The Aquino administration had to pump in P12 billion in emergency funds to state-run Home Guaranty Corp. (HGC) last month to help it pay off debts and avert the collapse of its financing program for socialized and low-cost housing.
HGC president Manuel Sanchez said his company was not bankrupt but only “cash-strapped” as it was loaded with properties that it could not sell fast enough.
The HGC provides risk guarantees and fiscal incentives to spur private and public lending to socialized and low-cost houses.
Sanchez said the government had to give the HGC a lifeline after it was faced with debts last month of which P12 billion was for the zero-coupon bonds issued by his predecessor, Gonzalo Bongolan, who went on an ill-advised borrowing spree during the Arroyo administration.
“We had to borrow P12 billion from the government to ensure our continued operations. Without the loan, we will be forced to stop and the housing sector will be in peril,” HGC said.
Sanchez said roughly 70 percent of HGC’s guarantees covered socialized (each worth P400,000 and below) and low-cost (P2 million and below) housing projects.
“We have no choice but to offer a sovereign guarantee. No private or public institution will lend to the housing sector without our guarantee.”
Old Bilibid for sale
Sanchez said the HGC had committed to pay off its debts to the government quickly by fast-tracking the sale of big-ticket items such as the Old Bilibid property and the national government compound in Quezon City to raise cash.
The HGC has P31 billion in real estate holdings but most of these were either locked in legal battles with their previous owners or occupied by squatters, hampering their disposition.
Sanchez is also hoping that the government would convert these advances as capital into the HGC as it only has P13.573 billion in paid-up capital out of the P50-billion capitalization under its charter.
The HGC is also lobbying to triple the government’s annual subsidies from P500 million to P1.5 billion to give it a more solid financial footing.
COA findings
The Commission on Audit (COA) said HGC, which has P78.339 billion in total guarantees, had a high risk of not paying its guarantees because its reserve fund of P536 million was only 0.24 percent of total approved guaranty lines (P222.286 billion) and 0.68 percent of total outstanding guarantee (P78.339 billion).
Under Bongolan, who led HGC from 2001 to 2010, it issued a combined P22 billion worth of debt papers dubbed zero-coupon bonds (that pay no periodic interests but its face value is paid on maturity date) in three tranches—2002 (P7 billion), 2004 (P3 billion) and 2007 (the P12 billion which matured last month).
Less the yield to investors and the commissions of issuers, the HGC raised only P12.136 billion from these bond floats or 55 percent of the amount it borrowed.
An HGC official, who refused to be named for lack of authorization from management, said that Bongolan’s borrowing binge was a “bad decision” as it merely delayed the pain.
The bonds in 2004 and 2007 were issued “out of desperation” as HGC could not pay off its original bond issue in 2003, the HGC official pointed out.
Losses understated
The same HGC official said the previous management also jacked up the value of its assets while understating its losses as pointed out by a COA report in 2008—the assets were booked at P2.682 billion while the appraised value was P793 million. Losses were understated by P1.9 billion.
Despite facing losses and substantial loan payments, the previous management rewarded themselves with hefty bonuses and perks, the HGC official said.
In its 2012 annual audit report released last October, the COA said that HGC had been “continuously incurring losses since 2002 as the prepaid financial charges caused a negative impact on HGC’s earnings as it was forced to pay a low of P241 million in 2002 and a high of P1.313 billion in 2010 to service its debts.
The COA recommended that HGC “refrain from turning to the capital market for liquidity through bond flotation as this would generate more losses and deficits for the corporation due to the enormous financial charges that the bonds carry.”
Sinking fund
The COA also noted that had the HGC “religiously adhered” to its commitment to remit annually to a sinking fund administered by the Bureau of Treasury from 2003 to 20011, it could have paid off all its bond dues and still have a surplus of P7.569 billion.
Bongolan did not reply to the Inquirer’s query. He was part of the tight-knit group led by Michael T. Defensor who controlled the housing portfolio in the Arroyo administration.
The group included incumbent Marikina Rep. Romero Quimbo, who was Home Development Mutual Fund (Pag-Ibig) president from 2001 to 2009.