Home Guaranty Corp. has P12-B deficit, says COA; agency asked to avoid bond floats

MANILA, Philippines — The Home Guaranty Corporation, tasked with providing shelter for the homeless and the poor, has a P12-billion deficit and may not be able to accomplish all of its duties, according to the Commission on Audit.

The COA found that the government corporation had an accumulated deficit of P12.771 billion by the end of 2011.

It said the HGC would have to fast-track its disposition of its foreclosed assets, and refrain from turning to bond flotation since it would only lose more money and generate deficits because of the enormous financial charges that bonds would carry.

In its 2011 report on the HGC, the COA said its P12.771-billion deficit put its projects at risk.

“HGC’s accumulated deficit of P 12.771 billion continues to cast doubt on its ability to provide a viable shelter program for the homeless and under-privileged sectors of the society,” the COA said.

But HGC remains upbeat. It has told the COA that despite its accumulated deficit, it remains confident as a guarantor because it performed relatively better in 2011, getting a 44.238 percent increase in its net income from operations.

It also said that it was negotiating with the Department of Budget and Management and the Department of Finance for a larger equity infusion. But it also said fund allocation has been limited to P500 million per year because of limited resources.

It said the approval of guaranty applications of client banks has been controlled so that it would not exceed its guaranty limit.

According to the audit agency, HGC’s financial situation was affected by defaults on guaranteed mortgages, which went up significantly during the Asian economic crisis that began in 1997. It said the claims on HGC guaranty went up from P2 billion in 1998 to P7 billion in 2000.

“The impact took a toll on HGC’s liquidity position, as great majority of these guaranty calls were presidential flagship projects in the 1990s funded through the flotation of asset-backed securities,” it said.

It also said the economic crisis left the government corporation with many foreclosed or acquired assets, which, however, could not be disposed of immediately. The HGC was unable as well to get regular or sufficient funds from the national government, prompting it to turn to the capital market to raise funds through the flotation of Zero Coupon Bonds.

But these bonds did not turn out to be the agency’s savior. The COA said HGC has been losing money since 2002, when it first floated the zero coupon bonds. It said the prepaid financial charges entailed by the bond flotation caused the corporation to lose money.

It also said HGC could not immediately dispose of some of its assets because of problems with illegal occupants, which slow down their sale.

The COA said HGC’s lowest net worth was recorded in 2010 when it went down to P2.953 billion. Its net worth went up in 2011 to P4.605 billion, mostly due to the donated capital consisting of land from the Urban Bliss Projects.

The HGC has also not received in full its authorized capitalization of P50 billion as stated in its charter. So far, only P13.573 billion was paid up because the national government is financially distressed, according to the COA.