P10-b Peace bonds mature next year at P35b, admits Code-NGO

by Christine F. Herrera


Manila's Standard Today – October 29, 2010





THE government will pay investors P35 billion in 2011 for the P10 billion in Peace bonds that it floated nine years ago, officials of the Caucus of Development NGO Networks said Thursday.

Code-NGO and the Peace and Equity Foundation said the 10-year zero-coupon Poverty Eradication and Alleviation Certificate Bonds that were issued on Oct. 16, 2001, would earn for investors 12.75 percent in compounded interest when the government securities matured next year.

“The government did not lose money but actually saved some P2.7 billion because the 12.75- percent interest rate was lower than the 16.93- percent prevailing rate of similar notes in the market at the time of the sale of the Peace Bonds,” Sixto Donato Macasaet, Code-NGO executive director, told reporters.

He said Social Welfare Secretary Corazon Soliman, who used to head Code-NGO, ceased to have anything to do with the bonds when she left the group to join the Arroyo administration as Social Welfare secretary.

Soliman is accused of having been involved in the float that resulted in Code-NGO earning P1.4-billion in commissions.

Macasaet said at least 30 bids were submitted by 15 local and five foreign banks during the auction, with Rizal Commercial Banking Corp. winning with the lowest offered interest rate.

“With 10-year zero-coupon bonds, the government does not pay the semi-annual interest but instead makes a lump-sum payment of the face value of P35 billion when the bonds mature,” he said.

“The P10.169 billion, the amount that the government borrowed, earned for investors an interest of 12.75 percent per year compounded semi-annually over 10 years. The total to be paid back to investors would be P35 billion, the face value of the bonds.”

The zero-coupon bonds were a better way for the government to finance its development projects because it would not have to pay semi-annual interest, Macasaet said.

The interest on the 10-year bonds would come to P25 billion, while the principal was P10 billion, for a total of P35 billion.

When the bonds were floated, Code-NGO, the Treasury, and RCBC already knew that, after 10 years, the government would have to pay out P35 billion, Macasaet said.

“But Code-NGO never had a say on where the government would bring the P10 billion,” he said.

“The money was turned over to the National Treasury. We thought if Code-NGO would not enter into such transaction, others would do so anyway, so we just made sure that the profit from it would go directly to poverty-reduction projects and funding for these projects are continuing up to now.”

Macasaet admitted that the bond float earned for Code-NGO some P1.4 billion in commissions, and of that P1.3 billion was turned over to the Peace and Equity Foundation for various livelihood and anti-poverty projects.

Veronica Villavicencio, the foundation’s director, said Code-NGO established the PEF, led by Cagayan de Oro Archbishop Antonio Ledesma, to preserve and manage the endowment fund of P1.318 billion raised from the sale of the Peace Bonds.

Of the P1.318 billion, some P404 million was allocated to several projects in Mindanao, P238.21 million went to the Visayas, P267.45 million was spent on Luzon, and P154.73 million went to the National Capital Region, Villavicencio said.

Macasaet said RCBC bought the bonds for P10.169 billion through a public auction, and was able to sell them in the secondary market for P11.995 billion and remitted a profit of P1.826 billion to Code-NGO.

“Code-NGO paid fees of P340 million to its agent and financial advisers from the profit. Thus, it made a net profit of P1.486 billion through this private transaction,” Macasaet said.

Code-NGO retained P168 million for its network members and transferred the endowment fund of P1.318 billion to PEF, Macasaet said.

He said Code-NGO needed an innovative way to finance its poverty alleviation programs because its main source of funding from foreign grants was shrinking.

Neither Soliman nor peace adviser Teresita Deles had anything to do with the bond float.

“Dinky [Soliman] and Ging Deles were never involved in the meetings, conceptualization, negotiations and bidding related to the zero-coupon bonds,” Macasaet said.

Soliman resigned as Code-NGO chairman in January 2001, when she was appointed Social Welfare secretary by then President Gloria Arroyo, he said. Deles was never a member of Code-NGO.

On March 3, 2001, Marissa Camacho, who took over as chairman from Soliman, presented to then Foreign Secretary Alberto Romulo a request for the issuance of the zero-coupon bonds, Macasaet said.

It was under Camacho’s leadership that the Peace Bonds were conceptualized and designed.

“When her brother Jose Isidro Camacho became Finance Secretary in June 2001, he inhibited himself in writing from transactions connected with the Peace bonds. Marissa also inhibited herself from such transactions from that point,” Macasaet said.