Privatizing the United Coconut Planters Bank
The United Coconut Planters Bank (UCPB) is number 12 of 42 in the Bangko Sentral ng Pilipinas (BSP) ranking of Philippine universal and commercial banks, with its assets of P310.732 billion as of June 30, according to the Bangko Sentral ng Pilipinas (BSP). Published balance sheet as of June 30 show deposits of P270.111 billion plus other liabilities, all totaling P292.968 billion, covered 1:1 by assets of which P73.438 billion are cash or near-cash, or 27% vis-à-vis deposit liabilities. Of Gross Total Loan Portfolio of P151.898 billion only 3.23% are Nonperforming Loans (NPL). Return on Equity (ROE) is 22.75% for the quarter ended June 2017 compared to 21.47% as of the previous quarter (Ibid.). Capital Adequacy Ratio (CAR) is at 8.19%, compliant with Basel III norm of 8%. ( The Economic Times, 10.08.2017).
“UCPB will soon be privatized,” Finance Secretary Carlos G. Dominguez III told a forum in September ( The Philippine Daily Inquirer [PDI], 09.25.2017). Privatization would mean selling the government’s 73.9% stake in UCPB worth at least P1.1 billion (1,106,408,800 in common shares at a minimum price of P1 each) and recapitalization of at least P15 billion through subscription to up to 37.2 billion of primary common shares ( BusinessWorld, 03.04.2016).
“I don’t believe their valuation because that’s all book value. We have to reassess. We have to make a reassessment of the current values,” Sec. Dominguez said ( PDI, op. cit.).
Yes, the pricing of UCPB will be a most critical issue. It cannot be valued at a loss for government, because there is no flexibility to book losses under auditing rules for state-run agencies ( inquirer. net, 01.19.2014). But of course, pricing cannot be too expensive, as this will discourage potential buyers. What must be established is the fair market value, based on honest analysis of past financial performance and how this was achieved, and projected income/ profitability based on assumptions of future economic and market conditions to achieve and sustain this.
A crucial matter is Department Circular ( DC) 1- 2015, issued by then Finance Secretary Cesar V. Purisima (under President Aquino III) that mandates all state agencies, GOCCs and LGUs ( local government units) to deposit funds only with authorized government depository banks. “The government is currently supporting UCPB with deposits in excess of P40 billion,” according to Sec. Dominguez ( PDI, 09.25.2017). These deposits will be pulled out when UCPB is privatized — unless DC 1-2015 is revoked.
Revenue projections for the privatized UCPB will thus be affected, and will have to be conservatively downgraded. This has to be reflected in calibrating the privatization pricing. But the pricing dilemma is complicated because of nagging questions on who are the real owners of shares in UCPB — and the impoverished coconut farmers and the coconut levy fund established way back in Ferdinand Marcos’s martial law must be remembered.
The coco levy refers to the taxes imposed on coconut farmers by Marcos. Eduardo “Danding” M. Cojuangco, Jr., who was at the time chairman of the board of the Philippine Coconut Authority, was tasked to collect and manage the funds (Rappler, 01.21.2017). Nearly P9.8 billion was collected from