Code-NGO, RCBC used stealth, influence to gain from bonds scam

The Caucus of Development NGO Networks (Code-NGO) formed by known backers of both former President Arroyo and President Aquino and which acted as the secretariat of Kompil II, the umbrella organization which called for the removal, impeachment and ouster of former President Joseph Estrada, and its bank partner, Rizal Commercial Banking Corp. (RCBC) of the Yuchengco group made a killing from the anomalous float of the so-called Poverty Eradication and Alleviation Certificates or PEACe bonds on Oct., 2001, using government connections, documents obtained by The Tribune showed.

Based on the documents, Code-NGO purchased the bonds with money it did not have and sold it to investors affiliated with RCBC, the very bank that underwrote the deal.

For this Code-NGO earned a staggering amount of P1.8 billion in gross profit. Code-NGO then distributed its windfall, paying its financial advisers and RCBC at least P400 million in fees. It kept 10 percent of the P1.4 billion, roughly P140 million, for itself, then set up the Peace, Equity, and Access for Community Empowerment Foundation (Peace and Equity Foundation), the incorporators of whom were mostly the same offcials of Code-NGO, with a permanent endowment of roughly

P1.3 billion, according to the documents.

It was shown in the documents that RCBC was sure to win the bid in which it had already lined up clients for the bonds it will purchase to immediately buy from the said bank after the auction. RCBC received a two percent commission for the sale when the going rate for a P10 billion bond flotation was only one-half percent, based on the documents

It was also shown that the Treasury should have rejected the bids because the gap between the purchase price and ultimate market value was too wide. Instead of using a 14.14 percent interest rate as the benchmark, the Treasury should have aimed for an amount that was closer to nine percent, which was the going yield of financial assets that are eligible to be used as bank reserves mandated by the BSP.

It was admitted by Code-NGO that it was the one which proposed all the conditions for the bond issuance and secured the approvals from the government offices. RCBC Vice President Valentin Bagatsing was quoted as saying that as early as March 2001, the bank had priced the correct bid at 11 percent. The bank submitted the winning bid at 12.75 percent since it guaranteed a profit to Code-NGO of P1.8 billion. The other bidders submitted 16.75 to 17.5 percent since they did not know of the other “sweeteners” provided to the float.

The documents showed that a mere two months after President Arroyo was installed into office through a military-backed supported by the Church hierarchy and a group of then so-called civil society in which officials of Code-NGO were among the leaders, the group sought the approval of finance officials for an endowment mechanism that would purportedly help alleviate poverty through the float of zero coupon bonds.

Another document showed that a month after Edsa ll was staged to oust Estrada, Code-NGO had started to broach the zero PEACe bonds float to investment bankers.

Code-NGO then first presented the idea to the Arroyo administration through then Finance Secretary Alberto Romulo. Under its proposal, P10 billion worth of bond would be floated in the market payable in ten years.

Under the proposal, the zero coupon bonds would not pay interests periodically and are issued at a high discount on its face value. In this case, the zero PEACe bonds had a 10-year maturity, hence, the borrower, which is the government, would only pay the interest by the end of the 10th year. The P10 billion bond would, therefore, become P35 billion by the end of the 10-year period based on the documents.

Code-NGO under the proposal already earmarked a P1.4 billion profit for itself which it proposed to be exempted from the payment of withholding, corporate income and capital gains tax.

From the P1.4 billion profit, Code-NGO was also expected to earn a P140 million commission for merely packaging the flotation.

Initially, Code-NGO sought to earn the P1.4 billion profit from the bond flotation through a negotiated sale with the Arroyo government but the plan was changed into an auction when the negotiated sale proposal ran into objections from mainly the then head of the Bureau of Treasury.

To earn the P1.4 billion windfall, Code-NGO had to ensure that it will corner the bonds sale. The PEACe Bonds was coined by Code-NGO to signify its intention of using the profit as a permanent endowment to fund poverty alleviation projects.

The grant of the Monetary Board of various eligibilities to the float was premised on the creation of an endowment fund for Code-NGO. These eligibilities and tax exemptions were worked out as the so-called “sweeteners” given to Code-NGO which were then negotiated with top officials in the Monetary Board, Bureau of Internal Revenue (BIR) and the Insurance Commission.

Code-NGO managed to secure control of all the bonds through maneuvers conducted prior and during the bidding to make sure that the timing and process of disclosure would favor the most prepared meaning Code-NGO which knew all the details, and its partner bank, RCBC which knew details of the float months before the bidding.

Documents showed that most of the prospective bidders shortlisted for the float were kept in the dark on the details of the bond issue since no prospectus was prepared and issued before the auction which was not a common procedure and considering that it was the maiden issue of zero-coupon bonds in the country.

The announcement of bidding conditions was made only a day before the auction on Oct. 16 against Bureau of Treasury rules that require at least three working days notice.

Some of the favorable features of the bond issue were also not announced to all with only the RCBC-Code NGO group knowing them well in advance that allowed it to submit a winning bid way below the other bidders.

Instead of the usual tamper- proof electronic bidding procedure, a manual system using fax transmissions was used for the auction of the bond, it was further learned.

The documents showed that in the 50-year history of the Bureau of Treasury, the PEACe bonds flotation was the first time that a single bidder, which was RCBC, won all the bids for such a big amount.

Aside from the irregularities in the bidding process, it was also obvious that Code-NGO maneuvered the whole process to ensure that it would get the P1.4 billion profit without paying a single cent.

Code-NGO got the approval from the Insurance Commission on the PEACe bonds only a month after the auction but it was premised on the former’s winning the auction.

Code-NGO was spearheaded by Marissa Camacho Reyes, a sister of then Secretary of Finance Jose Isidro Camacho.

The other incorporators of Code-NGO are Ernesto Garilao, former Agrarian Reform Secretary; Karina Constantino-David, former Chairperson of the Civil Service Commission; Teresita Silva, Fr. Medardo M. Estaniel, Social Action Director/Diocesan Ecology Desk Diocese of Malaybalay Malaybalay, Bukidnon; Eugene Gonzales, Synergos Senior Fellow; Rey Natividad, Primo Racimo, Romulo Villamin, Chief Executive Officer of the National Confederation of Cooperatives (NATCCO) and currently head of the Institute for Co-op Excellence; Conchita Ragracio, an Urban Environment Management Specialist; Corazon Juliano-Soliman, now DSWD Secretary; and professor Fernando T.Aldaba, Chairperson of the Economics Department of the Ateneo de Manila University. Danilo Songco, who once served as DBP Director, was a national coordinator while Presidential Adviser on the Peace Process Teresita Deles was said to be also behind the group. –Daily Tribune