MANILA, Philippines—At least 1,250, or one-fourth, of the country’s 5,000 corporations were struggling to stay afloat amid the pandemic-induced recession, requiring up to P625 billion in government funding support to save at least 6.3 million jobs.
Presented with the grim numbers, senators on Wednesday (March 17) asked the Executive, particularly the Department of Finance (DOF), to consider raising the minimum P10 billion equity it planned to inject into state-run Land Bank of the Philippines (Landbank) and Development Bank of the Philippines (DBP) under the proposed legislation called Guide, or Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery.
One of the senators, Sherwin Gatchalian, asked National Treasurer Rosalia de Leon to convince multilateral development banks to participate in the special holding company to be formed by a joint venture of Landbank and DBP under the Guide bill.
While multilateral institutions, like the Manila-based Asian Development Bank (ADB) and the Washington-based World Bank’s International Finance Corp. (IFC), had expressed interest to chip in, De Leon told a Senate hearing that Philippine finance officials were waiting for approval of a legal basis, the Guide bill, before firming up the international lenders’ role.
Minority leader Sen. Franklin Drilon also urged raising the capital of the special holding firm as the proposed P10 billion equity would be only a “drop in the bucket” in the face of the number of struggling companies and the magnitude of their problems.
Representing the DOF, De Leon said finance officials may consider an increase in allowed capital if Congress, which holds the power of the purse, will allow it. But she said a possibly bigger equity will also depend on excess revenues that the government can generate in 2021.
De Leon said the P10 billion proposed by Guide took into consideration government capacity based on its current fiscal position.
Guian Angelo Dumalagan, Landbank assistant vice president and chief market economist, said the 1,250 “strategically important companies”—private and publicly listed alike—were expected to avail themselves of the rescue package of Guide.
Dumalagan replied in the affirmative when asked by Gatchalian if these 1,250 corporations were “in trouble.”
Dumalagan’s estimates, made last week, showed that the P10-billion equity infusion to Landbank and DBP would be sufficient for only 15 companies.
If these firms struggling with solvency were injected with at least P500 million each, the government would need to shell out as much as P625 billion, based on Dumalagan’s computations.
In the Guide bill, private investors and multilateral lenders will be enjoined to contribute less than P10 billion in capital to enlarge the holding company while allowing Landbank and DBP to keep control and majority stake.
Under Guide, the special holding company may invest in pandemic-battered firms through limited equity participation, convertible debt and other securities acceptable to Landbank and DBP.
Strategically important companies were defined in the bill as those “nationally significant, with high economic returns or employment potential, and must be able to demonstrate upstream and downstream linkages to other firms and industries.”
To qualify, these strategically important firms must prove they were suffering from temporary insolvency as a result of the COVID-19 crisis even as they were financially sound before the pandemic. They must also present “credible and sound” financial rehabilitation plans.
The holding firm will impose an investment ceiling among corporations belonging to the same industry, relative to their capital or net income, in order to “avoid undue concentration risk and excessive exposure.”
During the hearing, DBP president Emmanuel Herbosa urged giving priority to the transport sector so workers can return to their jobs.
Dumalagan earlier said large firms in the transport, logistics, energy, property, construction, health care, as well as food and beverage sectors may qualify.