BIZ BUZZ: Black sand black eye

Thousands of fisherfolk, scientists and civil society groups are up in arms against a controversial seabed mining project in Lingayen Gulf.

In recent weeks, environmentalists, marine scientists and food security advocacy groups banded together against the project that would allegedly extract magnetite—also known as black sand—of at least 5 million tons per year for the next 25 years, renewable for another 25.

According to the oppositors, it’s a mystery how a project of such magnitude secured regulatory approvals sans the requisite public consultations.

Local government units (LGU) in affected areas swear that none of them were consulted even though the project would have catastrophic economic repercussions.

Based on regional data, some 44,000 fisherfolk in one of the country’s richest fishing grounds and marine protected areas would be adversely affected by the massive offshore sand extraction covering over 2,000 square kilometers of water in 18 cities and municipalities.

But the greater mystery is the mining firm’s beneficial owner.

A Biz Buzz source said the project reportedly has the backing of a ranking Commission on Audit (COA) official. While the official’s name doesn’t appear on record, the firm is allegedly run and managed by someone “very, very close” to the COA executive.

In fact, the official’s close personal ties with the mining firm’s reported owner has raised not a few eyebrows within the agency.

As it turns out, the official’s “partner” is not only engaged in mining but is also a big-time supplier of miscellaneous items like raincoats and school bags to various LGUs.

The cozy partnership between a known government supplier and a COA auditor should have been enough to raise red flags on many levels. But that it escaped COA’s eagle-eyed auditors is a cause for concern. After all, who should audit the auditor?

It behooves upon outgoing COA chair Michael Aguinaldo to do some sleuthing within his agency.

Before he retires next month, his best legacy would be to unmask audit officials with potential conflicts of interest. Because without that, the state auditor would suffer from serious integrity and credibility issues—a black eye for an agency that, because of the job it performs, cannot afford to suffer one.

And here’s the other thing: Aguinaldo may have to act fast on this one. That’s because the rumor is that the COA official-cum-miner is allegedly “moving heaven and earth” to be appointed as Aguinaldo’s replacement. How will this situation pay out? Whose interests will emerge victorious? Abangan!

—Daxim L. Lucas

Wanted: Stabilizing agent

The free fall of Medilines Distributors’ stock price on its trading debut last Tuesday serves as a painful reminder to investors that an initial public offering (IPO) is no guarantee for a jackpot, no matter how overwhelming the demand was prior to listing.

Never before has the stock price of a newly listed company fallen by 30 percent—the maximum price decline in the volatility band of the Philippine Stock Exchange (PSE)—right on listing day, considering that the sky wasn’t falling down on the broader market that day.

Why didn’t the underwriter PNB Capital put in place a stabilization fund for “MEDIC,” as what other underwriters usually do, especially for large equity deals? We heard that it had wanted to, but the issuer felt it wasn’t needed at that time.

Setting up a stabilization fund, usually equivalent to 10 to 20 percent of total base offer, will cost issuers a bit more, but because of this experience, expect investors to demand for such. Several underwriters we’ve talked to also indicated that they would henceforth insist on having such fund to protect investors, even if just on the first 30 days of trading. Some are already doing it as part of their standard IPO structure deals.

The stabilizing agent is typically given the option to purchase the secondary shares earmarked by the issuer at the offer price. Of course, it’s still no assurance that the price won’t fall below IPO price, but it’s better than having no protection for investors at all. Investors can tolerate a bit of losses on listing day, as many eventually rebound, but hitting the floor is a rarity. And it will have a spillover effect on other IPO deals in the pipeline.

In fact, some underwriters and investors said that if the PSE would like to shore up investor confidence, especially among retail investors who got burned from this offering, maybe it should make a stabilization fund mandatory for all upcoming IPOs.

—Doris Dumlao-Abadilla