Saturday, January 24, 2009


Remember Shakespeare’s "The Merchant of Venice" and the trial of Antonio where the money lender, Shylock, wants his pound of flesh as payment for the merchant’s debts? Antonio’s advocate, the lady Portia wisely agrees to that pound of flesh being carved from her client’s breast, but with the caveat that not one drop of blood must be spilt.

Imagine if that trial scene happened in a Philippine court. The judge, who would most likely be in cahoots with Shylock, would have himself or herself interjected, "and all the blood that goes with that pound of flesh", bangs the gavel and says, "so ordered".

But Venice, even in times medieval (Shakespeare wrote the play in 1598) was a cut above present-day Philippine courts. Or so a pioneering steel factory, put up during the Ramos era, cries out.

Steel Corporation, initially capitalized at 4.5 billion pesos, was the only certified enterprise under R.A. 7103, also known as the Iron and Steel Industry Act of 1991. It located its plant in Balayan, Batangas, and started building the country’s biggest and most modern integrated flat steel factory in 1996. To finance the venture, it secured loans worth 3.1 billion pesos from a consortium of local and foreign banks.

But timing was off, because in 1997, the Asian recession hit the Philippine peso hard versus the dollar. Thus, dollar-denominated loans resulted in massive foreign exchange losses. The owners of Steel Corp. did not know what hit them, and their plant was yet to be completed. To be sure, the same problem hit just about any big enterprise set up during FVR’s time. Remember Maynilad and Manila Water? Remember Manny Villar and his housing ventures? They all fell into hard times because of the currency crunch, but then, Steel Corp. is not owned by a politician, or members of the business elite. They are just ordinary, hard-working Chinese-Filipinos who dared to become big, up against a bank owned by equally hard-working, but now extremely big Chinese-Filipinos. And that is where the scales of justice tilt for the more powerful.

The Balayan plant, which sits right beside property where I used to spend summer vacations during the martial law years, now produces cold-rolled coils and other steel products for construction, appliance casings, automotive components, cans and roofing materials. It is the biggest of its kind in the country, and exports products to 12 other countries. But when 26 pesos to the dollar hit 44 and more in 1997, while the plant was still being completed, its immediate foreign exchange losses shot up to 1.3 billion, not to mention the interest costs that also piled up accordingly. Yet by end 1999, Steel Corporation generated revenues of 2.4 billion pesos and reported a net income of 330 million pesos. That’s when the second big whammy hit them though. Government, which originally gave the pioneer enterprise a 7 percent tariff protection rate on its finished products, lowered this to 3 percent in July 2000.

By 2001, the owners knew they would not be able to meet loan repayment schedules without impairing their working capital, and thus lead to closure. They asked their creditors for restructuring. In 2002, a restructuring agreement was drawn up, which would involve the creditors putting up a revolving trade financing line of 500 million pesos in exchange for the shareholder’s equity infusion of 550 million pesos which the company would use exclusively to pay back the line after three years. BDO-Equitable was the lead bank and consortium agent.

But the syndicate advanced only a hundred million, and three creditors withdrew 275 million of existing capital lines. Still, the company was able to pay more than 5 billion pesos in interest and principal payments as of June 2006, greater than the original loan amount of 4.2 billion pesos. Despite all the financial setbacks not of its own doing, Steel Corporation was producing top-of-the-line products, and became the market leader, its potential for export hobbled only by lack of working capital on top of a tremendous liability of humongous interest payments. It deserved rehabilitation. But like Shylock, the creditors, in this case BDO-Equitable, wanted more than just a pound of flesh. It seems that what it wants is the entire corpus, over the owners’ blood and guts.

For while the subject of restructuring was being discussed, all too suddenly, in devious fashion that would make Shylock look like a saint, the bank petitioned a Batangas court to place the company under receivership. And the wily lawyers of the bank found a lady judge who is no Portia by Shakespearean esteem.

In its petition, the bank sought conversion of 3.122 billion pesos in outstanding debt to equity, which virtually means Banco de Oro-Equitable would own the steel plant lock, stock and barrel. Not just a pound of flesh, but everything – blood, bones and guts included.

This should be understandable only if the firm was doing badly, if the corpus was rotting, and soon would be carrion, as in most government corporations run down by greedy appointed officials at the behest, or even without, of top leadership. But it is not. By any fair management standard, the owners did not suck the corporation’s lifeblood. It had consistently registered operating profits of 600 million pesos or more each year. But for the debt yoke getting heavier because Shylock had no mercy, it could turn around.

Aha! There lies the rub. If debt becomes equity, and equity is owned by the bank, who gets the 600 million in annual profits? Infuse it with more operating capital coming from the bank (read that as OPM – "other people’s money", the sure-fire formula for getting rich in this benighted land) and watch the profits add further up.

So the owners and their lawyers appealed to the good sense of the lady judge in Batangas. But no, she appointed a receiver who it turns out, was an external counsel of one of the creditor-banks, who was likewise rehabilitation counsel and imposed corporate secretary of another distressed company owned by the creditors. Conflict of interest? Who cares?

I could go on and on, but a litany of incidents showing obvious bias will take three more articles in this column. In any case, feeling they would not get anywhere close to justice, the company moved for the disqualification and termination of the rehabilitation receiver. The lady judge denied it. The company went to the Court of Appeals on March last year, praying urgently for a TRO to restrain the lower court.

The case was raffled off to the Fifth Division, whose chief recused himself immediately thereafter. Then it went to another division with a lady justice as designated ponente. After the lapse of two months, she denied the TRO. After denying the TRO, she unloaded the case, just like the male judge of the Fourth Division. But pray tell, if she did not want to touch the case for whatever reason, why act on the prayer for a TRO first, and two months later? E di sana nag-inhibit na agad?

The case was then assigned to a justice whose family origins coincidentally are from the same area in Batangas, even if he already has two other cases involving Steel Corporation. A Muslim justice chose to inhibit himself from acting on the petition, on the ground that he obtained a housing loan from then Equitable-PCI Bank. How high-minded!

Yet lo and behold! In CA-G.R.-SP 99442, which likewise involved Equitable-PCI Bank, the same guy signed the order dated December 10, 2007 which denied Steel Corporation’s application for TRO. Yet in another case involving the same parties, he inhibits himself? Only in da Pilipins, and the Pilipin judicial system.

Meanwhile, the rehabilitation proceedings before the RTC of Batangas presided over by the lady judge came to a close, as expected, to the injury of the steel company. So Steel Corporation appealed to the Court of Appeals. Lo and behold! It gets raffled once more to this justice from Batangas, his fourth involving the beleaguered steel company. Sinuswerte si justice!

And how, pray tell has this CA justice acted on the four cases? The latest is once more an appeal for an urgent TRO against the same lady judge from Batangas. The CA justice with roots in Batangas has either denied all previous TRO prayers, or sat on the cases without action, hoping perhaps that the company gets run under the ground by the creditor, or is forced to succumb to its pressures.

Playing football with a vital company in a strategic industry for whatever reasons makes one wonder whether the justices (and there are more) simply want the petitioner to bleed to death, to force him to capitulate to the creditor who is not after payment, but afte