New-old UCPB boss alarms coco farmers

A former head of United Coconut Planters Bank (UCPB) accused of arranging allegedly questionable megadeals for companies linked to Eduardo “Danding” Cojuangco Jr. is again taking control of the state-owned bank for coconut farmers, alarming industry activists.

Without fanfare, Malacañang last month announced that President Benigno Aquino III had appointed Jeronimo Kilayko as president and chief executive officer of UCPB. He was the bank’s chairman and CEO during the short-lived Estrada administration (July 1998-January 2001).

Kilayko takes over from Ramon Y. Sy, who is stepping aside Tuesday amid a Senate inquiry into allegations that P30 billion in UCPB assets had been squandered since the Estrada years,  prompting the bank to secure rehabilitation funding from state-run Philippine Deposit Insurance Corp. (PDIC).

“They’re running the bank to the ground,” fumed Senator Ralph Recto.

While Sy has turned the bank around in the last three years, leaving it with assets of P1.5 billion, Kilayko’s assumption at the helm of UCPB Tuesday, when its board meets to put an imprimatur to Mr. Aquino’s appointment, has worried industry activists.

“This is dangerous,” said Joey Faustino, executive director of the Coconut Industry Reform Movement (COIR) which is at the forefront of a campaign to alleviate the plight of some 3.4 million impoverished coconut farmers and workers.

Faustino pointed out that when Kilayko, along with Lorenzo Tan, then president and chief operating officer, ran the bank, the  UCPB extended billions of pesos in loans to companies connected with Cojuangco, an astute politician and shrewd businessman with a reputation of Pac-man, the computer game in which the player gobbles up everything in its path.

Romeo Royandoyan, head of the farmers’ advocacy group Centro Saka, said Kilayko represented the interests not of the farmers but of Cojuangco, who as head of the bank during the martial law years used its funds to buy 51 percent of San Miguel Corp. (SMC).

“Why did Malacañang allow an appointment that is against his matuwid na landas,” Royandoyan said, referring to the President’s reformist campaign slogan “straight path.”

Asset reform

Already, a Catholic Church-led multisectoral group has expressed concern that 17 months into his presidency, Mr. Aquino had not put substance to his campaign promise to promote social justice, notably in agrarian reform, as a centerpiece program to alleviate poverty.

“There is no social justice without asset reform,” said Christian Monsod, one of the leaders of the broad-based antipoverty coalition.

Apprehensions about Kilayko’s appointment center on unresolved issues surrounding shares of stocks in SMC, a  highly diversified conglomerate, acquired by using funds from a coconut levy imposed during the martial law years under Ferdinand Marcos.

Critics said the levy funded the profligate programs of the dictator’s wife Imelda. Among many others, the levy collection was used to hold a lavish international film festival and the construction of the Coconut Palace for the 1981 visit of Pope John Paul II, who refused to stay in seaside opulence amid so much poverty in the nation.

Major supporter

In 1983, while he was UCPB president, Cojuangco, Mr. Aquino’s uncle and a major financial supporter during his run for the presidency last year, acquired the SMC shares for P2 billion.

The shares were sequestered by Corazon Aquino, the President’s mother, in a bid to recover ill-gotten wealth after the Edsa People Power Revolution in 1986 forced the dictator into exile in Hawaii, along with Cojuangco.

The businessman returned in November 1991, seven months before the end of the first Aquino administration. He denounced the “frivolity and baselessness” of the charges against him and vowed to vindicate himself in courts.

Stocks now worth P200B

The SMC block of shares is now worth more than P200 billion—enough to lift the coconut industry from the depths, the main reason advanced for the collection of the levy although very little of it went to the poor farmers.

In April, the Supreme Court, in a ruling denounced by a dissenting justice as the “the biggest joke to hit the century,” awarded 20 percent of the SMC block of shares to Cojuangco after a quarter century of judicial battles.

Sequestration of the Cojuangco shares was lifted following the court ruling, the Philippine Daily Inquirer was told.

The rest of the SMC holdings, designated as CIIF shares after the Coconut Industry Investment Fund under which they were acquired, are awaiting final adjudication by the high tribunal on an ownership issue.

However, the CIIF block of shares was converted from common to preferred in 2009 with each share valued at P75 in one of the last decisions presided over by Chief Justice Reynato Puno before he retired. It was a great loss to the farmers, as SMC shares had gone to as high as P150 per share.

Puno is now a director in the SMC board. He was deputy to then Solicitor General Estelito Mendoza during hearings questioning Marcos’ imposition of martial law in 1972.

Mendoza is Cojuangco’s chief counsel in the litigation of the SMC shares allegedly acquired in violation of the tycoon’s fiduciary trust as head of UCPB and the CIIF oil mills in an elaborate coconut monopoly scheme.

Coconut monopoly

UCPB has received more than P7 billion in quarterly dividends from San Miguel as a result of the conversion of the CIIF block of shares to preferred shares, according to a senior Aquino administration official. SMC has the option to redeem more than 750 million of the CIIF shares under the deal next year.

The dictator Marcos had set up the monopoly with Cojuangco, the late Maria Clara Lobregat who headed the federation of coconut planters and then Defense Secretary Juan Ponce Enrile, following the declaration of martial law.

It was funded by the coconut levy imposed in a series of presidential decrees issued beginning in 1973 as a consumer subsidy avowedly to ameliorate the condition of the farmers and modernize the industry.

The first decree expanded a premartial law levy of 55 centavos per 100 kilos of copra under an investment program to P15/100 kilos. It was raised to as much as P100/100 kilos to fund various investments in related coconut activities.

With all the money floating around, Cojuangco in 1975 arranged the acquisition of First United Bank (FUB), owned by the family of his cousin, Corazon Aquino. It became UCPB.

At the time, the Aquino-Cojuangco branch of the clan had been hit by a double whammy. Corazon’s husband, the opposition leader Benigno Aquino Jr., was in jail (he was assassinated in 1983 on his return from US exile) and the family’s sugar plantation, Hacienda Luisita, had been hit by falling world prices for sugar.

An audit after the ouster of Marcos showed that the levy collection had reached P9.7 billion. But billions more were pocketed by traders.

Déjà vu

A case of déjà vu haunts reform groups in the coconut industry with Kilayko’s reappointment.

In 2003, an in-house audit ordered by the late Haydee Yorac, the highly respected chairprson of the Presidential Commission on Good Government (PCGG), revealed that over P4 billion in “behest loans” were extended during the Tan-Kilayko years at UCPB.

The audit showed that UCPB lent P1.4 billion to Lucky Star Holdings Inc., P2 billion to Asturias Holdings and P700 million to Skyssets Inc.—companies linked to Cojuangco and Ramon Ang, chair and president of San Miguel, respectively.

Skyssets was a lease-aircraft operator. Asturias and Lucky Star secured the loans to build cement plants in Pangasinan and Batangas provinces. Their operations had nothing to do with ameliorating the plight of the coconut farmers, for which the government had acquired UCPB.

The three companies were said to have no track record of profitability, had insufficient collateral and doubtful prospects for repayment. No diligence audit was conducted on the transactions, according to the PCGG-initiated audit. Ang, along with Kilayko, then said that the loans were all legitimate and were fully secured by collateral, including prime properties and shares in major corporations.

Behest loans

The loans were part of the P10 billion in behest loans granted to Cojuangco-linked companies since 1999, according to PCGG papers obtained by the Inquirer in 2003.

They also included a P900-million lease-purchase agreement Kilayko signed on Oct. 16, 1999, involving  Indophil Oil Mills Inc., Southern Oil Mill Corp., PCY Oil Manufacturing Corp., Metroplex Commodities Inc. and Countryside Millers Inc.

These private oil mills were more than 20 years old and were to be mothballed. At the time, the six CIIF oil mills owned by the government were already underutilized as copra production was on the downswing.

“It is this penchant for fraudulent schemes, shown by Cojuangco’s pre-Edsa I history and confirmed to the present by this CIIF transaction, that more than ever puts public assets in danger of dissipation,” the PCGG then said.

“One can only imagine what private respondents can do if they already have full control of UCPB.”

The PCGG exposé in 2003 came as the bank tottered, forcing it to seek P20 billion from PDIC. The rescue package, including a P10-billion equity acquisition, has since reached P30 billion, the Inquirer has learned.

Faustino said he understood the loans to Asturias, Lucky Star and Skyssets were repaid using proceeds from the sale of 7 percent of Cojuangco’s sequestered SMC assets.

When he, Royandoyan and Vic Fabe exposed the deal, they were fired by Camilo Sabio who took over the PCGG upon the death of Heidi Yorac in 2005. The three had been Yorac’s appointees to the UCPB board.

“What happened before could happen now,” Faustino said, pointing out that the UCPB board is now dominated by Cojuangco’s people. “It’s only a matter of time.”