HGC in dire financial straits - COA

MANILA, Philippines - The Home Guarantee Corp. (HGC), the government-owned and controlled corporation (GOCC) tasked to operate a credit guaranty program in support of government’s effort to promote home ownership, has been losing billions during the last nine years.

The Commission on Audit (COA), in a report, said continuous losses had already resulted in an increasing and accumulated deficit of P9.850 billion as of Dec. 31, 2009.

State auditors said HGC’s financial problems is “adversely affecting the corporation’s financial condition, casting doubt on its financial capability to operate as a going concern, and creating a financial burden to the National Government.”

The COA report said the agency’s annual net losses incurred since 2002 have accumulated to a deficit of P9.850 billion and despite equity infusions from the National Government totaling P12.073 billion, the deficits have continued to deplete its net worth to P4.637 billion.

Last year’s audit bared that outstanding guarantees as at Dec. 31, 2009 amounted to P68.336 billion or 74 percent of its charter-provided guaranty limit of 20 times its net worth. 

Also, unpaid guaranty obligations as of yearend still stood at P3.048 billion, including interest, while guaranty claims under evaluation was P76.783 million.

“HGC’s short-term assets are insufficient to payoff its short-term obligations, evidencing working capital deficiency. Current liabilities of P4.109 billion exceeded its current assets of P1.946 billion as at Dec. 31, 2009,” the COA report read.

State auditors said equity infusion from the National Government was neither regular nor sufficient since the national treasury itself is experiencing a budget deficit.

For 2009, Congress has approved the budget appropriation of P600 million for HGC representing National Government equity, but only P200 million was released during the year.

Subsequently, the COA report said the 2010 budget appropriation for the agency of another P600 million was approved by Congress in December 2009 but the financially-burdened GOCC has yet to receive an allotment notice. 

In January 2009, state auditors said the HGC board granted its management the authority to issue P5.5 billion worth of seven-year coupon bearing and amortizing bonds as the proceeds shall be used to settle unpaid guaranty obligations and the sinking fund requirement for the P3-billion zero coupon bond maturing in 2011. 

“The proposed bond issue is currently being evaluated by the Department of Finance for endorsement to the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) for the approval of the President of the Philippines,” the COA report said.

“Raising substantial funds through the issuance of debt instruments has become the rescue activity of the corporation to meet its guaranty obligations and to redeem previously floated bonds approaching maturity. Without financial borrowings, HGC would be hard-pressed to provide guaranty services,” the audit report read.

However, state auditors said the resulting financial charges on the new bond issues which are certainly much bigger in amount than the redeemable bonds also translate to much bigger losses.  

The COA report said HGC’s constant dependence on borrowings for liquidity, other than equity infusion from the National Government, will continuously impair the financial condition of the agency.

“The negative impact of recurring losses and increasing deficits, insufficient Sinking Funds for maturing bonds, working capital deficiencies and adverse key financial ratios have collectively contributed to HGC’s financial distress, and adding financial burden of the National Government. These factors raise doubt on the corporation’s financial capability to carry out its mandate and operate as a going concern,” state auditors said.

The COA report said the management should observe financial prudence in the management of its corporate activities and refrain from spending on non-essentials and focus and realign expenditures to more pressing needs such as unpaid guaranty obligations.

It also recommended the disposal of idle foreclosed assets to generate additional cash inflow; the strict implementation of the guaranty requirements in approving call payments; and negotiation with the concerned GOCCs for the settlement of unpaid guaranty obligations through payment in kind and or foreclosed assets.