‘For farmers’ benefit,’ but not a share in his name
(Last of three parts)
For coconut farmers, the post-Marcos era was a period of dashed hopes.
In the so-called re-democratization process, interests of the old and new oligarchs and political bosses merged to keep the tillers impoverished as instruments of plunder, perfected during the martial law years, were refined in captive institutions, critics of the new dispensation said.
The controversy over shares of stock in San Miguel Corp. (SMC), which were ordered sequestered by President Corazon Aquino after the ouster of the dictator Ferdinand Marcos in 1986, illustrates this continuing tragedy.
Eduardo “Danding” Cojuangco, 75, a close associate of the dictator who fled with him to Hawaii 25 years ago, acquired the shares in 1983, allegedly using coconut levy funds, for P2 billion in a complex deal that involved intricate layers of corporate schemes.
The SMC shares are now valued at P220 billion—more than the combined P93 billion worth of illegally acquired assets, including properties and Swiss bank accounts, so far recovered by the Presidential Commission on Good Government (PCGG) from Marcos and his cronies.
When the portfolio was acquired, Cojuangco was president of the United Coconut Planters Bank (UCPB), a state-owned facility set up using the copra levy to provide a “permanent solution” to the credit problems of farmers.
Critics described the arrangement as unusual; public funds were normally administered in a bank owned and managed by the government.
Reform activists say few farmers got loans from UCPB, which used the money for various investment schemes authorized by the Marcos decrees and unfettered by the restraints of a functioning democracy.
One of the first major investments was the disastrous multibillion coconut replanting program using the so-called Malaysian-West African variety propagated in Cojuangco’s Bugsuk Farm in Palawan province. The Mawa dwarfs withered in the country’s farmlands.
Only Cojuangco benefited from the deal, critics said.
The biggest venture easily was the allegedly clandestine acquisition of the San Miguel shares through a complicated arrangement using layers upon layers of corporate structures worthy of a Ludlum thriller.
Product of street smarts
In fact, it was conjured by a simple, logical mind. Utak kanto, is how the deal was described by a lawyer familiar with the transaction.
“There was all this money lying around in the bank,” he said. “Why not invest it instead of lending it at a measly rate? That was the logic of the street, but it was concededly logical.”
An audit in 1986 after Marcos fled showed the levy during the martial law years netted P9.7 billion, representing officially reported transactions. Estimates of the collection ran as high as P70 billion, but in many cases in the boondocks, buyers of copra did not issue receipts and traders pocketed the proceeds. In 1981, a presidential decree put the number of coconut farmers at 6 million.
Godfather of basketball
All told, 51 percent of SMC shares were acquired by Cojuangco, whose thugs once turned into a brawl a basketball game he was watching at Manila’s Rizal Coliseum involving his alma mater, La Salle. He was Marcos’ “godfather” of basketball—the country’s No. 1 sport.
Not a single one of these SMC shares was in the name of a coconut farmer.
In the litigations that followed sequestration, 31 percent of the San Miguel shares totaling 33,133,266 were designated as CIIF shares, representing the 14 holding companies set up under the Coconut Industry Investment Fund. Four percent of the shares were later converted into treasury notes.
Another block of shares comprising 20 percent of the conglomerate and consisting of 27,198,545 shares, which Cojuangco said was acquired from Enrique Zobel for $49 million paid out of his own devices, was tagged as SMC shares.
The late Zobel was a swashbuckling billionaire who shared with Cojuangco a love for horses. He had been disenchanted with the way San Miguel was being ran.
The following year, Zobel assembled a force of 12,000 Filipino workers under the direction of the renowned architect Leandro Locsin and built for his polo-playing buddy, the sultan of oil-rich Brunei, the world’s biggest palace that rivaled Buckingham and Versailles.
Corporate labyrinth
Court records show that the CIIF shares were placed in the names of Meadowlark Plantations Inc., Primavera Farms Inc. and Silver Leaf Plantations Inc.; that Jose C. Concepcion of the law firm Accra owned 99.6 percent of their outstanding shares, covered by three documents entitled Declaration of Trust and Assignment of Subscription executed in favor of an unnamed assignee; that Concepcion and four other stockholders in the company had also executed Voting Trust Agreements in favor of Cojuangco.
These negotiable instruments were among those recovered from the vault found in Marcos’ room the night he fled his besieged palace in the aftermath of the People Power Revolution in February 1986 and showed he owned the SMC stocks, or shared ownership with Cojuangco.
Prima facie public
In a ruling in 2001, the Supreme Court held in a case involving voting rights of UCPB shares that “coconut levy funds are not only affected with public interest” but are “in fact, prima facie public funds.”
Farmers’ lawyers hailed the landmark decision as a major step in the recovery of the sequestered SMC shares.
In 2004, the Sandiganbayan, in a partial summary judgment upholding the Supreme Court doctrine laid down three years earlier, ruled that the CIIF shares in San Miguel belonged to the government.
But in 2009, the high tribunal granted a petition by the Philippine Coconut Producers Federation, or Cocofed, the Marcos-designated investor of the coconut levy funds, for the conversion of the SMC common shares into preferred shares with an issue price of P75 per share.
Fearing that share prices would decline in a volatile market, the court decided that the “proposed conversion would provide better protection either to the government or to the eventually declared real stock owners, depending on the final ruling on the ownership issue.”
Saying the benefits of the conversion were clearly quantifiable, the high tribunal also pointed out that the move would also result in an 8 percent annual dividend for the CIIF bundle, a substantial amount worth around P3 billion. The court allowed SMC to redeem the stocks in three years.
Conversion amid diversification
The conversion was made amid moves by San Miguel to diversify from beverages and food to power, mining, infrastructure, telecommunications and oil refining—new ventures that have made it hugely profitable and a vital cog in the nation’s growth and development. It is already a part owner of Manila Electric Company.
The process was actually pushed by the PCGG then headed by Camilo Sabio under the Arroyo administration and resulted in the government giving up control over the CIIF shares and four seats in the San Miguel board. By then, the sequestered CIIF shares had ballooned to a whopping 753,848,312, according to the Supreme Court resolution.
Since the conversion, San Miguel’s publicly traded share has hovered around the P150-mark, twice the value at which the Sabio-led PCGG allowed its conversion, making the CIIF package worth around P113 billion.
Court records show that at the time of sequestration, the Cojuangco block of SMC shares had grown to 108,846,948 that is now valued at P84.56 billion.
The PCGG also is attempting to acquire the 4 percent CIIF shares in SMC converted into treasury notes, now estimated at P22 billion.
In all, the original investment in San Miguel is now worth a mind-boggling P220 billion.
Interest alone on the SMC shares would be enough to fund livelihood programs and help extricate from poverty a quarter of the Philippines population in 20,000 coconut-producing barangays across the archipelago, reform activists say.
‘Joke of the century’
In its April 12 ruling, the Supreme Court said the government had failed to prove that Cojuangco illegally acquired his 20 percent of SMC shares, turning a deaf ear to arguments, among others, that as head of a state bank he had the fiduciary duty to invest the farmers money not for himself but for the farmers alone.
Justice Conchita Carpio-Morales quotes Justice Douglas in her dissenting opinion: “A director is a fiduciary … Their powers are powers in trust … He who is in such fiduciary position cannot serve himself first and his cestuis second … He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency.”
Ignoring historical and factual evidence, the court also ruled that the government had failed to prove that Cojuangco was a Marcos crony.
Morales said the majority decision was “the biggest joke to hit the century.”
On Tuesday, the magistrates affirmed their April 12 ruling and dismissed a motion for reconsideration filed by lawyers of the farmers and the PCGG.
Farmers’ lawyers have expressed apprehension that the latest ruling would adversely affect the CIIF-SMC shares whose holders had been given the burden of proving ownership under the Sandiganbayan’s ruling in 2004.
San Miguel gains
In the Supreme Court resolution on the conversion of the CIIF shares from common to preferred the farmers have been set back. The current stock value had already doubled from the preferred issue price of P75 per share.
“Can you go back to the PCGG and tell them, look you made a mistake and now we are going to charge you with plunder,” said Joey Faustino, executive director of the Coconut Industry Reform (COIR) Movement. “You can’t do that because it was the Supreme Court that practically ordered them to do it.”
San Miguel, where Cojuangco is board chair and CEO, was certainly the winner in the deal.
It wasn’t the first time under the previous Arroyo administration that the interest of the farmers had been undermined.
The Yorac initiative
In 2003, the late Haydee Yorac, then PCGG chair, wangled a deal that recovered P700 million from state companies set up using coconut levy funds. The amount represented redeemable shares in UCPB. The bank’s idealistic young directors who had taken over from the Marcos-era officials wanted to use the money to help the coconut farmers.
Then President Gloria Macapagal-Arroyo, who was facing election in the following year, suggested that P1,000 be distributed to each farmer from the amount—Marie Antoinette declaring starving Parisians should eat cake. Yorac nixed the proposal.
“It was just like buying votes and it would end just there. There would be no continuity,” said Faustino, who was then a UCPB director who was trying to sell to Arroyo a marketing scheme beneficial to the farmers.
Eventually, the money was used to set up cooperatives that would buy copra directly from the farmers and sell it to oil mills, eliminating middlemen. Some 250 cooperatives were set up, but only five survived as entrenched traders saw to it that they remained dominant.
The question being asked in the current reformist environment is why the Supreme Court decided the cases concerning the San Miguel shares the way it did.
Continuing Calvary
The high tribunal, for example, ruled on the conversion issue swiftly in four months in 2009. It took barely two months for the magistrates to throw out the appeal on Cojuangco’s SMC shares. Many ill-gotten wealth cases have been unresolved for years.
“This is an Arroyo court,” said one lawyer involved in the litigation. “The scuttlebutt is that Arroyo has an interest in San Miguel.” He was expressing recurrent speculation that Arroyo now has a stake in San Miguel’s diversification, a charge she denies.
The SMC share conversion was one of the major cases decided before Chief Justice Reynato Puno retired last year.
Puno, who once said that justice was tilted against the poor, was the deputy of then Solicitor General Estelito Mendoza when he argued before the high tribunal the legality of Marcos’ Martial Law proclamation in 1972. Mendoza is Cojuangco’s chief counsel. Puno, upon his retirement, joined the San Miguel board as director.
Ranged against some of the nation’s finest legal eagles money can buy, farmers’ efforts to recover the SMC assets resembled that of a frog trying to climb out of a water well. For every two steps the frog climbs, it falls back by one step, making the effort truly tough.
Oscar Santos, 82, a former congressman who spent his entire adult life fighting for the cause of the coconut farmers, said he once pored over four inches of Marcos decrees, implementing rules and other issuances from 1973 to 1982 covering the coconut levy.
Reading from dusk to dawn, he said he counted the phrase “for the benefit of farmers” as justification for the tax written in the edicts 82 times. The scheme, he said, was nothing more than a “labyrinth of deception” in a “continuing Calvary for the coconut farmers.”
