ECJ’S P515.6B GIFT TO COCO FARMERS

BLURB:

Two EOs took possession of more than P515.6 billion worth of assets produced by the vision and entrepreneurial zeal of one man—Eduardo “Danding” Cojuangco Jr. (ECJ).

The P515.6 billion should be the current value of the bulk of the coco levy assets.  Outside of this P515.6 billion, it is not clear, what, how much, and where the other coco levy assets are. Government says the levy is now only P76 billion.

Under Cojuangco, the coconut levy became the most successful innovation in Philippine business.  He organized UCPB with P100 million capital which became a joint venture between him and the Cocofed group.  He bought 51% of SMC which became the biggest depositor of UCPB.   

To finance 31% of the 51%, ECJ borrowed P1.65 billion from UCPB for a leveraged buyout of the Soriano SMC shares in 1983.  At that time, SMC had more deposits in UCPB than did the coco levy’s CIIF.

The SC acknowledged ECJ’s 20% ownership of SMC but not the 31% which the court says belongs to coconut farmers because the levy was a tax.

By 2012, the P1.65 billion loan to buy the 31% was worth P93.5 billion n total gains from SMC, giving its owners (government says it is the owner) a stupendous return of 175% per year for 28 years, from 1984 up to 2012.  

Government has been wanting to sell UCPB which had assets by 2012 of P270 billion,  from a paltry P100 million in 1975.   As of Sept. 30, 2018, UCPB had assets of P320 billion.  At 6% cost of money, UCPB should have assets by now of P383 billion, meaning the bank is growing slower than its industry peers.

In effect, Cojuangco gave coco farmers a P515.6 billion gift, not bad for a man his critics say was a “crony”.  

At 82, he is a happy man.  “I never thought SMC would grow so fast and so big,” he says.  Under President Ramon S. Ang, SMC is the biggest company in assets and revenues and with the most impact on people’s lives.

San Miguel’s recent focus is infrastructure.  Yet, infra is not a guaranteed money maker.  The yield could only be 7% per year.  The P800 billion cost of the game changer Bulacan airport project, if financed at say, 7% interest, would cost SMC P56 billion in interest charges annually, even before the airport could start operations.

Business is making people’s lives better.

So why does San Miguel insist on building the airport?  “Business is not always about making a profit,” Cojuangco explains.  “Oftentimes, business is about making people’s lives better,” SMC chair points out. Indeed, the conglomerate likes to think of its product as development.  Under President Ramon Ang, SMC has executed that vision with a missionary zeal and an extraordinary intensity of focus.

By ANTONIO S. LOPEZ

On March 18, 2015, then President Benigno Simeon Cojuangco Aquino III issued two executive orders that take possession of more than P515.6 billion worth of assets produced through the vision and entrepreneurial zeal of one man—Eduardo “Danding” Cojuangco Jr.

EO 179 provides administrative guidelines for the inventory and privatization of coco levy assets.  EO 180 provides administrative guidelines for the reconveyance and utilization of coco levy assets for the benefit of the coconut farmers and the development of the coconut industry.  

EO 179 wants to know how much in coco levy assets there are.  EO 180 seizes and transfers to the government those assets, ostensibly for the good of the coconut farmers and the coco industry which in the 1970s was the mainstay of the economy.

Happily, EO 179 and180 had been disregarded by the Duterte government.   Congress passed a bill that would have reorganized the state of Philippine Coconut Authority, expanded it, and enable PCA to manage the coco levy fund.

President Duterte vetoed the bill, mainly on his fears, the new PCA would be corrupt and mismanage the levy fund.

Cojuangco has something to do with P515.6 billion of those assets.  In fact, the P515.6 billion would be the bulk of the coco levy assets, had the levy money been managed properly by the government.  

Under Cojuangco, the  coconut levy became one of the most successful innovations in Philippine business.

As of 2012, the assets were worth already P363.5 billion – the P93.018 billion in cash stashed in government treasury coffers and P270.5 billion in 2012 assets of the United Coconut Planters Bank (UCPB), the Philippines’ 12th largest commercial bank in resources.   

UCPB growing slower than peers

UCPB had resources of P320 billion as of September 2018.  At 6% cost of money, UCPB should have assets by now of P383 billion. If not, the bank is growing slower than its industry peers.

Both assets – the SMC shares and UCPB—were originally seized by the government after the 1986 People Power claiming they came from the coco levy of 1973-1982 which the Supreme Court said was like a tax.

At 82, ECJ is a happy man.  “I never thought SMC would grow so fast and so big,” he says.  Under President Ramon S. Ang, SMC is the biggest industrial company in assets and revenues and with the most impact on people’s lives.

San Miguel’s recent focus is infrastructure.  Yet, infra is not a guaranteed money maker. The yield could only be 7% per year. The P800 billion cost of the game changer Bulacan airport project, if financed at say, 7% interest, would cost SMC P56 billion in interest charges annually, even before the airport could start operations.

Business is making people’s lives better

So why does San Miguel insist on building the airport?  “Business is not always about making a profit,” Cojuangco explains. “Oftentimes, business is about making people’s lives better,” SMC chair points out. Indeed, the conglomerate likes to think of its product as development.  Under President Ramon Ang, SMC has executed that vision with a missionary zeal and an extraordinary intensity of focus. 

P9.69 billion in coco levy

A government audit in 1986 found P9.69 billion in coco levies was collected from 1973 until August 1982 when the levy was stopped.  Cojuangco used a modest P115.52 million of coco levy to buy controlling equity in the First United Bank (FUB) which was renamed UCPB.    Under his management, UCPB became the first universal commercial bank, the No. 1 domestic bank in equity, and the No. 2 domestic bank in resources.

Cojuangco used only P2.57 billion of the P9.69 billion total coco levy.  The rest went to the government and other private groups. Government says the levy is now worth P76 billion only.

When he acquired 20% of San Miguel in early 1983, Cojuangco made UCPB as the beer and food giant’s depository bank.   This made UCPB huge in no time at all.  At that time, in 1983, SMC was grossing P6.644 billion in annual revenues or P18.2 million daily.  So you could imagine the deposits SMC was making in UCPB – daily.  

In 1983, only P2.75 billion coco levy was collected, equivalent to just 42% of SMC revenues. It was obvious there were more SMC deposits than deposits of the Coconut Industry Investment Fund (CIIF), the investment arm of the coco levy.

Also in 1983, an opportunity came to Cojuangco to buy another 31% of SMC.  It would raise his stake in the brewery to 51% or a majority or controlling interest.  He borrowed P1.65 billion to buy the 31% Soriano Group shares in SMC.

Cojuangco borrowed SMC deposits, not levy money

Since Cojuangco borrowed the P1.65 billion from UCPB, which was the depository bank of two large depositors – the coco levy money in the name of the Coconut Industry Investment Fund (CIIF) and San Miguel, did the tycoon use the levy under CIIF or did he use the deposits of SMC?

By buying control of UCPB and of SMC, Cojuangco intended to grow two major conglomerates – a coconut products and coco-chemical complex (along the line of crude oil majors, producing oil, processing it, and converting by-products into petrochemicals which in turn become raw materials for more products like anything made of plastics); and San Miguel.

In 1986, however, the government, seized UCPB only for the bank to suffer  billions in losses due to mismanagement and ownership disputes (it cannot even call a stockholders’ meeting because doing so would require Cojuangco’s consent). 

“The bank is seen to post a net loss in 2014, reducing its equity book value (with regulatory concessions) to P19 billion or a capital adequacy ratio of 8.87, below the current Bangko Sentral requirement,” said Finance Secretary Cesar Purisima in a memo dated March 16, 2015 to the Office of the President.

Leverage buyout

Cojuangco has always maintained  the purchase of 31% of San Miguel (from the Soriano Group) was a leveraged buyout –meaning SMC placed the money as a deposit used to buy the 31% in SMC. He merely borrowed that deposit. “In effect, San Miguel bought itself,” Cojuangco explains.  “At no time did coco levy deposits in UCPB exceed that of San Miguel,” he insists.

The government didn’t buy that line though and went to the Supreme Court which upheld the state.  It acknowledged Cojuangco’s ownership of his 20% in San Miguel but asserted the 31% belonged to the government, in trust for the coconut farmers.

What “coco farmers” means

In the beginning, “coconut farmers” meant the owners of the land on which the coconut trees were planted.   The term never meant “coconut workers” – those hired by the landowner to work in the coconut farm.

The government seems to use “coconut farmers” to refer to the farm workers, who today, along with fishermen, are the poorest Filipinos.

Thus, the government says the P413 billion asset hoard – the P320 billion assets of UCPB and the estimated P93 billion value of today (P93 billion) of CIIF’s 1983 investment originally in SMC—belongs to the country’s coconut farmers. 

Under the law, any money that is ill-gotten should go to agrarian reform.  The Supreme Court, however, declared in various rulings that the coco levy – the main source of the assets – is not ill-gotten money.  Thus, proceeds from use of the coco levy should go to the development of the coconut industry and the upliftment of coconut farmers—today, among the poorest of Filipinos.

P515.6B gift to farmers

In effect, Danding Cojuangco gave a P515.6 billion gift to coconut farmers in particular, and to the coconut industry in general. He had wanted to develop the coconut industry into one of the biggest in the region but was stymied by government campaign labeling him as a “crony” of Ferdinand Marcos.

Ironically thus, very few appreciate Cojuangco’s efforts and credit him for the huge money he produced for the industry and for the coconut farmers.

The P515.6 billion assets consist of two parts – P93.018 billion in cash stashed in government treasury coffers and P320 billion in assets of the UCPB, the Philippines’ 12th largest commercial bank in resources. 

The P93 billion levy money plus P320 billion assets of UCPB would total P413 billion. Had the levy been properly managed and UCPB grown faster, their  combined value would easily exceed P500 billion.

Both assets were originally seized by the government after the 1986 People Power claiming they came from the coco levy of 1973-1982 which the Supreme Court said was like a tax.

Of the P363.5 billion of coco industry assets identified with Cojuangco, P93 billion is the estimated value today of the P82,834,907,251.35 (P82.834 billion) proceeds from a P1.656 billion investment used to buy 33.133 million shares of SMC in mid-1983 at P50 per share. 

33.13M SMC shares became preferred shares

In 2009, a Supreme Court ruling approved the conversion of the 33.13 million common shares (by then equivalent to 24% of SMC) into preferred shares numbering 753,848,312.

San Miguel exercised its right to redeem the shares in October 2012 and paid the government P56,538,623,400 (P56.53 billion). 

From 1984 to 2009, the government earned P12.727 billion in cash dividends while the original 31% was still in the form of SMC common shares, plus another P13.569 billion in cash dividends when the 31% became preferred shares  from 2009 to 2012. 

Total gross earnings thus from the original P1.656 billion invested in SMC – P82.834 billion as of October 2012 – P12.727 billion in cash dividends from common shares, P13.569 billion in cash dividends from preferred shares, and P56.538 billion in redemption value paid to the government by San Miguel on Oct. 5, 2012.

Stupendous 175% return per year

The total earnings from 1984 to 2012 (a period of 28 years) from what originally was only a P1.656 billion investment – P82.83 billion is  an increase of P81.178 billion (P82.83 billion less P1.656 billion) or 4,902%.   Divide the 4,902% by 28 years and you get an annual average yield of 175.07%.

A yield of 175% per year is like increasing your investments 2.75 times (almost three times) every year for 28 years.

These days, the P82.834 billion should earn 6% per year if invested as bank time deposits, bonds, or government securities.   More so if the same money had been invested in the stock market.  Between October 2012 and April 2014, the stock market index rose in value by 46%, from 5500 index points to 8000.  Add 46% to P82.83 billion and you would get P120.93 billion.

If the P82.83 billion was earning only a 5% yield every year, it would be a disappointment, an act of gross mismanagement.  While the original P1.65 billion was in San Miguel for 28 years, it was effectively making a spectacular 175% per year.

The 175% annual yield is amazing considering that from 2003 to April 2015, the period of heady growth of the coco levy proceeds, inflation was averaging 4.62% per year.

How P82.83B became P93B

To get the current value of the P82.83 billion, multiply P82.834 billion by 1.05 (100 plus 5% interest) and you get  the P86,766,652,600 (P86.766 billion) imputed value of the San Miguel proceeds by end-2013. 

Multiply P86.766 billion by 1.05 and you get the P91.1 billion value of the same SMC proceeds as of end-2014.   Multiply P91.1 billion by 1.021 and you get the P93.018 billion imputed value of the SMC proceeds as of May 2015.

Began in earnest in August 1973, the coco levy had ballooned to P9.695 billion in August 1982 when it was ended.  

Out of the P9.695 billion, P2.572 billion or 27% was used to fund the CIIF.  Of the P2.572 billion, P1.656 billion was used to buy 33.13 million shares or 31% of SMC in mid-1983.  The P1.656 billion was actually a loan borrowed by Cojuangco Jr. from UCPB.

From 1977 to 1979, UCPB was administering the CIIF.   From 1975 to 1983, UCPB had also been the depository bank of food and brewery giant SMC.  There was thus a mixing of corporate deposits of SMC and the funds of the CIIF.

Later, the Supreme Court declared the 33.13 million shares belonged to government on behalf of the country’s coconut farmers. The shares remained with the government until 2009 when San Miguel management converted them into preferred shares totaling 753,848,312 with a redemption value of P75 per share.

In October 2012, the San Miguel management decided to redeem the preferred shares and paid the government P56.538 billion in redemption money. 

The preferred shares had earned for the government  in cash dividends P26.296 billion.  Total gross earnings of the government, on behalf of the coconut farmers: P82.834 billion.

With interest earnings from 2012 to 2015, the P82.83 billion is estimated to be worth P93 billion by 2015.

Back in mid-1983, the so-called Soriano Group decided to sell its 31% in SMC representing 33.13 million shares, for P1.656 billion. Danding Cojuangco seized the opportunity to buy control of SMC. 

Cojuangco borrowed the P1.656 billion from UCPB to get 31% of SMC.  He had earlier acquired a separate 20% of San Miguel for $49 million from the group of Enrique Zobel representing the Ayalas.  Thus, Cojuangco ended up with 51% of brewery and food monolith SMC in 1983.

How UCPB began

UCPB had been put up in 1975 by a group of coconut farmer-landowners and exporters led by tycoon Eduardo M. Cojuangco Jr. to service the coconut industry (then the country’s biggest exporter). 

UCPB came from an option of Cojuangco to buy 72.2% of then smallish First United Bank from Jose Cojuangco Sr., father of Corazon Cojuangco Aquino, president from February 1986 to June 1992, and grandfather of the current president, Benigno Simeon Cojuangco Aquino III.

Later, with CIIF money worth P633 million, UCPB acquired five oil mills – Granexport Manufacturing Corp., Legaspi Oil Co. Inc., San Pablo Manufacturing Corp., Southern Luzon Coconut Oil Mills, Inc., and Cagayan de Oro Oil Co. Inc.

Additionally, Legoil acquired Iligan Coconut Industries, Inc. for P20 million.  Total investments in the six oil mills: P653 million.

To this day many do not believe the coco levy is a great success story.  That is because of two reasons: one, confusion about coco levies, and two, the most successful coco levy was identified with Danding Cojuangco Jr.

The bottomline:  Danding Cojuangco didn’t steal money from the coconut farmers.

Instead, he gave them P515.6 billion in cash and other assets.

(Updated from BNA 13 no 3)

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