LBP's Meralco shares' sale legit

Posted at 11/26/12 9:40 AM

MANILA, Philippines – The Department of Justice (DOJ) has declared that the share purchase agreement (SPA) between state-owned lender Land Bank of the Philippines (LBP) and San Miguel Corp. for the sale of the bank’s 46.59 million shares of stock in the Manila Electric Co. (Meralco) to SMC for  P4.2 billion remains enforceable.

In a 10-page legal opinion, Justice Secretary Leila de Lima also held that LBP officials involved in the agreement cannot be held liable for violation of the anti-graft law even if they continue to sell the shares at P90 per share as against the current value of P245 per share as of August 2012.
“While it is true that the substantial difference...will translate in a huge loss for the government if ever the SPA is pursued, nonetheless it cannot be considered to be a violation of Section 3 [e] and [g] of RA [Republic Act]  3019,” de Lima said.
The provision prohibits government employees and officers from giving any private party unwarranted benefits involving government transactions.
The justice department explained  that the SPA was entered into by LBP and Global 5000 Investments Corp., now San Miguel Global Power Holdings Inc., in December 2008 when  prevailing market price was P58 per share.
It said that the SPA provided for a purchase price of P90 per share that was considerably much higher than the prevailing P58 per share.
LBP allowed San Miguel Global to buy the Meralco shares in three installments for three years with last payment due on January 31, 2012.
Had the transaction been pursued as scheduled, the DOJ said, it cannot be denied that the government would certainly be earning P32 per share from proceeds of the sale.
“The foregoing clearly shows that, when the contract was perfected, the cause or consideration of the SPA provides benefits to the government in terms of income, thus, it cannot be said that the terms of the agreement [are]  manifestly and grossly disadvantageous to the government,” de Lima said.
The SPA was not implemented after Meralco unilaterally canceled  certificates covering LBP’s 42,000,750 shares and issued new stock certificates in favor of Federico Suntay, who is represented by assignee Josefina Lubrica, on November 28, 2008.
The certificates’ cancellation and transfer to Lubrica were allegedly made in compliance with an order of Department of Agrarian Reform Adjudicator Conchita Minas, without notifying LBP or requiring the bank to endorse or surrender its stock certificates, which have remained in its possession.
In a letter dated December 17, 2008, San Miguel Global advised LBP that it was deferring payment since LBP could not deliver any stock or assign it voting rights or the right to receive dividends.
LBP, however,  did not reply to the letter and the parties neither demanded each other’s compliance with contractual obligations nor terminated the SPA.
Meanwhile, the transfer of the Meralco shares to Lubrica’s name was questioned before the Supreme Court and on December 14, 2011, the SC ruled in favor of LandBank.
The court directed Meralco to cancel the stock certificates issued to Lubrica, saying “the levy of LandBank’s Meralco shares was void and ineffectual.”
Last month   Emilio Aguinaldo Suntay, an heir of Federico,  filed criminal charges before the Office of the Ombudsman  against officials of San Miguel Global in connection with the allegedly “disadvantageous” purchase of the Meralco shares.
The complaint  sought  an investigation “for the purposes of filing an impeachment case” against Associate Justice Lucas Bersamin, who penned the decision involving LBP and Lubrica.
De Lima  issued the legal opinion after Gilda Pico, LBP president and chief executive officer, also sought the justice department’s confirmation of the opinion issued by the Office of the Government Corporate Counsel (OGCC) in connection with the sale of the LBP shares to SMC Global.
In its March 3, 2011, legal opinion, the OGCC held that the SPA is a contract to sell and since San Miguel Global failed to comply with full payment of the purchase price, LBP is under no obligation to convey title and ownership over the shares.
The OGCC further held that the agreement has been modified  from a pure obligation to a conditional obligation as a result of  the deferment of its implementation, and  thus, LBP can demand higher value for the shares or at least renegotiate the purchase price.
It said that the agreement may be renegotiated on the ground of LBP’s lost income opportunity, and pursuing the same is grossly disadvantageous to the government.
While it agreed with the OGCC’s first position, the DOJ expressed different views on its second and third positions.
The DOJ conceded that SMC Global “could have invested the income it [is] supposed to receive from the dividends of the shares and generated more profits had the transaction pushed through in 2008.”