SSS explains sale of Meralco shares

May we be allowed to clarify six issues raised in the article “COA hits SSS sale of Meralco shares.” (Inquirer, 1/28/12)

1. “The Social Security System sold the shares for over P5 billion to a buyer with net assets of only P60 million.”

SSS required the highly capitalized Development Bank of the Philippines (DBP) to act as secondary buyer, as approved under DBP Board Resolution No. 003 dated Jan. 7, 2009.

2. “DBP does not fully secure the risk of primary buyer’s default.”

The transaction is a contract of sale and not a loan. SSS did not lend any money to Global 5000. To protect the fund, SSS will release its shares to the buyer only upon full payment.

3. “SSS assumed a risk that is greater than that of retaining its Meralco holdings.”

Payments for the shares, including dividends credited to the buyer, are forfeited in favor of SSS when Global 5000 and DBP fail to fully settle its P6.5 billion obligation. SSS will then book all payments as income with full ownership of the shares.

4. “The Share Purchase Agreement (SPA), which allowed the buyer to get dividends, is disadvantageous to SSS.”

SSS sold its Meralco holdings at P90 per share, which represents a combined premium of P1.92 billion over the prevailing market price of P59.50 per share from December 2008 to January 2009. SSS’ P2.75-billion earnings—which included P729.3 million in fixed interest and P104.1-million income from extended payments—were substantial enough to forego possible dividends that were not even certain at the time of sale.

5. “SSS lost or failed to earn additional interest of P76.3 million when the buyer failed to pay the first installment on due date.”

The buyer availed of an extended period for its first installment payment, which is allowed under the SPA. SSS earned an additional P104.1 million due to the high interest rate of 9 percent per annum charged on extended payments. There is no legal basis to collect the P76.3 million cited by the Commission on Audit.

The buyer did not default. In fact, the buyer fully paid on Jan. 31, 2012. There was no need to collect from DBP.

6. “The sale was contrary to the Social Security Act and that SSS investments should adhere to sound business practices and financial principles.”

SSS followed investment principles under the Social Security Law and ensured the fund’s protection from risks.

The sale enabled SSS to convert its risky asset into cash. SSS received P6.5 billion in total revenues versus acquisition cost of P4.14 billion, or a hefty profit of P2.37 billion.

—MARISSU G. BUGANTE, vice president, Public Affairs and Special Events Division, Social Security System