Housing agency P12B in the red—COABy Leila B. Salaverria
Philippine Daily Inquirer
The Home Guaranty Corp. (HGC), the state entity whose task is to provide shelter for the homeless and the impoverished, has incurred a P12-billion deficit and may be unable to accomplish its work, according to the Commission on Audit (COA).
The government corporation had an accumulated deficit of P12.771 billion by the end of 2011, the COA said in its 2011 report on the HGC.
It said the HGC would need to fast-track the disposition of its foreclosed assets and warned the agency from turning to the capital markets as it would only lose more money and generate deficits from the enormous financial charges.
The COA said the HGC’s projects are at risk because of the huge deficit.
“HGC’s accumulated deficit of P12.771 billion continues to cast doubt on its ability to provide a viable shelter program for the homeless and underprivileged sectors of society,” the COA said.
However, the HGC remains upbeat about its prospects, telling the COA that despite its accumulated deficit, it remains confident as a guarantor because it performed relatively better in 2011, increasing its net income by 44.23 percent 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 admitted that fund allocations from the national government have been limited to P500 million per year because of limited resources.
The HGC also said the approval of guaranty applications of client banks has been controlled so as not to 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 guarantees went up from P2 billion in 1998 to to P7 billion in 2000.
Toll on liquidity
“The impact took a toll on HGC’s liquidity position as a 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 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 markets to raise funds through the flotation of zero coupon bonds.
A zero-coupon bond is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity. It does not make periodic interest payments, or have so-called “coupons,” hence the term zero-coupon bond. When the bond reaches maturity, its investor receives its par, or face, value.
The deep discount bonds, however, did not turn out to be the HGC’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.
Slow property sales
It also said the HGC could not immediately dispose of some of its assets because of problems with squatters, the so-called informal and illegal settlers, which slowed down the sale of the properties.
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 from 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 P13.57 billion was paid up because the national government is financially distressed, according to the COA.