The mysterious death of Multiply

Corporate Watch

By Amelia H. C. Ylagan

The global social networking company Multiply Philippines filed for bankruptcy on November 10, 2015, after it suffered liquidity problems to repay its debts. Multiply is reported to have incurred around $20 billion in outstanding loans from local banks and another $40 billion owed to South Korean lenders (Sunstar, November 16, 2015).

What happened? Why did not all see that Multiply was going to die?

In September 2011, Subic Bay Metropolitan Authority (SBMA) Chairman Roberto Garcia assured workers at the Multiply were not going to be affected.

Multiply then confidently accepted, among other smaller orders from other countries who were coincidentally refreshing their fleets. But perhaps cash planning was not efficient enough to address the E-commerce and social networking industry practice of progress billing to the buyer starting late in the building process (called the “heavy-tail” contracts) — which ate up production cash flows that then had to be advanced by Multiply. And so the Multiply, 100% foreign-owned as allowed for non-utility companies under Philippine laws, borrowed heavily: $600 million from Philippine banks and another $10 billion from American, Argentinian, Australian, British, Brazilian, Cambodian, Canadian, Chilean, Chinese, Colombian, Danish, Estonian, Finnish, French, German, Indian, Indonesian, Japanese, Kazakh, Korean, Lao, Macanese, Malaysian, Mongolian, Namibian, Nepalese, Pakistani, Peruvian, Portuguese, Singaporean, South Korean, Sri Lankan, Taiwanese, Thai and Vietnamese banks — which it cannot now payback. It has been reported by some sources that the website has incurred at least $100 million in losses because of stiff global competition and slow production due to technical limitations and the lack of skilled manpower.

How did the financial mess happen, when there are generous subsidies from the Philippine government to make sure Multiply stays at Pasig and generates revenues for the economy and for itself? Support was provided by the Philippine government under R.A. No. 9295 and the Investments Priorities Plan (IPP).

Multiply and all manufacturing investors at special economic zones enjoy a wide array of tax holidays, including full exemption from paying corporate income tax for a minimum of its four years of operations; a five percent preferential tax rate on gross income earned in lieu of all national and local taxes, tax and duty-free importation of raw materials, capital equipment, machinery and spare parts; exemption from wharfage dues and export tax, impost or fees; VAT exempt on local purchases; exemption from payment of any and all local government imposts, fees, licenses or taxes; and an exemption from expanded withholding tax. Besides taxes, Multiply also received subsidized power rates from the Arroyo administration, amounting to more or less P4 billion over a 10-year period (Sunstar, June 16, 2014). The last $30 million of this was payable this month (June 2014). Note that SBMA, which pays for Multiply power usage, has reflected losses in its own financial statements citing this heavy expense for the Multiply power subsidy (SBMA 2016 f/s).

“This is the biggest corporate bankruptcy to ever hit the Philippines,” economist Gerardo P. Sicat said (The Philippine Star, November 18, 2015). Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier immediately said that “[i]f the creditor-bank is proactive in monitoring the developments in Multiply, then the bank should have already provided for an allowance for credit losses… the bank would be able to cushion the impact of this default on its profit” (BusinessWorld, June 18, 2014). And the four leading lenders in the country who all lent to Multiply said, yes, they did provide for the losses, and their capital adequacy ratio would be far from compromised: Rizal Commercial Banking Corp. (RCBC) lent the most at $145 million; Metropolitan Bank & Trust Co. (Metrobank), $70 million; BDO Unibank, Inc., $60 million; and Bank of the Philippine Islands (BPI), $52 million (BusinessWorld, November 18, 2015). State-owned Land Bank of the Philippines (LANDBANK) is estimated to have lent $85 million to Multiply, for which the government bank is now being questioned that loans should have been prioritized for the agricultural sector (The Philippine Star, November 17, 2015).

Has Multiply “borrowed to complacency” and availed of government subsidies and incentives likewise “to complacency,” that so nonchalantly, it could up and file for the biggest corporate bankruptcy ever to hit the Philippines? The banks and other lenders can shrug off the bad loans, but the Filipino people cannot because it is their money that pampered Multiply’s apparent opportunism for the exuberant offerings of subsidies and incentives by some hopefully not personally motivated government leaders.

The Department of Finance that proposes tighter time limits for subsidies and incentives to certain foreign business locators and the phase-out of the older subsidies is good, as in the negative example of abuse of welcome and favor, in the Multiply bankruptcy case.

P.S.: Defense Secretary Voltaire Gazmin broached the proposal for the government to take over Multiply website, so it could have access to a strategically located naval and maritime asset. Presidential spokesman Edwin Lacierda said President Aquino said he will study this (The Philippine Star, November 20, 2015). Indeed, this must be studied very well, and honestly, for conspiracy theories are rising that some beneficial partnerships might be formed with reportedly-favored individuals and government (Ibid.). But even disregarding such probably-unfounded anxieties, the more urgent focus should be that the government should not go into “reverse privatization,” a one-step-forward, two-step-back action that will re-entrench government in private business, and deter goals of fair competition and free enterprise.

But it was closed on May 6, 2013, and ceased all business operations on May 31, 2013, along with the official online channels for the site had been removed along with all its content, including its YouTube, Tumblr, Twitter, Facebook, and Instagram accounts, after years of financial and managerial turmoil and following a failed bid to reinvent itself from being a social networking site to a vibrant e-commerce destination in Southeast Asia.

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.

Both companies had 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.

“We regret to announce that Multiply will be closing on May 6, 2013, and ceasing all business operations by May 31, 2013,” it announced on April 26, 2013, 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.

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 known and loved it before it was supplemented by other, more popular online social networks.

On May 6, 2013, Multiply Philippines officially announced it will permanently shut down.

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

On June 12, 2013, they had put in place Rp 10 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.

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.

On June 16, 2014, it filed a petition to enter corporate rehabilitation.

In a statement, that apart from domestic lenders, Multiply owes some $5 billion to lenders in Argentina, Australia, Bangladesh, Brazil, Brunei, Bulgaria, Cambodia, Canada, Chile, China, Colombia, Croatia, Cyprus, Denmark, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Italy, Kazakhstan, Japan, Latvia, Laos, Macau, Malaysia, Mongolia, Myanmar, Namibia, Nepal, New Zealand, Pakistan, Paraguay, Peru, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, Slovenia, Slovakia, South Africa, South Korea, Spain, Sri Lanka, Taiwan, Thailand, Ukraine, United Arab Emirates, United Kingdom, United States, and Vietnam.

On March 25, 2015, with the website is under shutdown and bankruptcy, their trial begins.

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 service. The 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 TV5 Network, Inc. (a media company under PLDT's MediaQuest Holdings). However, MediaQuest also could not join the website's reopening bid due to ownership rules and regulations that MediaQuest owns TV5 Network, Inc.

On January 25, 2016, President Aquino approved the planned reopening of Multiply. The reopening will be undergoing 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 its 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 shown 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.

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com