Thursday, October 15, 2009

The Coco Levy Funds: Converting the People's Money into Personal Funds

From 1973 to 1982, the Marcos regime required 18 million Filipino coconut farmers to give P 15 pesos as "levy" or tax for every 100 kilograms of copra and coconut products sold by them. The levy now termed as the "coconut levy fund scam" ballooned to P 9.7 billion or roughly P 135 billion as of today. I will not anymore, give a brief background on this, you just have to click on the link here to know more about this issue.

To summarize the more than 20 year struggle of the Filipino coconut farmers, the levy, according to the Presidential Commission on Good Government (PCGG) turned from "public" to "private" during the Marcos regime, allowing some cronies led by Danding Cojuangco to use those funds to purchase shares of stock of major Philippine corporations, among which is the San Miguel Corporation.

On December 2001, the Davide Supreme Court declared these funds as "public", overturning the previous Executive Order 313 of former president Joseph Estrada which declared the funds as "private". In the case Republic vs. Sandiganbayan, the Court declared that the coco levy funds are prima facie public and therefore, right to be given to the government under custodia legis (or legal custody).

The SC decision recognized the initial nature or character of the funds, which were essentially monies dedicated to the development of the coconut industry. Some of these funds, according to the Supreme Court, were used to purchase 750 million common shares of San Miguel Corporation, previously valued at P 135 billion. These common shares represent 24 percent of Asia's biggest food and beverage company.

This 24 percent share is part of the 47 percent share bloc of San Miguel shares sequestered by the PCGG in 1986. In 2004, the Sandiganbayan anti-graft court awarded 27 percent of these disputed shares (now diluted to 24 percent) originally held by 14 companies under the Coconut Industry Investment Fund, a holding company controlled by Danding Cojuangco.

On June 2009, the Philippine government, through Solicitor General and Justice Secretary Agnes Devenadera asked the Supreme Court to allow it to sell the shares it holds in San Miguel Corporation. Let me quote a Sunstar Online news report about this:

“It is undisputed that there has been a substantial depreciation in the stock market of said shares and one way by which the value of said shares may be preserved is their immediate sale at premium price and the proceeds of which shall be deposited in an escrow account,” she said.

Devanadera said that while it is unfortunate that Top Frontier Investment Holdings Inc. has withdrawn its offer to purchase the subject shares, the government is obliged to pursue its sale having been declared by the Sandiganbayan as owned by the government in trust for all the coconut farmers.

“Despite Top Frontier Investment Holdings Inc.’s withdrawal of the offer to purchase the CIIF SMC shares, respondent (Republic of the Philippine Philippines) explores the feasibility of selling the subject CIIF SMC shares under terms and conditions most advantageous to the government,” she added.

Top Frontier had earlier offered to buy the sequestered SMC shares in the names of 14 holding companies of the Coconut Industry Investment Fund (CIIF) in the amount of P56.5 billion.

The firm was compelled to withdraw their offer to purchase due to the recession and economic slowdown and the extreme difficulty to raise the substantial funds needed to purchase the subject CIIF SMC shares.

Cocofed, in its manifestation, told the SC that there are other parties who have expressed interest in acquiring the subject said.

Earlier, former Senators Jovito Salonga and Wigberto Tanada have asked the High Court to compel officials of SMC to explain whether the reported reduction of P54 billion coconut levy funds was due to the company’s series of business ventures.

Salonga and Tanada said the SMC should explain the funding sources and other commitments made by SMC involving its new acquisitions such as the Meralco and Petron shares, the reported venture into water via the Laiban Dam Project as well as into telecommunications via Qatar Telecom and even in mining.

They further claimed that Cocofed does not truly represent the interest of some 3.5 million coconut farmers who should be the beneficiaries of the sale of sequestered SMC shares.

Cocofed earlier claimed that they are the “true and actual beneficiaries” of the multibillion-peso coco levy funds.

Salonga, a former chairman of the Presidential Commission on Good Government, an agency tasked to oversee the recovery of the alleged ill-gotten wealth of the Marcos family and their cronies, insisted that the coconut farmers need to be apprised of how their claims for the coco levy funds would be affected by the SMC’s business forays.

He also asked the SC to turn down the motion of Cocofed seeking the approval of the proposed sale of the subject SMC shares.

The former lawmaker said that even the Philippine Coconut Authority (PCA) has not accredited Cocofed as the legitimate national organization of coconut farmers.

In its motion to approve the proposed sale of the SMC shares, Cocofed said it is compelled to agree to the sale of the sequestered shares due to the continued depreciation in the stock market of SMC shares.

However, Salonga said the sale of the 753,848,312 shares should not be below P56.53 billion or an average price of P75 per share and that it should be sold to Top Frontier, which offered to purchase the SMC shares in its letter dated April 28, 2008 to Cocofed.

The PCGG has earlier announced that it intended to sell the SMC shares in a public auction, the proceeds from which will be used by government to rehabilitate the coconut industry.

Likewise among the sequestered assets are the UCPB shares of stock in six firms, namely: the United Coconut Planters Life Assurance Co., Cagayan de Oro Oil Company Inc. (Cagoil), Granexport Manufacturing Corporation (Granex), Iligan Coconut Industries Inc. (ILICOCO), Legaspi Oil Company Inc. (Legoil), and Southern Luzon Coconut Oil Mill Inv. (Solcom). (ECV/Sunnex)
On September 4, 2009, Jovito Salonga, former PCGG chair filed a motion to intervene to the Petition filed by the Solicitor General. The government filed its counter.

THIRTEEN DAYS LATER, under the tutelage of Chief Justice Reynato Puno, the Supreme Court in its decision dated September 17, 2009 (GR. No. 177857-58) says that:

"WHEREFORE, the Court APPROVES the conversion of the 753,848,312 SMC Common Shares registered in the name of CIIF companies to SMC SERIES 1 PREFERRED SHARES of 753,848,312, the converted shares to be registered in the names of CIIF companies in accordance with the terms and conditions specified in the conversion offer set forth in SMC’s Information Statement and appended as Annex “A” of COCOFED’s Urgent Motion to Approve the Conversion of the CIIF SMC Common Shares into SMC Series 1 Preferred Shares. The preferred shares shall remain in custodia legis and their ownership shall be subject to the final ownership determination of the Court. Until the ownership issue has been resolved, the preferred shares in the name of the CIIF companies shall be placed under sequestration and PCGG management.The net dividend earnings and/or redemption proceeds from the Series 1 Preferred Shares shall be deposited in an escrow account with the Land Bank of the Philippines or the Development Bank of the Philippines."

What does this mean?

First, the Supreme Court upheld its earlier decisions, declaring these shares as under the legal custodianship of the PCGG.

Second, the SC did not rule with finality on the ownership issue and let it pend.

Lastly, it approved of the conversion of said shares from being "common" to "preferred" thereby allowing its sale. The sale, according to the SC will prevent the further diminution of the values of the shares. The peg price per share is valued at 75 pesos per share.

Now, who benefits from this decision?

IN his article, " Who won?" Charlie Avila, national chair of the Philippine Association of Small Coconut Farmers’ Organizations (formerly the National Federation of Small Coconut Farmers’ Organizations) said that Danding Cojuangco and the SMC board clearly won because it allows them to take further control of these shares for their personal fiduciary benefit. Secondly, Avila avered that the Philippine government also benefitted from this conversion since the dividend earnings of the shares will be put under escrow and taken cared of by the PCGG. And lastly, the coconut farmers who will benefit from the annual P 1 billion dividend earnings made thru these shares.

What the public does not know is, conversion of these SMC common shares into preferred shares would allow Danding and the Board to take full control of the beverage and food giant because the people's representatives thru the PCGG will not be able to exercise voting rights in the SMC board. Meaning, government loses its voice over SMC, thereby freeing Danding Cojuangco and the SMC board from government intervention.

Coconut farmers opposed the conversion because for them it "reeks of political accommodation."

Citing the dissenting opinion of Associate Justice Conchita Carpio-Morales, Omi Royandoyan, chairman of Centro Saka said, by allowing the conversion of these shares, the government, ipso facto, “surrenders its final arsenal in combating the maneuverings to frustrate the recovery of ill-gotten wealth." Likewise, the decision practically shows that the High Tribunal reversed itself from its earlier decision which struck down the conversion of these shares into treasury bonds.