MONTHS after Emilia Chua, a 57-year-old housewife, was diagnosed to be in the fourth stage of breast cancer, she went to see condominium developer Luke Roxas, in the hope that he would release P500,000 of the several million pesos she lent to his firm four years ago. The money she lent represented her and her husband's life savings, and she now needed some of it for surgery and chemotherapy.

Chua recounts that Roxas had told her to submit a petition, along with her medical and hospital records and expenses, and he would see to it that she got help. She waited six months to hear from him. When she called to follow up, she was asked to see the businessman at his office, where he told her she may be able to get P50,000.

He then called his lawyer, Francis Lim of Accra, and handed the phone to Chua. "Attorney Lim told me they could not release the money because we had filed a case against them before the DOJ (Department of Justice). He said I would get the money if we dropped the case."

There are few choices left for Chua and the over 700 other individuals who lent Roxas P3.9 billion. The DOJ case will not likely prosper soon; of the more than 30 cases filed since last year, six have been dismissed and the rest are pending resolution. And the hope of a "white knight" who will rehabilitate Roxas's ASB Holdings Inc. so it can repay its creditors grows dimmer every day.

The "white knight" concept had worked when it was first applied to Philippine Blooming Mills. Another company had come along and taken over the distressed firm.

The same approach is being tried on Urban Bank, which was forced to close two years ago. The Export Industry Bank has since bought into the bank and come up with a repayment scheme for creditors.

But ASB Holdings has not been as fortunate. "There is no white knight. There is no savior," Monico Jacob, Luke Roxas's financial adviser, has told unsecured creditors. Talks with a Hong Kong-based firm Chevalier International Holdings begun late last year have led nowhere.

The choice left for Roxas's 712 unsecured creditors is to wait and see if the rehabilitation plan that has been in place since April 26 would be successfully implemented. The same is being asked of ASB Holdings's secured creditors-the banks-which had loaned the firm some P5.1 billion.

In a statement sent to the PCIJ, Roxas expressed the hope that the rehabilitation plan will be implemented effectively because "this is the fairest feasible plan we were able to come up with. We are optimistic because we are working very hard to implement the plan."

Some bankers, however, say they could not help but experience déjà vu upon reading the rehabilitation plan, recalling that a distressed company owned Roxas's family had tried a similar scheme in the 1980s with less than positive results. Many of the unsecured creditors like Chua, meanwhile say they cannot afford a long wait, since among them are old and sick.

The Securities and Exchange Commission (SEC) and rehabilitation receiver Fortunato Cruz have been swamped by letters seeking partial or full release of the money ASB owes them for humanitarian reasons are piling up.

One creditor needed the money for her husband's kidney ailment (her husband has since died). An 84-year-old widow suffering from ischemic heart disease begged for the return of her money to cover her medication and checkup. A brother and sister also dragged their ailing father to the SEC and to Cruz to convince them how badly they needed the money. A creditor sought help for her daughter's medical hospitalization for lupus.

Some of the letters were from former and present ASB Holdings employees. An elderly ex-worker has already suffered two strokes. A current ASB employee wrote about her father-in-law's colon cancer, her husband's unemployment, her inability to pay her children's tuition on time and her mounting debts.

One corporate rehabilitation expert, however, says that rehabilitation plans are designed to favor unsecured creditors. ASB's plan, he says, essentially follows the outlines of what was done in successfully rehabilitating BF Homes Inc. All the assets of the company, including those placed under mortgage, were put in a common pool, the asset pool. After the asset pool has been established, every creditor-whether secured or unsecured-was issued an asset participation certificate redeemable within a period.

"This is in favor of the unsecured creditors because they already have in their hands a certificate redeemable and backed up with adequate securities," says the expert. "Where they had none before, now they have something."

As approved by the SEC, ASB's rehabilitation plan invites the banks to release ASB property mortgaged in their favor in exchange for other property of the company to extinguish their claim against the firm under dacion en pago (payment in kind) transactions. Banks are to waive all penalties and charges.

For unsecured creditors, an asset pool would be created, consisting of real estate assets released by the banks, ASB's unencumbered real estate assets, cash to be raised from the sale of Roxas's and ASB's shares in the Development Bank of Singapore (DBS) and ASB Malayan Tower Project, the firm's receivables on projects, units to be released as a result of units swapped with fully paid buyers, and other assets.

Funds from the asset pool would be used to complete ASB's unfinished 46-storey Legaspi Place in Makati and the 51-storey BSA Twin Towers in Ortigas Center and to construct a 51-storey twin tower, the St. Francis Towers, on a 3,000-square meter property located at the back of SM Megamall. The development of these properties, ASB has said, is necessary because the properties in their present state would not be enough for ASB to settle all its obligations.

A project governing board would administer the asset pool, the funds of which will be put in a trustee bank that would then issue creditor's participation certifications. The certificates will be transferable with a term of five years and one day from issue date and will bear an interest rate of six percent a year, to be paid after all the principal obligations have been paid from the residual cash. Certificate holders can convert the certificates into lots or completed units contributed to the asset pool.

To date, the assets pool consists of P194.3 million in cash raised from the sale of Roxas's and ASB's DBS shares. Unencumbered properties, including lots and club shares, worth about P100 million have been contributed to the pool as well. Also set to be added to these are condominium units in the 23-story Garden Heights in Quezon City that are worth at least a total of P68 million, under a joint-venture agreement with International Exchange Bank. And Allied Bank has agreed to release properties worth P312 million.

The project governing board now consists of rehabilitation receiver Cruz as chair, and Roxas and lawyer-cum-unsecured creditor Leonardo Siguion Reyna as members. ASB vice president Rolando Domingo and ex-Congressman Jerome Paras are their respective alternates. Bank of Commerce has been named trustee bank. It should only be a matter of time before unsecured creditors would be issued their certificates. But no one, not even ASB, can give a solid timetable when the rehabilitation would be completed and the unsecured creditors would get all their money back.

As it is, the sluggish economy and the slump in the real-estate business, especially after the Sept. 11 terrorist attacks in the United States, make it difficult to forecast when the properties in the asset pool would be sold and converted into cash to complete the projects, and then how long it would take to sell the units once these are completed.

Jacob himself acknowledged such kinks in his April, August and October meetings with unsecured creditors. He said, "So what does ASB have?…Unfortunately, these are hard assets, they are not liquid assets."

Describing the real estate as "not moving," he added, "I have to confess these assets are difficult to sell at this time. I think we take it one step at a time."

To generate cash, the project governing board has offered unsecured creditors first preference in the sale of ASB's unencumbered properties. The arrangement is for creditors to pay 50 percent in cash and 50 percent by way of reduction of obligation of ASB. Jacob has said that the SEC has yet to approve this.

Although Jacob said the SEC has yet to approve this, several creditors have already balked at the offer. "Where are we going to get the money? Our money is with ASB," one creditor says.

Others have also questioned the valuation of the property. Marcelo Hernandez, who was a lawyer at San Miguel Corp. for 35 years and a resident of BF Homes in Paranaque, says the ASB is selling a piece of property in his neighborhood at P7 million when a similar property is priced at P6 million.

Club shares are also pegged at higher prices, such as those at the Quezon City Sports Club, according to creditors. While ASB is selling these at P225,000 each, businesswoman Julie Uy says "if you buy outside, it'll be P150,000. Will you buy? It's crazy!"

According to Roxas, the valuation of assets to be placed in the asset pool is "based on the valuation indicated in the rehabilitation plan, which has been approved by the SEC."

But creditors say they also feel it is unfair to make them bid for the property that may interest two or more creditors. This, they say, would have the effect of jacking up prices.

In the meantime, the project governing board has offered unsecured creditors the opportunity to negotiate the takeover of property ASB has mortgaged to the banks. Creditors can buy the property or assume ASB's loan, and the balance of the value of the property would be deducted from the firm's obligation to the creditors.

In meetings with the creditors, Jacob had said the move would not generate cash for the asset pool but would reduce ASB's debt so that when there is money to be finally distributed to pay the unsecured creditors, the distribution would be to a smaller pool. He also said the plan benefits the creditors who get the property as these are well located and expected to appreciate in value.

A constant worry of some creditors is a provision in the rehabilitation plan that allows ASB to draw its administrative expenses from the asset pool. Cash flow statements of ASB since May 2000 show that administrative expenses of ASB companies averaging between P10 and P12 million a month.

To be sure, there are unsecured creditors who want the rehabilitation plan to work. But many are suspicious of Roxas and his motives.

One creditor says it is difficult to separate Roxas from ASB, even with the rehabilitation plan, because he is the single largest stockholder of most of the companies. Roxas owns up to 99.5 percent of shares in the ASB Holdings alone.

Another creditor says it is hard to trust a man who has taken their money and is not paying them. He says, "Will the rehabilitation plan succeed? The question is, who will trust him? It's a matter of confidence."

In truth, many say the ASB continued to get money from the public even on the day the company declared a moratorium on payments last year. Roxas also got a P4-million loan from a friend of 25 years the day before he stopped payment.

The track record of Roxas's family has been bothering some creditors as well. In late 1983, the financially troubled State Investment House owned by the Roxases stopped paying about 200 lenders from whom it had borrowed substantial sums to fund its real estate projects. Luke Roxas was then in charge of the firm's corporate finance. It took Roxas's father, Chiong Pai Hun, four to five years to repay the debtors.

The banks, for their part, say State Investment paid off its creditors with condominium units, which later turned out to be much cheaper than what the company claimed they were. In the end, State Investment got rid of all its condominium units, which it would not have otherwise sold at a good price. Banks wound up holding the asset for so long to recover what they had lent out.

Trying to avoid a repeat of history, some banks had tried to appeal the SEC's decision approving ASB's rehabilitation plan. The banks have also said that by making them surrender mortgaged real-estate assets to a pool forces them to line up for payment alongside unsecured creditors.

"This is a serious situation," remarks Deogracias N. Vistan, former head of the Bankers Association of the Philippines, now president and chief executive officer of Equitable PCI Bank. "This puts into question the concept of mortgages and might set a bad precedent when it comes to lending."

According to Vistan, the SEC decision may prompt banks to just lend to big multinational companies to stay on the safe side and "discriminate against local companies, even the big ones with good collateral."

He argues that “the concept of rehabilitation is being misconstrued as writing off or restructuring interest" on the loans, the bread and butter of banks. Vistan says, "A rehabilitation plan should focus on how to make the business viable again, but not to do that at the expense of the banks."

At present, banks have no choice but to wait till the cash-strapped company gets back on its feet. The cost of foreclosure is also steep which banks have to shoulder. Vistan estimates that banks forego an equivalent eight percent of the loan principal to defray the cost of the foreclosure. This includes paying for the six percent capital gains tax, documentary stamps taxes, sheriff's fees, and the filing fee. This is also the reason some creditors with huge exposures had opted to go through the litigious process at the SEC instead of foreclosing. Even for a dacion en pago arrangement, which ASB used in its rehabilitation plan, Vistan says banks still have to pay for everything, except for the filing fee.

"There would always be corporate bankruptcies,“ he notes. “The question is, will the law be there to protect the creditors? Banks are always at the mercy of adjudicators."

At least three unsecured creditors, however, have scored a small victory against Roxas. Last Oct. 15, the Department of Justice approved the filing of five counts of estafa against Roxas, ASB senior vice president and treasurer Evelyn Nolasco and Edwin Casta for making false representations to the public to convince them to invest their money in ASB.

Interestingly enough, Justice Secretary Hernando Perez made public the resolution only early this month, after the creditors put out an open letter to President Gloria Macapagal Arroyo. Noting that ASB Holdings only had an authorized capital stock of P500,000 and paid-up capital of only P12,5000, the DOJ said, "Clearly, the representations regarding its supposed financial capacity to meet its obligations to the complainant-petitioners were simply false."

It also found probable cause to charge the three with violating the Revised Securities Act, citing ASB's scheme in issuing checks instead of the securities enumerated under the Revised Securities Act as a clever attempt to circumvent the law, which requires prior license to sell or deal in securities and registration.

According to the DOJ, "Checks constitute mere substitutes for cash if so issued in payment of obligations in the ordinary course of business transactions. But when they are issued in exchange for a big number of individual nonpersonalized loans solicited from the public, numbering 700 in this case, the checks cease to be such. In such a circumstance, the checks assume the character of evidences of indebtedness."

That bit of triumph has somehow served to give unsecured creditors some hope that all may not be lost in their battle with Roxas and ASB. More than 100 unsecured creditors recently formed the K-9 ARMI (Association for the Recovery of Money Invested) to pressure the ASB Group into releasing their money. Leaders of the group have successfully convinced more investors to file criminal cases against Roxas. They say they refuse to lose without a fight.



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