already acquired a 20-percent interest in Philex, made up of treasury stocks accumulated by Philex over the years. MVP also announced he would go to the stock market to acquire 20 percent more. It was clear that MVP intended to take controlling interest.

In such a scenario, the DBP management (led by its former president, veteran banker Reynaldo David) started acquiring Philex shares, garnering about 120 million shares at an average price of P5 per share, about 2 percent of the outstanding shares, meaning, not enough for even just one board seat in the company.

At the same time, market talk had it then that the GSIS also started to take position in Philex, buying even at a much higher price of P9 per share. When the Philex price reached P11 per share in the market, the DBP unloaded 10 million shares, apparently in a bid to average down its costs.

In the market, meanwhile, it was known that Ongpin was also buying Philex shares. He even partnered with a well-known mining man, Walter Brown. And so when Ongpin learned that DBP was unloading, he offered a much higher price to the bank (P12.75 per share vs P11 in the market) for 50 million shares.

Such a “block sale” is always good for the seller that is holding a relatively large chunk of shares, such as DBP. Unloading 50 million shares into the market would always push down the price. Always. If DBP had cashed in it profits by selling the shares in trickles, it would also tend to dampen the market price. No seller would want that, of course.

Now, as part of the deal, Ongpin asked for a loan package from DBP, amounting to P660 million. The DBP management committee nevertheless asked Ongpin for P80 million cash upfront to pay for the shares. Also, Ongpin was to pledge the entire block to the bank as collateral to the loan.

In other words, in case Ongpin went bust and could not pay for the loan, DBP would still have the 50 million Philex shares, and it would even be richer by P80 million, which was Ongpin’s down payment.

The 50 million shares that Ongpin acquired from DBP, in effect, brought up his holdings in Philex to about 7 percent. So Ongpin could now turn around and offer his swing block to MVP.

The negotiations between Ongpin and MVP took only two days—on a weekend. In any financial market, that is usually how fast the big players make decisions. For in the market, anything can always happen. Fund managers in fact make buy or sell decisions in a matter of seconds.

The thing is, Ongpin and MVP agreed on a price of P21 per share—versus the P12.75 per share that Ongpin offered to DBP.

In effect, our bright senators were saying that DBP should have gone straight to MVP to sell also at P21 per, instead of making the deal with Ongpin. How stupid the DBP management! They could not even look into the crystal ball to predict that MVP would agree on a price of P21 per!

Nobody was saying of course that the block held by Ongpin was rather attractive to MVP. It would give MVP the controlling interest. For such a transaction, deal makers like MVP and Ongpin are always willing to pay for a premium. I doubt if the DBP shares of 50 million (acquired by Ongpin) could command a similar premium. They were only about 1 percent of Philex, versus the 7 percent block of Ongpin.

The story goes that the SSS, still headed by Romulo Neri at that time, hearing of the deal between Ongpin and MVP, offered to sell its Philex shares. MVP rejected the offer. He already had controlling interest because of his deal with Ongpin.

As part of the deal, Ongpin asked MVP to buy the rest of the DBP shares (the remaining 60 million shares, out of the 110 million the bank acquired in the market) at the same attractive price of P21 per.

Here is the thing: Without the Ongpin deal, DBP would not have been able to ride with his P21-per-share deal with MVP. That is clear. Contrary to the bright assessment of some senators, DBP could not have done it alone. It did not have enough shares. It could only be a rider.

Because the Ongpin deal allowed DBP to sell to MVP at P21 per (which SSS was not able to do) the bank made a cool P1.4 billion in the trading of Philex shares—in less than a year. On top of it, the bank earned P15 million in interest from the loan package it gave to Ongpin.

There—from what I gathered in media reports—it was clear that the DBP management was stupid and dirty and all that, they were in such a hurry, they caused the bank to make so much money.