My cousin Gabby Lopez delivered a very timely closing remarks (below) at the Lopez Group budget meeting last Monday. He talked about an uncompromising Lopez business practice of handling debt. This should clarify recent news stories about how the Lopez Group handled its debt to DBP. Thank you.
To those of you who still attend Sunday Mass, you must be familiar with that portion of the liturgical year between Christmas and Good Friday that the Church calls “ordinary times.” It connotes peaceful times… nothing to get us too excited as we go through our routine of doing business. Ten years of the Arroyo administration was bad for everyone but it is over. It was with a sigh of relief that we welcomed a new administration enjoying tremendous credibility. And because it is determined to fight corruption and to improve governance in this country, our businesses stand to benefit from increased investor confidence. And I also thought that after the group ceded control of Meralco and dropped Willie Revillame, we would be living in more or less ordinary times… less prone to seeing ourselves in the newspapers being attacked for something or another. Not so it would seem.
Exactly two weeks ago, I was totally surprised to see two prominent columnists attacking us because according to them, DBP wrote off P1.67 billion worth of loans to several of our units from 1996 to 2000, which incidentally included loans to SkyCable originally granted to Manny Pangilinan’s Home Cable which we assumed when we bought it. The way the stories were written, it was made to appear that we got special favors or some form of accommodation from DBP and that in the end, we supposedly left the Filipino taxpayers holding an empty bag where P1.67 billion should have been.
Those of you who have been with the group for a while and who understand the nature of today’s financial transactions know nothing could be farther from the truth. To put it very simply, if DBP held on to our debt, they would have been paid 100 per cent of it by now… and would have no need to write off anything. We did redeem our debts which went into restructuring and the last batch of creditors got 100 per cent of the debt value repaid. And while our debts were being restructured, we paid interest on our debts… so it isn’t as if DBP or any of our creditors for that matter, were as we would say it in Pilipino… na-argabyado.
What happened was that DBP was too anxious to cash in on our debt so they sold it at a discount to a Special Purpose Vehicle or what is commonly known as a SPAV. That was their decision, not ours. In today’s financial world, there are so called vulture funds or those who actually buy what are called distressed loans. Once we went into restructuring, our debt papers were considered distressed and could be bought and sold in the open market for a discount over face value. When we were finally able to pay off our debts, many of those who got our payment were not the original creditors but vulture funds who bought our papers at a discount… and they made money.
One other thing that is difficult to explain to columnists who do not understand finance is that DBP was only one of many creditors in a consortium of creditors who lent us money. They didn’t have to be in the consortium because at the time we borrowed there were enough lenders to fill our needs. DBP’s portion was a rather small portion of the total amount we borrowed which could have been covered by some other creditor. In other words, we didn’t force DBP to lend us money. They joined the consortium because after analysis and due diligence, they were convinced they could make money on the deal.
But all businesses involve risks. Of course businesses could go up or down and in our case, the Asian financial crisis, some bad decisions on our part and a hostile regulatory environment all combined to put us into real trouble which forced us to go into financial restructuring. If there was any real victim of circumstances here, it is the Lopez Group because we ended up writing off P20.7 billion in equity and investments for Maynilad and Bayan Telecommunications alone. This does not include the cost of interest on loans.
So, some people are saying, why can’t we now that we more financially able pay DBP back. How can we? DBP already sold our debt to a SPV which probably sold it to another entity that actually collected the full value of the amount from us when we concluded our rehabilitation effort. Recognizing and paying our debts is sacrosanct in the Lopez Group. We do not run away from our obligations, specially not at the expense of the taxpayers, an unfair insinuation in the recent Inquirer columns. In fact, we did pay our debts according to the rules. We paid whoever held our debt papers at the time which may not be the original creditor.
On this subject of debt payments, I want to quote a section from Raul Rodrigo’s Kapitan, the book on my father, to show how the Lopez family feels about this matter. Here are a few paragraphs from that book:
Geny’s second big decision in the late 1980s was not about business strategy, but about keeping his word of honor. Geny had long been bothered by the ABS-CBN debts left stranded in 1972 when the Marcos regime seized the network. On September 22, 1972, it had owed P48.1 million in principal to various lenders, including Citibank (P19.3 million), PCIBank (P9.2 million), Fidelity Bank of Philadelphia (P3.5 million) and Crocker National Bank (P2.5 million). Over the years, Citibank in particular pressed Marcos and Benedicto to repay these debts, since they controlled the Broadcast Center. But the two had always turned a deaf ear, even to a direct appeal from the bank’s chairman, John Reed, himself. In time, the banks gave up, and wrote off the debts as casualties of political turmoil.
But Geny did not forget. Although ABS-CBN no longer had a legal obligation to repay the loans, since they had been proscribed by the lenders, he still felt a keen moral obligation. So in 1987, Geny arranged to repay the network’s outstanding debts in several installments over the next few years. Certainly, CFO Gabby Lopez could have used the funds paid to Citibank to retire some more recent debt, such as the supplier’s credit arrangement with Sony or the loan from RCBC, more quickly. Or chief engineer Mako Elizan could have used that money to buy some more new equipment badly needed at the Broadcast Center. Certainly the production crew down at the props area suffering from a shortage of simple things like chairs would have had some suggestions on how best to use the money.
But Geny wanted the new ABS-CBN to begin its second life with a clean slate. Gabby recalled: “That was the way my father was—he felt he owed them money and it was a moral obligation, if not a legal obligation, and he paid them.”
For their part, the lenders were very pleased to recover tens of millions in funds that they had long ago written off. They met with Geny and Gabby and agreed to a comfortable restructured repayment scheme spread out over several years. Geny’s move greatly boosted the standing and credibility of ABS-CBN in the local and international financial markets. The Kapitan demonstrated that ABS-CBN was not only a company that knew how to play and win the game, but that it would play the game by gentlemen’s rules. End of quote from the book.
Paying our debts in the Lopez Group is something like religious dogma… no two ways about it. So it was so absurd that this accusation was leveled at us without any warning. Of course we are in truth just collateral damage. Whoever caused that story to be published by two unwitting columnists really wanted to change the direction of a Senate hearing on more recent loans granted by DBP. It was unfair of them to include us in their mudslinging, but I guess that is how it is in our country’s political scene today.
We don’t expect that episode to be the last. Because of ABS-CBN’s prominence, we will always be a tempting target for those who have axes to grind. And now, because of Gina’s campaign against mining in island eco-systems, we have a whole industry after us. In other words, we have to accept that we will have a lot of enemies than we even know about… even in ordinary times.
This is why our Lopez Credo and Lopez Values are more important than ever. By living these values in our businesses, we can be sure that we are always on the side of good… working always for the good of Filipinos. As I said in the last budget conference, we are expected to live by standards higher than those acceptable for most business organizations. We are expected to do business with honor and integrity at all times. We are expected to stand by what is right for our country, even if sometimes it makes doing business a little more difficult and we start losing our friends, and make more enemies, as it happened to our Lord Jesus Christ or to Jose Rizal and Ninoy Aquino for that matter.
This year has been quite challenging for all our companies. Next year may be more so, given what is happening around the world. But even as we find ways to strengthen and prosper our businesses, let us show how our values work as our compass in the very treacherous environment around us. It will likely never be smooth sailing for us as far as Philippine business and politics go. But as long as we know we live our values, we will always overcome.
Thank you for staying the course with us. It is this unity that keeps us strong for the long journey ahead.