Investors show no interest in government’s NPLs in housing sector

The bidding for some P14-billion worth of bad loans of the National Home Mortgage Finance Corp. (NHMFC) was declared a failure yesterday as investors expressed reservations on the structure of the asset management company (AMC) that would take over the portfolio.

The much-anticipated auction for the housing loan portfolio of the NHMFC would have been the first of its kind under the Special Purpose Vehicle Act (SPVA) and would have taken off a significant portion of the banking industry’s non-performing loans (NPL).

Officials revealed after the closed-door proceedings that the bidders had opposed the government’s insistence at retaining control over the decision-making process of the new entity that would take over the bad loans once it is awarded after the bidding.

The bidding process started at 10 a.m. and the bid box was formally opened in the afternoon but unlike previous auctions of other government-owned assets, the NHMFC’s supposed public auction was closed to the media and the public, despite the moves of the Department of Finance to make the process completely transparent.

NHMFC president Angelico Salud told a press conference later that none of the bidders satisfied all of the conditions set by the company’s bidding and awards committee (BAC).

Salud refused to reveal how many bids were actually turned in but reports said there were two envelopes in the bid box. The NHMFC had earlier pre-qualified four groups: Goldman Sachs, Lone Star, Lehman Brothers and Deutsche Bank.

The NHMFC was assisted by Ernst & Young, the appointed financial advisor that packaged the portfolio for eventual sale under the SPVA. The transaction would have qualified for incentives under the law, including tax breaks and staggered booking of losses over a period of 10 years.

According to Salud, the BAC was forced to disqualify the bids because the documents were not signed by the bidders due to their respective reservations on several major points.

Salud said the main point of contention was the proposed ownership structure of the AMC wherein NHMFC demanded continued protection by exercising significant control over the decision-making process.

"It was agreed that the NHMFC would have a minority share in the AMC but as a minority shareholder, we want to be involved in making investment decisions," Salud said.

Salud admitted that there were also reservations over the "perceived gap" between the NHMFC’s "reserve price" and the valuation of the bidders.

"We don’t know whether there was a gap because we didn’t open the actual bids since none of them were qualified bidders," Salud explained. He also declined to reveal what the NHMFC’s reserve price was.

After the failure of the first auction, Salud said another bidding would be scheduled before the May 10 elections, possibly at the end of April. "We will publish another announcement for the second bidding next week," he said.

The STAR attempted to confirm which of the four pre-qualified bidders actually made a bid for the NHMFC portfolio but none of them was willing to disclose if they participated in the auction.

The auction was also marred by concerns over Executive Order 281 which deferred the eviction, foreclosure and cancellation of housing accounts that have been marked inactive and delinquent.

The EO directed all government housing agencies to come up with a restructuring plan for the restructuring of delinquent accounts but DOF sources said the sale to private asset management companies would be part of this comprehensive plan.

The official explained that once an asset management company takes over the delinquent housing loans, the loans will be restructured and reactivated so that the original borrowers could pay within a reasonable amount of time.

EO 281 covered all delinquent housing loans for cancellation and foreclosure, foreclosed accounts and consolidated accounts with all government agencies under the National Shelter Program.