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.
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.
