The Department of Finance (DOF) is proposing that Land Bank of the Philippines (LandBank) and Development Bank of the Philippines (DBP) be authorized, through a holding company structure, to make equity investments in companies critical to national interest that are now experiencing solvency problems, subject to stringent conditions.
These conditions include limits on dividends; non-dilution of equity; limits on the bonuses, allowances, retention and incentives of the senior company executives; clawbacks on bonuses; no golden parachutes; and the curtailment of luxury expenditures such as private aviation and transportation services.
“Right now we are suggesting that Landbank and DBP organize a new government-owned and -controlled corporation (GOCC), and that GOCC will be capitalized, and will be empowered to make investments in companies that are that are important to the national interest, and that need injections of capital in the form of preferred shares in the form of ordinary common shares or whatever,” Dominguez said during the Sulong Pilipinas press briefing yesterday.
“We are still studying the total capitalization initially needed, but definitely we will be inviting others to invest in this vehicle as well,” he added.
Dominguez said once this joint venture investment company is organized, the plan is to invite multilateral agencies, foreign and domestic investment companies to participate in this company.
“The potential investors could be the private sector arms of the multilateral agencies or private sector investors, in both domestic and foreign, and we would like to invite them, so that we can enhance our expertise in evaluating these loans,” Dominguez said.
Dominguez said while he doesn’t have a firmed up list of companies that will qualify as of the moment, most likely he said they will be in the transportation and manufacturing sectors.
“You have to realize that companies now are experiencing two types of problems. The first problem is a liquidity problem. Their sales are down, and therefore, they have to borrow more money, or extend the loans, with regards to, to continue surviving. Some companies on the other hand have solvency problems, solvency means, you owe too much in relation to your capital. Banks as banks can solve liquidity problems, they can lend more money, or they can extend the term of the loan to accommodate the drop in revenues,” Dominguez said.
“However, banks cannot solve solvency problems, whereby the company has borrowed already so much and cannot borrow any more money or extend any more loans, because it will endanger the life of the enterprise. That is where you need investment,” he added.