Senators castigate government bank execs over $225-M MRT deal

Senators on Tuesday castigated government banking and finance officials over an alleged $225-million overprice in the purchase of shares that allowed the government to gain control of Metro Rail Transit Corp. (MRTC), which built the mass rail system along Edsa.

Senator Sergio Osmeña III, chairman of the committee on banks, said former President Gloria Macapagal-Arroyo could be liable for the questionable transactions, which became possible by virtue of her Executive Order No. 855.

The EO allowed Development Bank of the Philippines (DBP) and Land Bank of the Philippines to acquire MRTC interests in 2008, using “special purpose vehicles” (SPVs) such as Global Air Services (GAS), a British Virgin Islands-based shell company allegedly affiliated with businessman Roberto “Bobby” Ongpin.

“This is the first direct link we have where the President really said you go ahead with the deal. So if we find there has been (corruption), then we can implead her,” Osmeña said after his committee’s hearing on Ongpin’s alleged insider trading involving Philex shares.

Osmeña said Arroyo could be charged with plunder or violation of the Anti-Graft and Corrupt Practices Law.

Ongpin, who skipped the hearing, earlier denied engaging in insider trading, including any affiliation with GAS.

The problem, according to the senator, was that the government allegedly went beyond the buyout price of $776 million and made the purchase at $1 billion. “It’s too much,” he said.

Osmeña said the Senate inquiry had yet to determine who benefited from the alleged overprice. He described as “one of the most complicated, complex financial transactions” the acquisition of MRT interests through SPVs, particularly GAS.

“As a matter of fact, if we ask the old directors of DBP and Landbank, maybe only one or two understood what the deal was about. The rest were just rubber stamps,” he said.

Osmeña said it was also difficult to pinpoint a particular culprit as of Tuesday’s hearing because the transactions were done through “front organizations.” He said it was not easy to get the books of accounts because these were all foreign corporations.

Focus on GAS

Senators focused their inquiry on GAS, which was formed with a capitalization of only $2. Still, DBP and Landbank granted it $180 million in syndicated loan in 2008.

Bank officials said GAS got the loan to allow the two government banks to acquire MRTC financial instruments.

Then Finance Secretary Margarito Teves said the instruments consisted of “unsecuritized equity rental payments, MRT notes, and preference shares issued by MRT3 Funding Corp. Ltd.”

“We just lent to GAS for purposes of acquiring the shares,” Landbank president Gilda Pico told senators.

Senate President Juan Ponce Enrile grilled bank officials over the background and nature of GAS, noting that it had no clear board of directors or any other official or structure that would give it a semblance of legitimacy to do business in the Philippines.

“Did they use GAS to hide the payment of profit to the Philippine government?” he said, pointing out that DBP and Landbank might have used the transaction to avoid paying proper taxes.

“I get the impression that there is a special effort to hide the person behind GAS … Are you telling me that this company did not make any money in this transaction? That was just used as a vehicle?” he told bank officials.

In a hurry

Enrile also questioned the “rush” with which the DBP and Landbank supposedly acquired MRT shares through GAS. He noted that the acquisition was yet to get the approval of the Bangko Sentral ng Pilipinas.

“What was the hurry for on your side? Why the hurry to acquire the shares so much so that you had to use a thinly capitalized corporation without any presence in the country,” he added.

Teves recalled that the decision to buy out MRTC was based on a “consensual unwind agreement” finalized in January 2008. Later on, he said MRTC became “impatient due to the government’s nonimplementation of the MOA.” He said it also sent “equity buyout notices claiming $2.5 billion from the government.

“The acquisition had to be done swiftly primarily because MRTC had already sent notices of arbitration starting Dec. 4, 2008,” he said in a presentation during the hearing.

Teves said an arbitration would have led to “a downgrade of the country’s credit ratings, possible shutdown of the MRT system, and possible payment of claims to MRTC amounting to approximately $2.5 billion related to arbitration.”

The government is heavily subsidizing MRT fares to the tune of more than P7 billion a year. Some half a million passengers use MRT 3 daily.