The failed Smokey Mountain project

We write in reaction to Mr. Jarius Bondoc’s commentaries in the July 23 and July 30, 2014 issues of The Philippine STAR.

In both issues, Mr. Bondoc gave incomplete and inaccurate accounts of past projects and issues involving the previous management of the Home Guaranty Corp. (HGC).  Mr. Bondoc’s commentaries put HGC in a bad light. Certainly, this kind of reporting does not help to inform the public.

As current president of the HGC, I am once again compelled to clarify the issues to prevent public misperception.

In his July 23, 2014 column, Mr. Bondoc gave an inaccurate account of the failed Smokey Mountain Reclamation and Development Project.  We have written Mr. Bondoc to explain what actually happened and the roles and accountabilities of the parties in the failed project. Allow me to summarize the salient points in our letter to Mr. Bondoc:         

1. The failed 1993 Smokey Mountain Reclamation and Development Project was a joint venture between R-II Builders, Inc. owned by Reghis Romero, and the National Housing Authority (NHA).

The role of R-II in the project was to finance the development. However, R-II failed to raise the necessary funding.

2. To save the project, the National Government (NG) stepped in to help raise the needed funding.  Bonds called Smokey Mountain Project Participation Certificates (SMPPC) were issued backed up by the Smokey Mountain Asset Pool (SMAP). The SMAP initially included the 21.2-hectare Smokey Mountain site in Tondo, Manila and the 79-hectare Manila Bay foreshore property to be reclaimed.

To encourage investors, the NG asked the HGC to guaranty the payment of interest and principal of regular SMPPCs.

3. On account of R-II Builders’ failure to complete construction, the project failed. Hence, when the SMPCCs matured, there was not enough liquid assets to pay them.

HGC, as guarantor, assumed all obligations and paid all investors who bought the SMPPCs amounting to more than P4 billion, including interests. In exchange, the entire asset pool was conveyed to HGC.

4. R-II Builders was paid billions for an incomplete project. R-II Builders, however, still questioned the conveyance of the entire asset pool to HGC and filed lawsuits against HGC. On June 22, 2011, the Supreme Court denied with finality R-II Builders’ motions and ruled in favor of HGC.

5. The Social Security System (SSS), as pointed out by Mr. Bondoc in his column, was among the major investors in the project.  HGC, however, never reneged on its obligations, either to SSS or to any of the investors, as claimed by Mr. Bondoc.

As a matter of fact, HGC has already paid SSS P876 million in interest for P1.15 billion investments in the project.  HGC also offered to settle its outstanding obligation to SSS with properties of equal value.  SSS, however, rejected the offer.

Arbitration is currently ongoing between HGC and SSS before the Office of the Government Corporate Counsel (OGCC). HGC has already offered almost P2 billion worth of assets for SSS’ evaluation. Also, the equity contribution due HGC from the annual National Government budget has been earmarked for settlement of the balance to SSS.

6.  Mr. Bondoc wrote that NHA “would get P1 billion of the P3-billion balance.”  Again, this is not accurate.  In fact, it is NHA that owes HGC P4.47 billion as of December 2012. Talks between HGC and NHA regarding the settlement of this P4.4 billion are ongoing.

On July 30, 2014, Mr. Bondoc wrote that a “Gov’t agency is cheating our SSS of P5.3B.” Again, this is not true.

Let me repeat that HGC is not reneging on its obligations to SSS much less cheating the SSS of P5.3 B.

HGC’s obligation to SSS is not P5.3 B but only P3.964 B. The P5.3 B reported by Mr. Bondoc included compounded interests which HGC never guaranteed to pay. What HGC guaranteed is the payment of interest at 8.5% per annum until full principal balance is paid. Contrary to Mr. Bondoc’s claim, HGC’s Charter does not vest it the power to guarantee beyond 8.5% for investments in open housing developments. The SSS was well aware of this when it invested in the failed housing projects.

For Mr. Bondoc’s information, the SSS withdrew its claim for compounded interests.

HGC recognizes the balance of its obligations to SSS as an investor in the failed housing projects that HGC guaranteed. As a matter of fact, the unpaid guaranty obligation to SSS is reflected in HGC’s financial statement as of December 31, 2013, to wit: P2.339 B in principal and P1.543 B in interests, for a total of P3.882 B.

There is no truth in Mr. Bondoc’s claim that HGC is “un-inclined to pay its obligation to SSS.” The truth is that HGC has already paid P2.789 B against SSS’ total investments of P3.33 B in the projects guaranteed by HGC.

On various occasions, HGC has also offered to settle the balance thru payments in the form of properties. In fact, during the last meeting between HGC and SSS representatives, HGC offered almost P2 billion worth of assets for SSS’ evaluation. 

Mr. Bondoc wrote: “The Commonwealth Enterprise Zone was particularly controversial. The HGC in the late 2000s acquired the public market on Commonwealth Avenue ostensibly for sidewalk vendors, but actually to award rental rights to front companies of high HGC officials. Former HGC president Gonzalo Benjamin Bongolan and Sanchez have been charged with plunder in March for it.”

This is totally untrue. The award of the lease-contract was done by Mr. Gonzalo Benjamin Bongolan.  This happened before I assumed office in HGC. I am not aware of any plunder charge filed against me.

The Commonwealth Market is part of the National Government Center assets conveyed to HGC after the project failed in 2001. HGC paid P1.49 Billion to investors in the project. To recover its exposure, and considering that administration of a public market is not within the mandate of HGC, the previous Management in 2005 headed by Mr. Gonzalo Benjamin Bongolan, awarded the administration of the market under a long-term lease through public bidding.

5. Mr. Bondoc wrote: “In the Smokey Mountain case, the main private developer R-II Builders has been pressing the HGC for full payment of the P4.5-B guarantee. From the total, it will repay the SSS P2 billion and the state-owned Land Bank another P1.2 billion. Sanchez reportedly has been ignoring the collection notices and pleas for mediation.”

Again, these are not true. It is R-II Builders that owes HGC in the failed Smokey Mountain Project. R-II has been pressing HGC to accept its offer for a universal settlement of all its accountabilities to HGC.  HGC rejected R-II’s settlement offer because it is not advantageous to the government.

Again, HGC does not owe Land Bank anything. In 2007 HGC has fully paid its guaranty obligation to LBP’s investment.

6.  As to the P400 million DAP funds HGC allegedly received, we never asked for any funds from DAP.

HGC’s authorized capitalization is P50 B. To date, the National Government has released only P14.573 B, leaving a balance of P35.427 B. HGC has repeatedly requested the National Government (NG) for the balance capitalization through equity infusion of P1.0 billion annually. However, the NG would only release an average of P500 M equity yearly.

In 2009, P600 M was appropriated in the National Budget for the NG’s equity contribution to HGC. Only P200 M was released. The balance of P400 M was released in 2011. Clearly, the “P400.0 -M Equity Infusion for Credit Insurance and Mortgage Guaranty Operations of HGC,” reported as funded under the DAP, was a belated release of the balance of our approved capital infusion in 2009.

HGC is a government financial institution mandated to provide guaranty cover to private investments in public housing. HGC does not implement any project requiring special funding assistance. The equity infusion from the NG serves to increase HGC’s net worth so it can provide guaranty cover to more private funds invested in public housing.

These are the truth, and once again, we ask The Philippine STAR to see to it that “truth shall prevail.”

The power of the press is such that it can easily be abused. Biased and malicious reporting can easily destroy a person or a corporation’s good name.

We trust in your sense of fairness to make sure that your paper reports only accurate and truthful stories. — ATTY. Manuel R. Sanchez, President, Home Guaranty Corporation