A cover-up by any other name
Credit to Author: BEN KRITZ, TMT| Date: Wed, 08 May 2019 16:17:20 +0000
BACK on May 1, my colleague Emeterio Sd. Perez revealed in his regular column about all things related to listed companies that cement giant Holcim Philippines Inc. (HLCM) had apparently violated SEC and PSE rules that require the prompt disclosure of information that might materially affect a publicly-listed company’s financial status and market value.
As a matter of fact, let’s just drop the “apparently,” because Holcim Philippines did commit a blatant, documented violation of public disclosure rules. As I discovered in the course of investigating the matter myself for a follow-up story this past Monday (“Holcim: Ruling covered by confidentiality rules,” May 6), Holcim’s handling of the controversy looks less like a “non-disclosure” and more like an effort to cover up an embarrassing and potentially costly problem.
To briefly summarize the problem Holcim Philippines seems anxious to have quietly go away, in 2015 the company signed an agreement with Seasia Nectar Port Services Inc. (SNPSI), whereby the latter would build and operate a port terminal in Bataan for Holcim’s exclusive use for a 10-year period. To build the terminal to Holcim’s specifications, SNPSI obtained nearly P2 billion in loans.
Holcim, however, did not keep up its end of the bargain, so in October last year, SNPSI petitioned the Regional Trial Court in Bataan for relief. On November 22, the Bataan RTC ordered the garnishment of a P1.878-billion account of Holcim at Metrobank; this essentially froze that account, which approximates the amount of loans SNPSI incurred in building the port facility, as security against a potential final ruling in SNPSI’s favor.
In December, Holcim sought arbitration of the dispute – in accordance with the terms of the agreement with SNPSI that it had declared void – through the Philippine Dispute Resolution Center (PDRC). Under the rules governing arbitration, the proceedings of a case are considered strictly confidential while it is still ongoing.
According to the rules of the PSE and the Securities Regulation Code, Holcim should have made prompt disclosures about developments in the case on several occasions, most particularly when the Bataan RTC ordered the garnishment of the P1.878-billion Metrobank account last November.
Holcim did disclose that it had been served notice of SNPSI’s court filing on October 19, in accordance with the disclosure rules, but never mentioned the P1.878-billion garnishment, which was what Mr. Perez pointed out in his May 1 column.
The first, and so far only time Holcim acknowledged the garnished Metrobank account was on May 2, in a “clarification of news report” requested by the PSE. In that disclosure, Holcim made a rather bizarre claim: The company took the position that since the dispute with SNPSI was under arbitration, it was proscribed from disclosing any details related to it because of the confidentiality rule. Nevertheless, Holcim said, it had actually disclosed that its Metrobank account had been garnished, first in its October 19 disclosure to the PSE, and again in its 2018 Annual Report (released in February), “under ‘Other Non-Current Assets’ as ‘other financial assets’, which refer to ‘deposits made for future obligations’.”
That explanation was utterly ridiculous. First of all, Holcim could not claim that its October 19 disclosure referred to the Metrobank account in any way, because the garnishment order was not issued by the Bataan RTC until November 22. Second, there is absolutely no mention of the case on any of the 337 pages of Holcim’s 2018 annual report.
There is indeed a financial statement entry (in the amount of P2,153,490,000) on page 103 of that report as Holcim described in its May 2 explanation to the PSE, but the report describes it thus: “Other financial assets represent both deposits made for future obligations and minimum mine rehabilitation fund required by the DENR to cover site restoration cost amounting to P2.1 billion and P82.1 million, respectively.” There is no possible way that anyone without prior knowledge of the case with SNPSI could know that the “P2.1 billion” includes the P1.878-billion Metrobank account, and even then, one would have to be an extremely sharp accountant to spot it, disguised as it is as a “deposit for future obligations.”
Another enormous problem for Holcim is that it has grossly misinterpreted the confidentiality rule, to a degree that looks like an intentional attempt to hide the Metrobank garnishment.
According to a legal opinion obtained by The Manila Times, under the Alternative Dispute Resolution Act (ADR Law) of 2004 (RA 9285), “information is confidential only if it is expressly intended by the source not to be disclosed, or obtained under circumstances that would create a reasonable expectation on behalf of the source that the information shall not be disclosed.”
As a listed company, Holcim cannot have any “reasonable expectation” that material information can be considered confidential and not disclosed to the PSE. In spite of doing so, belatedly and in highly questionable terms, on May 2 of this year, Holcim is clearly in violation of both PSE rules and the Securities Regulation Code.
It is easy enough to guess why Holcim Philippines would want to try to cover up the unfavorable news that one of its accounts had been locked up by a court order. The P1.878 billion that is currently out of Holcim’s reach is the equivalent of about 2.16 percent of the company’s P87.1 billion market cap. That is a proportion that can trigger serious movement in a company’s share price, and not in a good way. Holcim Philippines is already facing a number of regulatory and legal issues, and has been fending off rumors that parent company LafargeHolcim is looking to dump the local unit; one more problem, from the company’s point of view, would be one too many.
Holcim’s apparent plan was to take the case with SNPSI to arbitration and prevail on Metrobank to release its account before anyone found out about it; if it incurred a penalty for non-disclosure after the fact, that would be a relatively minor price to pay. Metrobank, however, refused to play along, and denied Holcim’s request; as the garnishment was the result of a court order, the bank would not act to the contrary without an order from the same or higher court to do so.
That has left Holcim Philippines looking rather foolish, facing not only potential SEC and PSE sanctions, but also possibly having run afoul of the rules of the ADR Law and fatally damaged its position in the dispute with SNPSI. What Holcim’s real goals may have been is a matter for speculation; it would be a reasonable guess, however, that becoming an object lesson for what happens when foreign corporations are caught behaving badly is not one of them.
ben.kritz@manilatimes.net
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