MANILA, Philippines–Alphaland Corp. executives on Wednesday defended its agreement with the Boy Scouts of the Philippines (BSP) to develop a one-hectare property in Makati City, belying the allegation that a 5-percent portion of the deal went to the BSP president, Vice President Jejomar Binay.
At the resumption of the hearing of the Senate blue ribbon subcommittee on irregularities in Makati, including the BSP deal, when Binay was mayor, former Makati Vice Ernesto Mercado claimed the Vice President had received kickbacks from the Alphaland Makati Place deal that could reach as much as P651 million.
Mercado, a former ally of Binay, alleged that 5 percent of the deal was given to Binay through Silvertown Property Development Corp. shares transferred to the firm Noble Care of Mario Oreta, now Alphaland Corp. president. The Silvertown shares were later exchanged with Alphaland shares.
Oreta, president of Alphaland Corp., said the 5-percent of the deal that went to Noble Care was part of his compensation for crafting the deal with the BSP.
Nonsense
Alphaland CEO Roberto Ongpin said Mercado’s assumption that the 5 percent given to Oreta was delivered to the Vice President was “complete nonsense.”
In his testimony last month, Mercado said Silvertown and the BSP entered into a joint-venture agreement in June 2008 to develop the property on Ayala Avenue Extension and Malugay Street in which the developer would acquire rights, title and interest in 85 percent of the gross floor area, and the BSP, as landowner, 15 percent.
Mercado, then BSP senior vice president, said he opposed the sharing, and pushed for a 20-percent share for the BSP, but was overruled by Binay.
Quoting Binay’s aide Gerardo Limlingan, the former vice mayor said 5 percent, a fourth of the 20 percent, represented Binay’s share to fund his election campaign, and for which the latter got an initial P189 million.
To escape responsibility, Binay asked his then vice mayor, Mercado, to sign the agreement, opposite Oreta, Mercado said.
So Binay could collect his share in August 2008, Alphaland granted Noble Care a 5.88-percent stake in Alphaland/Silvertown, equivalent to 2,031 shares at P10 each, or P20,310, he added. It also granted Noble Care a P100.4-million loan.
After two years, Alphaland bought back Noble Care’s shares for P88.973 million, and wrote off its P100.4-million loan, or a total of P189 million.
The deal maker
Mercado claimed this amount became Binay’s “initial kickback.” All these transactions were carried out during Binay’s birthday on Nov. 11, 2010.
On June 2, 2011, the agreement was amended after Alphaland acquired Silvertown. On the same day, the BSP executed a deed of absolute sale of the property in favor of Alphaland.
At the Senate hearing on Wednesday, Oreta said Noble Care’s assets, including the 5 percent carried interest in the Makati Place project, were all owned by him and his two partners.
“To emphasize, your honors, Vice President Jejomar Binay or any other person aside from the three (Oreta and his partners) of us has no interest whatsoever in Noble Care or in its assets,” he said.
“We own the assets and the company 100 percent,” Oreta said of Noble Care.
Oreta said the 5 percent formed part of his compensation and he was not just a mere salaried employee in Alphaland, but a deal maker.
When he joined the company, there was an agreement that he would get carried interest if he packaged a deal for Alphaland.
Tax evasion or kickback?
But Sen. Alan Peter Cayetano said Oreta could be liable for tax evasion when he failed to pay income tax for the shares he got as compensation.
“The question is, ‘Is that the Vice President’s kickback or did you commit tax evasion?’” Cayetano asked.
By Cayetano’s estimate, income tax liability for Oreta’s shares amounted to P550 million to P600 million, including surcharges. He said that if one was paid compensation, one had to pay a 30-percent income tax.
He said that the tax on shares would be based on the price on the stock exchange, not on the par value for which it was bought.
According to him, the 2,031 Silvertown shares were valued at P20 each when Oreta received these, when these were actually worth P12,000 per share.
When Alphaland bought back Noble Care’s shares in Silvertown, it issued 8.9 million Alphaland shares to Noble Care at a par value P10 per share. But at that point, the actual price was an average of P60 per share, he said.
Mercado on Wednesday said that with the price of the Alphaland shares, Binay’s kickback could amount to P133 million to P551 million, depending on when these were sold.
If Noble Care’s P100 million condoned loan from Alphaland is factored in, the alleged kickback could be P233 million to P651 million, Mercado said.
Shares not sold
Oreta said he did not commit tax evasion. He said he had a tax clearance and paid P18 million capital gains tax for shares valued at P189 million. He also believed he did not need to pay income tax because he had not sold the shares.
“How can I pay income tax? There was no income,” Oreta said.
Ongpin said Noble Care had reported capital gains and paid the corresponding tax. It was required to pay only the capital gains tax. Ongpin also said Noble Care continued to own the Alphaland shares of stock and Oreta had not sold these.
“When and if he does sell those shares, he pays the final tax,” Ongpin said.
Cayetano said that if the money really went to Oreta, this could be traced. He asked if Oreta was willing to waive the bank secrecy of Noble Care to show where it went.
But Oreta said he was not ready to do that.
Neither confirm nor deny
Cayetano then asked if it was true that P100 million was withdrawn in one day. “I neither confirm nor deny,” Oreta replied.
Cayetano also alleged that between October and December 2012, the Alphaland shares in Noble Care disappeared, but Ongpin disputed this. Ongpin said Oreta could produce the shares.
The Alphaland CEO also said the BSP got more than what it shelled out when it entered into the joint-venture agreement with Alphaland to develop the prime property, adding that Mercado negotiated a “fabulous” deal.
Ongpin said he could not understand why Mercado was claiming the BSP got the short end of the stick, when its P600-million share now amounted to more than P3 billion.
“The Boy Scouts had no risk. They contributed P600 million. We funded everything and their investment is worth five times P600 million. That’s a 26-percent return on investment. Any way you look at it, that’s a great return,” he said.
“And therefore I feel Mr. Mercado should be congratulated for having negotiated such a fabulous deal for the Boy Scouts,” he added.
Ongpin said BSP’s contribution to the deal to develop the 1-hectare property into a mixed-use facility, which has a total construction cost of P5 billion, amounted to 12 percent of the project.
The BSP owned part of the property and this area was valued at P600 billion. Under the agreement, Alphaland would provide the total construction cost for the Makati Place project.
But Ongpin said that during negotiations, Alphaland agreed to increase BSP’s share to 15 percent. The sharing scheme has been retained even if the project cost has gone up to P8 billion, he said.
“To explain, had the sharing been adjusted in view of the new project cost, the contribution of the Boy Scouts amounting to P600 million would only be entitled to 7.5 percent,” he added.
Not only was the deal a good one in which “both Alphaland and Boy Scouts will make a lot of money,” it was also not tainted with irregularities, Ongpin said.
Some senators did not appear convinced that it was a good deal.