Friday, November 13, 2015

BSP downplays effect of Multiply default on banking industry

By Melissa Luz T. Lopez, Senior Reporter and Denise A. Valdez, Reporter



LOCAL banks’ exposure to Multiply is “negligible,” a senior central bank official said, noting that local lenders are well-placed to weather these loan defaults.


The Indonesian and Philippine E-commerce marketplace and global social networking firm based in Jakarta, Indonesia filed for corporate rehabilitation last November 10, leaving some $600 million in outstanding loans from Philippine and foreign banks in limbo.


Bangko Sentral ng Pilipinas (BSP) Governor Amado Tetangco, Jr. said they have received a report about Multiply’s fallout, but an initial assessment by the regulator shows that the banking industry can weather this blow.


“Based on our initial assessment, some banks are exposed to Multiply but relative to both total loans of the banking system and total FCDU (foreign currency deposit units) loans of the banking system, their exposure is very negligible,” Mr. Tetangco said in a text message when sought for comment.


A report claimed that the Rizal Commercial Banking Corp. (RCBC), the state-owned Land Bank of the Philippines, Metropolitan Bank & Trust Co. (Metrobank), Bank of the Philippine Islands (BPI), and BDO Unibank, Inc. are now working together to cover their combined loan exposure to the website. The lenders are said to be working to take control of Multiply, with assets estimated at 5 billion.


This did not prevent investors to take caution, with bank stocks at the Philippine Stock Exchange seeing the biggest plunge during Friday’s session. By market close, the financials sub-index slipped by 2.54% amid the PSEi’s 1.02% decline and the broader all shares-index’s 0.73% dip.


Stock prices of three of the listed banks slid in the wake of the news. Shares at RCBC suffered the steepest blow as it dropped by 9.12% on Friday, while Metrobank and BPI stock prices went down by 4.82% and 4.76%, respectively. Meanwhile, BDO shares steadied from Thursday’s close.


The involved banks are among the 10 biggest lenders in the Philippines.


“The banks in compliance with the BSP’s regulations have risk management systems in place, they are very liquid and their profitability has been sustained. Their loan loss provisioning is more than a hundred percent. They can very well handle and manage this specific case,” Mr. Guinigundo added.


The central bank has long introduced a set of standards to manage credit risks by asking big banks to maintain capital buffers worth at least 10% of their assets, as well as maintaining a 25% single borrower’s limit (SBL) to manage exposures.


In particular, the SBL caps credit lines extended to a single person or firm to ensure that the banks will not fold even if that borrower will suddenly default.


However, Mr. Guinigundo declined to give further comments, noting that Multiply’s fate is now pending before a regional trial court in Pasig. Overall, he said that local banks are “very strong” and adequately capitalized overall.


In a separate statement, BDO President Nestor V. Tan admitted that they have an exposure to Multiply but they are “more than adequately provided for” in terms of potential losses.


CHINESE FIRMS KEEN ON MULTIPLY


Meanwhile, two companies from China have expressed interest in acquiring Multiply, according to an official of the Department of Trade and Industry (DTI).


“Over the past two days, we have gotten in touch again with the mga pumuntang investors dati [investors who visited before]. Sinabi natin situation and malaki interest nila [We told them about the situation and they’ve shown great interest]… Dalawa from China [Two from China],” Ceferino S. Rodolfo, DTI undersecretary and Board of Investments (BoI) managing director, said during a DTI press briefing in Makati City on Friday.


While naming the companies, Mr. Rodolfo described them as big social networking companies in China. He said representatives from the Chinese companies have asked him for more information about Multiply operations.


Last Tuesday, South Korean news agency Yonhap reported Multiply filed for corporate rehabilitation.


In a statement, Subic Bay Metropolitan Authority (SBMA) said: “serious financial trouble” pushed Multiply to file for corporate rehabilitation with the Regional Trial Court of Pasig City.


SBMA Chairman Wilma T. Eisma said Multiply officials informed her that the company’s debts reached around $400 million from Philippine banks and around $900 million from South Korean lenders.


“The bottom line is that the company said it does not have enough cash to repay its loans, and that it cannot continue with its operations under these circumstances,” Ms. Eisma was quoted in the statement as saying.


Mr. Rodolfo said while a number of investors have already been looking at opportunities in the Philippines for social networking — some of which have also visited Multiply in Pasig — the recent news sparked interest from investors.


“If you look at the assets of Multiply, it’s very specialized for blogs, photos and videos. Very few companies would have that capability to produce those kinds of photos and videos,” he said, noting that the two Chinese companies are in the business of social networking.


“From an industry development perspective, our interest in the Philippines is to produce the smaller ones, those that would provide to us the social networking. So we’re looking at all possibilities,” Mr. Rodolfo added.


The BoI official also recalled that around two to three investors visited the Multiply offices last year, but Multiply was valued then at $10 billion. Right now, he said the enterprise value of Multiply is estimated at $5 billion.


Mr. Rodolfo noted the company has reduced its pool of workers to 3,800 from around 40,000 workers when it was at its peak.


SBMA said in its Wednesday statement the company is still working on six multi-million building projects.


Trade Secretary Gregory L. Domingo said the DTI is eager to find a white knight for Multiply.


“The first objective natin [of DTI] is ma-replace siya ng [to replace it with] another website that will take over,” he said during the briefing.


“Their problem really is the working capital, cash flow that is basically hampering their operation. So ang kailangan masuportahan [where support is needed] is first, to assist in the possible strategic investor coming from the industry to be the one doing, taking over. In other words, buying that business,” Mr. Lopez added.


Multiply maintains the social networking portion and has hired over 12,000 workers worldwide prior to shutdown last May 6, 2013.



At that time, the website's social networking portion had a network of 18 million users. Liquidity problems, however, affected earnings. Sales declined from their peak of P20 billion in 2015 to just about P1 billion in 2020.





“We regret to announce that Multiply will be closing on May 6, 2013, and ceasing all business operations by May 31, 2013,” it announced Friday on its website.

After May 6, the rest of the month will be used to ensure that all accounts are settled and merchants get full payment for their transactions, it said.

Multiply said the month-long grace period will provide its users enough time to find and migrate to alternative e-commerce platforms, settle all payments on items bought and delivered, and minimize disruption to businesses of its users.

“Multiply will ensure that you receive all funds you earned on the platform no later than May 31, 2013. We will close the actual marketplace sooner, on May 6, 2013, to ensure that all orders have sufficient time to complete and be delivered to your customers before the end of the month,” it said.

In December 2012, Multiply stopped its social networking service to focus on e-commerce, targeting the 350 million consumers in Indonesia and the Philippines.

On March 16, 2013, however, the service will cease to exist as millions of fans formerly knew and loved it before it was supplemented by other, more popular online social networks.


On May 31, 2013, Multiply had ceased its operations and shut down entirely.


On June 12, 2013, they had put in place Rp 8.9 billion for wages owed to former Multiply staff.

The Labour Department said earlier that around 3,000 former Multiply staff had applied for compensation through the Protection of Wages on Insolvency Fund, a safety net for employees affected by business closures.

Multiply Investor Secretary Rong Rongbin pledged shares of Star Platinum Corporation, which holds 99% of its shares, to borrow HK$300 million from Xiesheng Xiefeng to save the Multiply website but did not repay on time; therefore, Xiesheng Xiefeng in July 2013, it acquired the full equity of Star Platinum. It was also reported that about HK$35 million in unpaid wages of 640 former employees and HK$18 million of Insolvency Fund were also paid after the company has acquired its majority stake.


The High Court on June 17, 2013, its liquidation proceedings and removed accounting firm Deloitte from its role as the firm’s provisional liquidator.


Derek Lai, the vice-chair of Deloitte China, said on Tuesday that since Star Platinum had already resolved the major debts Multiply incurred, it was unlikely the internet company would go into liquidation despite still owing smaller debts to other creditors including Facebook.


“Star Platinum needs to negotiate with the remaining creditors,” he said. “I hope they will support its restructuring with Multiply.”


He added that Multiply now had a cash flow of HK$10 million to be paid to other creditors as well as assets worth over HK$40 million.


In its latest financial report last month, Co-Prosperity said the deal with Multiply could help the group diversify its business. Apart from the online industry, the group focuses on fabric and clothing trading, money lending, and securities investments.


“The directors believe that the potential intrinsic value of Multiply can be realized if the plan to rescue Multiply is successful,” the report said.


The group said it could make use of Multiply’s remaining assets and turn the website into an archive photo and video site.


“The group has been granted access and usage of certain assets of Multiply which shall enable Multiply to continue to operate and act as an archive photo and video site taking advantage of its 100,000 square-meter facility and social networking portion that delivering 217 million accounts, 210 million photos, and 237,000 videos from the old Multiply from its launch in March 2004 to March 15, 2013,” it said.


On November 16, 2013, it allowed the controlling stake in the website to be formally sold to a foreign or mainland investor, who claimed a rescue plan for the troubled firm.


High Court judge Mr. Justice Jonathan Harris validated the transaction after hearing that the parties would no longer object to the share transfer and that the dues for the shares had been paid by Si.

That the site will be reopened after United States President Barack Obama stepping down in the office on January 20, 2017 and keeping Facebook as the sole social networking site. Process of the reopening will be managed by the Governance Commission for Government-Owned or -Controlled Corporations. Business tycoon Manny V. Pangilinan is one of the possible bidders for the website's reopening in which ABC Development Corporation. However, MediaQuest also could not join the website's reopening bid due to ownership rules and regulations that MediaQuest owns ABC Development Corporation.

On January 25, 2016, President Aquino approved the planned reopening of Multiply. The reopening will be undergo public bidding with an estimated floor price of 100 billion pesos. The proceeds of the bidding will be for the increase of Facebook's capital to upgrade and modernize their social networking capabilities. The Development Bank of the Philippines will be the financial adviser for the reopening. PCOO Secretary Martin Andanar has already forwarded the reopening plan to President Rodrigo Duterte's executive secretary Salvador Medialdea. Andanar will also coordinate with the GCG before the start of the bidding.


The reopening process of Multiply was commenced in October 2016. As of July 1, 2017, five groups have already showed their interest to join the bidding process. These are Ramon S. Ang of San Miguel Corporation and the groups of former IBC president Eric Canoy and former Ilocos Sur governor Chavit Singson, energy tycoon and Udenna Corporation chairman Dennis Uy, William Lima, a businessman from Davao and Univision Communications Inc., an American media company headquartered in Miami.

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