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All in the Family

Written by Lala Rimando and Cathy Rose Garcia
Monday, 31 January 2005
With the parent company financially sick, the infection is spreading among related companies. One of the problems with closely held family businesses is that funds are easily shifted from one company or affiliate to another with little regard for the financial health of the company from which the funds are taken. For the owners, it’s like moving money from one pocket to another. That’s exactly the case with College Assurance Plans Philippines Inc. (CAP), the Sobrepeñas’ crown jewel, at least before the pre-need company’s liquidity problems caught up with the owners in 2003. CAP was a wild success, an industry leader from the ’80s up to the late ’90s. The wealth generated from this business built an empire for the Sobrepeñas, who also invested in the media (community radio stations), health insurance, life insurance, lending, real estate development, and transport. Most of the CAP subsidiaries and affiliates were incorporated in the 1990s, with CAP providing most, if not all, of the equity. Under the immediate umbrella of the CAP business are 10 companies, while those engaged in real estate and under the Fil-Estate group are about 20 subsidiaries and affiliates. Ownership was layered and/or interlocked. For example, the trust fund of CAP held by its subsidiary, the Bank of Commerce, has equity investments in the various insurance businesses, and also in the holding company that owns a property development company and has a stake in the Metro Rail Transit (MRT) projects. Shuttling funds among the related companies was normal business practice. In 2002, for instance, CAP advanced or lent a total of P462 million to its sister companies, but it also received P583 million in advances. What is peculiar at the CAP and Fil-Estate groups is that the more profitable companies would provide interest-free advances to the less profitable. In 1998, CAP bailed out Fil-Estate Land Inc. (FELI) with a P1.6-billion equity. CAP also helped finance the working capital requirements of its security services company, and the completion of the log cabins in Camp John Hay, the Renaissance condominium projects in Pasig City, and the Metro Rail Transit. Data from the Securities and Exchange Commission show that as of Oct. 31, 2004, CAP had invested up to P5.86 billion in the Fil-Estate group and MRT bonds. This amount represents up to 65.5 percent of the funds that were supposed to have been kept with trustee banks tasked to invest and grow it so that when the plan beneficiaries go to college, there would be enough funds for their tuition. But the returns from the real estate investments have not been realized. What CAP has invested has even dissipated. The value of listed firm FELI dropped from its heyday market capitalization of about P13 billion to just P2 billion in 2001. Moreover, CAP investments in several affiliates (CAP Pension, CAP Management, CAP Tech Sales, CAP Technologies, CAP John Hay, and Global Building) have declined drastically so that the P64 million used to acquire shares in these companies was never recovered. Worse, CAP is booking up to P670 million as its sharein these companies’ losses. In 2003, CAP started to experience liquidity problems. It needed about P3 billion to meet the tuition requirements of its plan holders. With 65.5 percent of its trust fund locked in real estate and MRT bonds, it turned to its sister companies. As a result, 10 companies coughed up a total of P1.8 billion to meet CAP’s cash requirements in 2003. In 2004, CAP needed more cash to keep it afloat. By end-August, it had payables up to P2.18 billion to various entities. Of this, P1.13 billion came from its sister companies. It took out a P586-million loan from Veterans Bank, where Romeo Roxas, a family friend of the Sobrepeñas’, is a director, and P86 million from its subsidiary, the Bank of Commerce. Properties owned by real estate subsidiaries were used as collateral for these loans. CAP founder and president Enrique Sobrepeña Jr. pitched in with P48 million. Even sister companies that were in the red were also made to contribute. CAP Health Maintenance Organization, for instance, had a P32-million capital deficiency as of June, but still put in P48 million to alleviate CAP’s liquidity problems. Six more sister companies chipped in P20 million to P80 million each. Since the parent company is financially sick, the infection is spreading among the related companies. Of the nine companies that tried to rescue CAP in 2004, Comprehensive Annuity Plans and Pension Corp. or CAP Pension was hardest hit. It shelled out P978 million that year, on top of the P734 million it extended the previous year. CAP used it to pay the tuition of its plan holders. But as CAP Pension tried to keep the parent company afloat, it dug a grave for itself. It should have used these amounts to cover its own capital deficiency of P1 billion, or to satisfy the SEC requirement to deposit P731 million to its trust fund. CAP Pension needs to grow the premiums it collects from its own pension holders so that it could pay them in the future. Every quarter, CAP Pension is required to deposit to its own trust fund but missed the P176 million due third quarter of 2004. As a result, last October, SEC ordered CAP Pension to stop selling pension plans. SEC Chairman Fe Barin said they are still waiting for CAP Pension’s funding program. Since CAP Pension has its hands tied, an insider who spoke on condition of anonymity told NEWSBREAK that CAP Health was recently asked to advance about P180 million to ease the cash requirements of CAP. The latter has to raise about P2.5 billion to service maturing tuition in the school year 2004 to 2005. (This reportedly prompted CAP Health’s chairman, Dr. Alfredo Bengzon, to resign a few weeks ago. He declined to be interviewed.) A SEC official said it is difficult to determine the extent of the financial problems of all of CAP’s related companies because only the preneed companies, CAP and CAP Pension, which fall under SEC’s regulatory jurisdiction, are being closely monitored by the SEC. The commission merely relies on yearly financial statements. INTERACT WITH THIS ARTICLE
Last Updated ( Thursday, 22 January 2009 )

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