UCPB to sell P20-B bad assets

BY RUBY ANNE M. RUBIO, BusinessWorld Reporter United Coconut Planters Bank (UCPB) has tapped global accounting firm Ernst & Young as a financial advisor for the sale of P20 billion worth of bad assets and loans, UCPB President and Chief Executive Officer Jose L. Querubin said last week. Mr. Querubin said this would be the second time the bank would be selling bad assets and loans to a special purpose vehicle (SPV). It sold P11.5 billion worth of nonperforming loans (NPL) to US asset management firm Avenue Asia Special Situation Fund last year. The second SPV sale is expected to be concluded by the second or third quarter of 2007. "We have been getting a lot of offers for our remaining nonperforming assets (NPA) on a retail basis, but we want to dispose of them in bulk via the SPV to take full advantage of the tax incentives offered by the law, which will expire in 2008," Mr. Querubin said. The bad assets being eyed for disposal next year will consist of about P6.29 billion worth of bad loans and about P13.75 billion in real and other properties acquired (ROPA), mostly foreclosed assets. From a high of P41.3 billion in December 2002, UCPB’s bad assets have gone down to P28.9 billion as if end-2005. The level is projected to go down further to P27.8 billion by yearend, and to P7.8 billion as soon as the next bad assets sale is consummated. Of the P7.8 billion, P5.4 billion will consist of large tracts of raw land covered by land development agreements with five local property developers. "Our partners in these ventures are undertaking the redevelopment and eventual sale of the bank’s properties over a period of from two to five years, and we expect to recover between 75% and over 100% of the original acquisition cost per asset," Mr. Querubin said. He noted that UCPB has been pushed the disposal of its bad assets in a bid to clean up its balance sheet in line with its 10-year financial assistance agreement with the Philippine Deposit Insurance Corp. (PDIC), which was signed in July 2003. Mr. Querubin said the bulk sale would also save the bank around P150 million a year in costs related to maintaining the foreclosed assets. The sale will also generate substantial cash for the bank. "UCPB is taking a very proactive stance in cleaning up its balance sheet and is in fact already working with clients with P7.1 billion of potential problem accounts to ensure these remain in current status. Otherwise, these accounts will be included in the planned SPV sale in 2007," he added. UCPB posted net interest revenues of P1.04 billion in 2005, a dramatic turnaround from a net interest loss of P650 million in the previous year. Its capital adequacy ratio (CAR) is also within the 10% minimum required by the Bangko Sentral ng Pilipinas. UCPB continues to hold talks with the PDIC for the conversion of P12 billion worth outstanding loans into Tier 1 capital to boost the bank’s capital. The bank is also trying to improve its capital base despite pending litigation involving its shares of stocks.