MANILA, Philippines – A senator accused the former president of state-owned Development Bank of the Philippines of manipulating the share price of the country’s biggest mining firm.
For most of the four-hour hearing on Tuesday, Dec. 13, 2011, Sen. Serge Osmena almost single-handedly interrogated Reynaldo David, then the DBP president when the bank heftily profited from trading the shares of Philex Mining Corp. in 2009.
Osmena, the chair of the Senate committee on banks, tried to pin David for playing a key role in shoring up prices of Philex shares when the bank and the group of businessman Roberto Ongpin were about to sell their remaining shares in the mining firm to the group of businessman Manuel V. Pangilinan.
The Senate is investigating loan, stocks, and bond transactions between DBP and the Ongpin group. This is the fifth hearing on different deals that involved some of the country’s biggest deals and deal makers. Ongpin and Pangilinan control some of the largest private firms in the Philippines.
Behest loans, insider trading, and now, stock manipulation, have been covered in these Senate hearings.
Stock manipulation occurs when there is a series of transactions designed to raise or lower a price of a security or to give the appearance of trading for the purpose of inducing others to buy or sell. The Revised Securities Code considers price manipulation of traded stocks as illegal.
At the end of the hearing, Osmena acknowledged that the senators have no evidence yet that Pangilinan or Ongpin engaged in stock manipulation.
“Not yet. But we have the proof of trading, certified transcripts, people who were around who will verify them talking about manipulating prices. This is what they call testimonial evidence but this is not documentary evidence. We will definitely get the documents,” he told reporters at an afternoon briefing.
Ongpin and Pangilinan are both not present at the hearing. Ongpin is abroad, while Pangilinan, who heads the biggest telecommunications firm in the country and now controls and chairs Philex, has not been summoned to attend the Senate probe.
Pangilinan, however, has submitted an affidavit in October that gave details about the Philex-related deals with Ongpin and DBP in 2009.
Aside from Pangilinan’s affidavit, Osmena said he also has a certified copy of the minutes of the DBP board meetings where the Philex deals were discussed.
Osmena said both the affidavit and the board minutes show that David was making decisions on the Philex shares owned by DBP in tandem with Ongpin’s own moves with his shares.
In Nov. 2009, DBP sold for P12.75 each half of its Philex shareholdings to the Ongpin group who partly paid for them using loans that DBP also granted. A month after, DBP and Ongpin group sold all their remaining Philex shares to Pangilinan group for P21 a piece.
Osmena noted that in between these two dates, the share price of Philex hit a low of P14 then went up again to a high of P19 in a matter of days.
Osmena noted from Pangilinan’s affidavit and the DBP board minutes that the stock manipulation happened a week after Pangilinan met with Ongpin on the week of Nov 24, 2009.
The two parties decided to enter into a deal that priced the Philex shares at P21 each, Pangilinan wrote in his affidavit submitted to the Senate on October 24, 2011.
According to the transcript of the Dec. 9, 2009 DBP board meeting minutes, David informed his colleagues in DBP that they had to “protect the price” of Philex shares since he wanted DBP to piggyback on the Ongpin-Pangilinan deal.
When asked by Osmena what “protecting the price” meant, David replied that it was his euphemism for “watching” the movements of the Philex share price.
“The transaction we’re looking at was something like P20 per share,” David told the senators.
However, as the December 2, 2009 transaction date for the block sale to Pangilinan neared, Philex’s share price was sliding.
David told his colleagues that he knew Pangilinan was behind it since Asia Securities, the broker that usually trades the stock transactions of the Pangilinan group, was selling the Philex shares at a low price, thus pushing down the share price.
“The Pangilinan Group — we know the broker they’re using was Asia Securities — started to sell it down from P19 to P18 to P17 to P16. So we went in and buoyed at P17, P18, and pushed it back to about P18.50,” David said, according to the transcripts.
“At the time, Pangilinan kept selling because he wanted to negotiate on a low, of course, because he’s going to buy. In our case, we wanted to sell on the high, so we’re making sure that the market was buoyed up,” he added. “The last purchase that we had was even at P19.50 just to make sure that we have to protect our price.”
David stressed that he was not manipulating the price and considered their trades during the period, amounting to around P2 million or P3 million, as “minimal transactions.”
David also said Osmena may have “taken [the DBP board minutes] out of context.”
Thus, Osmena said he’ll subpoena trading records of Pangilinan’s and DBP’s Philex trades.
In the preliminary analysis of suspicious price movements, investigators determine when a dealer dominated (over 50%) of the inter-dealer trading, and whether any borker/dealer was regularly the highest bidder o r the highest offeror.
Timing of deals
Osmena said that David had lied in the previous hearings that he did not know of Pangilinan’s intent to buy more Philex shares after DBP sold some of its shares to Ongpin group at only P12.75.
Citing the board minutes, Osmena said that part of David’s exit strategy for DBP’s Philex shareholdings is to sell it to the Pangilinan group after Nov. 28, 2009, the day the latter can buy more Philex shares without breaching the mandatory tender offer rule.
The tender offer rule is a way to protect minority shareholders from being eased out of the opportunity to sell their shares at the price a buyer of over 35% stake pays another shareholder.
The rule covers a period of one year. If the buyer breaches the 35% threshhold, he has to offer the same price to all the other shareholders, making the deal very costly.
The Pangilinan group started buying blocks of Philex shares since Nov. 28, 2008, carefully avoiding the 35% trigger point.
Osmena said David was well aware that Pangilinan intended to accumulate a controlling stake in Philex.
Osmena also cited how David reveled in discussing the Philex trade deals to his colleagues in the DBP board. He cited the board minutes on their Dec. 9, 2009 meeting where David mentioned the new ventures of Philex that would likely result in dividends for shareholders, DBP included.
David mentioned the plans on and business opportunities of Pitkin, the Vietnamese arm of Philex Petroleum, the oil exploration unit of Philex Mining. Based on the transcripts, David also told them about the new Boyongan mining ventures of Philex in Surigao province.
David sat as an independent director in the Philex board.
However, David stressed that these were not inside information since these were all disclosed by Philex to the public through the stock exchange. He said this also to defend himself against the inside trading allegations of the senator.
David also said he did not get a “cut” or personally profited from the Philex deals.