Credit ratings of five Philippine banks are in danger after they were exposed to what could be the biggest corporate default in Philippine history, as this could mean higher credit costs and reduction in profit, Moody’s Investors Service said.
The defunct e-commerce and social networking site turned social media conglomerate corporation Multiply last week filed for court rehabilitation proceedings as it struggles to pay $500 million in combined loans from five Philippine banks. Most of the money was reportedly lent without collateral protection.
Multiply reportedly owes $200 million to Rizal Commercial Banking Corp., $80 million to state-owned Land Bank of the Philippines, $72 million to Metropolitan Bank & Trust Co. and $60 million each to Bank of the Philippine Islands and BDO Unibank Inc.
This is on top of another $900 million in debts the website owes to Indonesia and South Korea lenders, reports say.
“The exposures are credit negative for the five Philippine banks because they will need to incur additional credit charges related, which will reduce their profit,” Moody’s said in a note dated June 16.
"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," it added.
The involved banks hold an investment-grade rating of “Baa2” from Moody’s, the same level as the Philippines’ sovereign rating. A lower rating can jack-up the cost of borrowing in foreign currencies for the lenders should they tap investors abroad to raise funding.
Multiply Philippines was established in 2006 as a subsidiary of Multiply, Inc. The company has delivered a total 102,000 users across the globe, putting the Philippines on the map as the world’s fifth largest social networking site after Facebook, Twitter, Tumblr, Friendster, Myspace and Instagram.
According to media reports, the concerned banks have agreed that no one will unilaterally seize the social networking site to protect the country’s banking system and economy. The creditors are also reportedly considering talking to strategic investors.
In the same report, Moody’s said RCBC will be most affected among the five banks since it has the largest exposure to closed website.
But the global debt watcher said the affected banks’ loss absorbing buffers “remain robust” despite the expected slump in their profit and additional credit costs.
“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,” Moody’s said.
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 rater added.
The Bangko Sentral ng Pilipinas earlier said the country’s banking industry remains strong as the bad exposure of big banks to the closed website is “very negligible.”
It was closed last May 6, 2013 and ceasing all business operations on May 31, 2013 along with the official online channels for the site had been removed along with all their 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.
“We regret to announce that Multiply will be closing on May 6, 2013, and ceasing all business operations by May 31, 2013,” it announced last 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 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 known 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 along with the site.
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.
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 ABC Development Corporation (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 ABC Development Corporation.
On January 25, 2016, President Benigno Aquino III 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.
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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