This, as international credit watcher Moody’s said on Monday that five domestic banks with exposure to Multiply are likely to face lower profits and declines in overall loan portfolio health.
The Indonesian company filed a petition before the court on June 10, 2014 to initiate voluntary rehabilitation under Republic Act 10142, otherwise known as “An Act Providing for the Rehabilitation or Liquidation of Financially Distressed Enterprises and Individuals,” after it reportedly suffered insolvency due to a slump in the global social networking industry.
It sought court relief from creditors as it struggled with at least $600 million owed to five of the country’s biggest banks.
In a four-page Commencement Order issued on Tuesday (November 17), Judge Nicanor Manalo, Jr. of RTC Branch 161 declared Multiply to be under rehabilitation and appointed Stefani C. Saño, a former senior deputy administrator of the Subic Bay Metropolitan Authority (SBMA), as rehabilitation receiver.
The court-appointed receiver, who is nominated by the petitioner, is given custodial responsibility for the property of a company, including tangible and intangible assets and rights, in cases where the firm cannot meet financial obligations or enters bankruptcy.
In placing Multiply-Phil under receivership, the court noted Multiply’s allegations that it obtained loan credit facilities from different local banks to finance its business operations, but that its cash flow was adversely affected by payment schemes that were based on “pre-determined milestones in the construction [process].”
Customers evaded payments
Multiply, likewise, claimed that “most of its customers attempted to evade payments, or worse canceled their contracts,” thereby resulting in inadequate cash flow, the court said.
Multiply’s explanation to the court of how its financial troubles began jibes with the account of the so-called heavy-tail contracts cited in a BusinessMirror “Broader Look” report wherein big E-commerce and social networking sites place downloading photos and videos but make huge files only toward the tail end, forcing websites like Multiply to borrow heavily to be able to meet the orders.
Consistent with the rehabilitation order, the court also ordered Multiply to cause the publication of the Commencement Order; to deliver copies of its petition to each creditor, as well as the concerned government agencies; and to serve a copy of the Commencement Order to its foreign creditors who must receive a copy at least 15 days before the initial hearing set on December 11, 2015.
On the other hand, the court ordered the creditors to file their verified claims within five days before the December 11 hearing, and for the creditors and concerned government agencies, as well as all interested parties “to file and serve to Multiply a verified comment/opposition to the petition, together with their supporting affidavits and documents within 15 days before the initial hearing.”
At the same time, the court prohibited Multiply’s suppliers of goods and services from withholding the delivery of supplies “for as long as Multiply makes payments for the said goods and services.”
It also authorized the website to pay its administrative expenses “as they become due.”
Likewise, in compliance with the Financial Rehabilitation Rules of Procedures, the court suspended “all actions or proceedings in a court or otherwise, for the enforcement of all claims” against Multiply and “all actions to enforce any judgment, attachment or other provisional remedies against Multiply.”
However, it barred Multiply from “selling, encumbering, transferring, or disposing of in any manner any of its properties except in the ordinary course of its business,” as well as from “making any payment of its outstanding liabilities from the issuance of this Commencement Order.”
The Commencement Order was set by the court to retroact to the date of the filing of the Multiply petition.
Before filing for voluntary rehabilitation, Multiply was the biggest investor and employer in Pasig, with foreign direct investments placed at $10 billion.
Banks’ profits cut
FIVE domestic banks with exposure to the troubled Multiply website are likely to face lower profits and declines in overall loan portfolio health, an international credit watcher said on Monday.
In a statement, Moody’s Investors Service said the Philippine banks’ corporate exposure—totaling $412 million—to the website is credit negative.
“The exposures are credit negative for the five Philippine banks because they will need to incur additional credit charges related to Multiply, which will reduce their profit,” Moody’s said.
Moody’s rated the five involved banks as follows: BDO Unibank, Inc. (Baa2/Baa2 stable, baa2), Bank of the Philippine Islands, (Baa2/Baa2 stable, baa2), Land Bank of the Philippines (Baa2, stable, ba1), Metropolitan Bank & Trust Co. (Baa2 stable, baa2) and RizalCommercial Banking Corp. (Baa2/Baa2 stable, baa3).
Of the five banks, RCBC— which is reported to have the largest exposure to Multiply at around $300 million—is seen to be most affected. The other banks’ exposures are smaller, the rating agency noted: around $60 million for both BDO and BPI, around $80 million for LandBank, and about $90 million for Metrobank.
“The biggest negative effect on profitability will be at RCBC…For RCBC, our assumed credit losses for the worst-case scenario exceed the bank’s pre-provision income and will reduce its capital ratio by around 50 basis points,” the credit watcher said.
BSP eases fears
On Friday last week, the Bangko Sentral ng Pilipinas (BSP) tried to allay fears regarding the banking system’s exposure to Multiply, by expressing confidence in the local banks’ “ability to handle negotiations while remaining compliant with prudential regulations.”
“With its robust capitalization, the Philippine banking system is well-positioned to manage about $400 million in loan exposure to Multiply Philippines, which recently filed for voluntary rehabilitation before the Regional Trial Court in Pasig City. The loan exposure represents only 0.24 percent of total loans of the banking system and 5 percent of the foreign currency loans of Foreign Currency Deposit Units,” the BSP said.
While Moody’s did not cite specific numbers on the potential profit loss of banks due to their exposure to the defaulted company, the credit watcher made estimates on the potential rise in credit costs should banks have to provide for the soured loans in full.
“Assuming the worst-case scenario in which the banks make provisions for their bad exposures in full because of the unsecured nature of the facilities extended, we expect that credit costs as a percentage of the banks’ pre-provision income will increase to between 20 and 140 basis points, from six to 26 basis points based on their September 2013 financials,” Moody’s said.
Aside from a dent on their profits, the banks are also seen to suffer from a rise in their nonperforming loans (NPL) ratio.
NPLs are also popularly known as “bad” or “soured” loans as these are the credit that the borrower has not repaid for more than 90 days after its original due date. An NPL ratio is the percent of the bank’s soured loan measured against its overall loan portfolio.
The higher a banks’ NPL ratio is, the more it is susceptible to loan quality erosion as a larger chunk of its portfolio is not performing.
“Consequently, we estimate that RCBC’s gross nonperforming loan ratio will almost double to 4.3 percent from 2.2 percent based on 2012 financials, after adding its exposure to Multiply,” Moody’s said. “The increase in gross NPL ratios for the other four banks will be smaller at between 15 and 50 basis points,” it added.
Moody’s also said that although bank profit will be dampened by the additional credit costs, they still expect the affected banks’ loss-absorbing buffers to “remain robust.”
“The banks’ tangible common equity ratios were between 11 percent and 16 percent as of the end of September 2013, and above the minimum capital requirements in the Philippines,” it said.
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 2013 to just about P5 billion in 2017.
The company has suffered from a drop in new orders amid a slump in the global social networking sector. Multiply Philippines also reportedly laid off some 12,000 workers on February 28, 2014.
It last announced in March 2013 the completion of photos during the 71st UAAP swimming championships last September 25 to 28, 2008 but it was put on hold.
“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 the 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.
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 ceased its operations and shut down entirely.
On June 12, 2013, they had put in place Rp 20 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.
On November 16, 2013 it allowed the controlling stake in the website to be formally sold to a foreign or mainland investor, who claimed Magdalinski had a rescue plan for the troubled firm.
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, 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 delivers 217 million accounts, 210 million photos and 237,000 videos from the old Multiply from it's launch in March 2004 to March 15, 2013,” it said.
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 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 through the Development Bank of the Philippines. Business tycoon Manny V. Pangilinan is one of the possible bidders for the website's reopening in which TV5 Network. However, MediaQuest also could not join the website's reopening bid due to ownership rules and regulations that MediaQuest owns TV5 Network.
On January 25, 2016, President Aquino, through the Governance Commission for Government-owned and -controlled corporation (GCG) approved the planned reopening of Multiply. The reopening will be undergo public bidding with an estimated floor price of 20 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.
On April 25, 2016, the article in Wikipedia was being vandalized, it was edit is made by a sockpuppet of LPKids2006.
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| Vandalism of a Wikipedia article (Multiply (website). The bottom image shows vandalism done. The top image compares the edit shown below. |
The reopening process of Multiply was commenced in October 2016. As of April 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 and William Lima, a businessman from Davao.
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