‘If it didn’t buy SMC shares, where did coco levy money go?’

MANILA, Philippines—If the coconut farmers’ money isn’t missing, where is it?

This was how two lawyers interpreted the Supreme Court decision that said businessman Eduardo “Danding” Cojuangco Jr. was the legitimate owner of 20 percent of conglomerate San Miguel Corp. (SMC), a block of shares which the government claimed he acquired with the coco levy fund.

“So where did the coconut farmers’ contributions go? Where is the money if it wasn’t used to buy the San Miguel shares?” Jobert Pahilga, a lawyer of three farmers’ organizations, told the Philippine Daily Inquirer by phone.

Stock analysts are not raising this question. With the ruling, Cojuangco is free to execute his plan to sell out of SMC, they said.

They added that the court decision also removed the political overhang that had hounded the company since the 1986 people power revolution that toppled the Marcos regime.

Pahilga represents the Kilusang Mambubukid ng Pilipinas, Piglas-Quezon and the Bicol Coconut Farmers Association Inc., which filed a plunder case against Cojuangco in the Office of the Ombudsman about a decade ago for allegedly using the coco levy funds to buy SMC shares.

Public funds

Pahilga said the suit was based on the Supreme Court ruling in 2001 that declared the levy funds as public funds. The Ombudsman has yet to resolve the complaint.

Human rights lawyer Theodore Te noted that the high tribunal did not say in its 73-page decision where the money Cojuangco used to buy the SMC shares came from.

But it did say that the money was a “loan.”

“There was no ruling on the source of the funds. By implication, the decision means that there were no coco levy funds used in the purchase of the SMC shares… It wasn’t explained in the decision where the coco levy funds went,” Te said by phone.

Sequestrations lifted

He added: “After all these years, where’s the farmers’ money? You can even say sarcastically, ‘If the money is not lost, where is it?’”

Te said the high court’s decision that affirmed the Sandiganbayan decision lifting the seven sequestration warrants on Cojuangco’s companies was another pivotal part of the ruling.

“It means that Danding owns the shares in these companies which the government also claims were bought with coco levy funds,” Te said.

Pahilga said that after all these years, the coconut farmers still could not get back the money that the Marcos regime collected from them [from 1973 to 1982].

Then President Ferdinand Marcos ordered a tax on the produce of coconut farmers—called the coco levy—which was supposedly intended for their welfare.

“But up to now, the farmers have not seen the supposed benefits from the coco levy which amounts to billions of pesos,” Pahilga said.

The coconut farmers who paid the Marcos government taxes are now well into their 70s, Pahilga said.

“It was them who lost this case,” he said. The court decision could still be appealed. Pahilga said this would be the last chance to give justice to the coconut farmers.

Obstacle cleared

SMC president Ramon S. Ang said the ruling did not have any impact on the operations of the company. But Ang agreed that the high court ruling had effectively cleared any obstacle to Cojuangco’s planned sale of his entire stake in SMC to Top Frontier Investment Holdings Inc.

Ang said “yes” when asked if Top Frontier would exercise its option to buy Cojuangco’s stake during the allowable period.

Worth P37 billion

The stake in SMC owned by the 75-year-old Cojuangco through 44 companies is worth about P37 billion which Top Frontier has the right to acquire until Nov. 19, 2012.

In May last year, all the 44 firms signed an agreement giving Top Frontier a two-year option to buy a total of 493.37 million shares at the same price per share of P75 that the holding firm paid to minority shareholders under a tender offering.

Ang, Ongpin

Top Frontier is 49-percent owned by SMC itself as represented by Ang, Cojuangco’s trusted ally, and 51-percent controlled by an investor group that includes former Trade Minister Roberto V. Ongpin, Iñigo Zobel and condiments king Joselito Campos.

It was given “continuing” and “exclusive” option to purchase and acquire Cojuangco’s shares.

Most influential voting bloc

Even if Top Frontier has yet to exercise such an option, the agreement already gives it voting rights to Cojuangco’s shares, making it the single most influential voting bloc in SMC now.

Some analysts had said Cojuangco’s planned exit from SMC may be part of the tycoon’s estate planning move. The strategy is similar to that taken by some retiring American tycoons who cashed out their controlling stake in big firms they founded so they could distribute proceeds to heirs upon retirement. At the same time, the strategy ensures that management is handed to people deemed most fit to continue running the company.

“This (ruling) paves the way for Cojuangco’s exit from San Miguel because of the call option and the coming offering raises part of the money for Top Frontier to buy it from Cojuangco,” said Joseph Roxas, president of local stock brokerage Eagle Equities Inc.

Global road show

The ruling also comes on the heels of a global road show undertaken by SMC, which is planning to sell $850 million worth of secondary shares and US-dollar denominated bonds convertible into equity.

“The resolution removes an old investment risk issue that has hounded SMC for more than two decades,” said Jose Mari Lacson, head of research at local brokerage Campos Lanuza & Co.

“The questions over the ownership of this large block of shares have prevented the company from raising capital for expansion and caused it to rely on borrowings and asset sales for financing,” Lacson said.

Although the changes in controlling ownership over the past few years has in many ways minimized the risk, Lacson said the decision was still relevant.

“With SMC currently on the road to market its secondary shares issue, the timing of the decision is beneficial because it resolves one of the issues that longtime foreign investors will remember,” he said.

Mergers, acquisitions

Under Cojuangco’s leadership which began in 1998, SMC built up a pile of cash that funded a wave of local and overseas mergers and acquisitions, allowed the entry of Japan’s beer giant Kirin Holdings as a strategic partner initially in San Miguel. The conglomerate later spun off flagship unit San Miguel Brewery.

His reign also marked SMC’s diversification into capital intensive but potentially higher yielding heavy industries.

San Miguel now has interests in power generation, power distribution, oil refining, telecommunications, mining, tollway and airport development, and banking.