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News

Nabunturan LGU consultant has record of failed bond flotation projects

By Cha Monforte, Rural Urban News (http://ruralurbanews.blogspot.com)


(NABUNTURAN, Compostela Valley)- The financial adviser chosen by the municipal government of Nabunturan for its P90-million bond flotation for the construction of new public market building has at least two cases where bond floats for local governments had failed or went bust that dragged a town mayor to be convicted of graft and criminal cases.

This as allegation surfaced recently that the Preferred Ventures Corporation, the consultant tapped by Mayor Macario Humol to assist in the ongoing bond flotation process in his town, has fraternized with and “accommodated well” several Sanggunian members during their study tour on bond flotation early this year at Calatagan, Batangas, where bond flotation was made through the Preferred Ventures.

Councilor Alfonso Tabas Jr questioned the propriety of the meeting between Preferred Ventures personnel and his colleagues while the resolution on the bond flotation for Nabunturan was still being deliberated by the council early this year. Tabas and Councilor Raul Caballero did not join in the study tour.

The firm stand to cough up a whooping P2.7 million for its consultancy and financial advisorship from the project as shown in the feasibility study which was approved by the sanggunian majority two weeks ago amid vehement objection by Tabas and Caballero.

Preferred Ventures, identified online to be owned by economist and investment banker Dr Sixto Kalaw Roxas, with his president Danilo V. Fausto and headquarters based in Mega Plaza in Ortigas Center, Pasig City.

The firm is reported to offer a consultancy fee for bond flotation on “no cure, no pay” basis, that is, the fee is contingent on the amount of bonds that shall be floated.

But it could not yet be readily known at press time if the consultancy services of Preferred Ventures was procured by Mayor Humol on bidding or whether the firm has initially received some fees as it started its consultancy work since last year.

FAILED TRACK RECORD

It was on Preferred Ventures consultancy that the P25-million housing bond in Claveria, Misamis Oriental took off in 1994. On its implementation former Misamis Oriental Governor Antonio Calingin, then the mayor of the town, was later convicted by the Ombudsman of 47 graft and criminal cases for malversation of proceeds from bond flotation.

The brother of the mayor was also caught with his hand inside the cookie jar of cornering the rentals of heavy equipment used in the construction of the housing project.

In Claveria bond flotation, proceeds from the housing project did not manage to reach 50 percent of the bonds floated resulting to the net loss of the project which was inherited by the administration next to Calingin’s.

Preferred Ventures also caused for the P40-million bond flotation for the jetty port and terminal building in Aklan province in 2000. But nobody bought bonds for the project resulting to the repayment of the provincial government of more added costs for the underwriting of the project.

Through its underwriter, RCBC Capital Corp. (RCBC), fortunately the Aklan government succeeded to shore up capital from institutional buyers.

Aklan though is fortunate to a Boracay Island to where the jetty and terminal project in Caticlan was intended. Due to its tourists that have been served by the projects the bond flotation paid off.

“Bond flotation is not for every local government unit. There are projects that can easily be funded with direct loans without the local government being saddled with added charges and conditions that come with bonds, said provincial accountant Ma. Victoria Salido in a report.

In Aklan case, the provincial government decided to reduce the amount of bond careful that its delivery of basic services would not be strained as a sizable amount of its IRA was assigned as guarantee for repayment of the bonds.

A HIGH-RISK VENTURE

Meanwhile, an LGU Guarantee Corporation report to Asian Development Bank has assessed that bond flotation as still a high-risk venture stating that private investors are prone not to choose LGU bonds which have no national guarantee or tax benefits, over treasury bills and treasury notes, which have zero risk as they are guaranteed by the national Government.

“The private financial sector is not yet prepared to accept LGU risks without any form of credit enhancement, considering LGUs as high-risk, highly politicized entities,” it said.

CRITICS

At prestime, the Nabunturan bond flotation, which is now in the works, is saddled with criticisms over its exorbitant bond amount and its project components.

Charged as prohibitive and “too expensive” are the high repayments to bond obligations and interests, architectural and engineering design amounting to P6,057,465, site development, P3,682,264, general requirements, P1,200,331, P2.7 million for the 3% consultancy fee, P1,350,000.00 for underwriter fee (1.5%), P900,000 guarantee fee (.05%-1.25%), and the P450,000 trustee fee (.5%).

Critics expressed surprise why Humol, Vice Mayor Romeo Clarin and the council majority are insisting for bond flotation when they could avail of a loan from either the LandBank and Development Bank of the Philippines at much lesser terms and repayments.

They said that the bond flotation option could strain much the delivery of basic services after Humol’s term as the bond obligations including the interests, added and hidden costs have to be redeemed by the sinking fund put up from the town’s IRA.

Oppositors also said that the project is doomed to fail citing that the town’s resource and business capacity is not ripe for the bond flotation on speculation that there be no bond investors and takers of the high-priced rentals of spaces in the planned public market building.

“It’s like feeding our IRA to the sharks when they could do otherwise, “ quipped a businessman who spoke on the condition of anonymity.

The IRA for Nabunturan in 2007 stood at P54.7 million.

BOND FLOTATION

Bond flotation here would mean that the Nabunturan local government unit would issue and sell interest-bearing paper bonds with which would be paid up until ten years to individuals, government banks or private firms, the proceeds of which would be used for the construction project of the town’s public market building.

If there is no bond buyer who is assumed to be the investor of the project, the bond flotation underwriter firm would underwrite the bonds in bulk and sell it to institutional buyers.

Bonds bought in this case would mean the obligations (capital, interest and other charges) incurred by the municipal government which it would pay in installments from its Internal Revenue Allotment (IRA) that has been assigned as source and collateral to the sinking fund repayment to the obligations.

Ideally, proceeds or collections from the project (public market building) to where the bond flotation was intended should be enough to pay for the obligations but practically the IRA is stashed to make up for the repayments of obligations.- Cha Monforte, Rural Urban News (http://ruralurbanews.blogspot.com)

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