MANILA BAY LEISURE ESTATE PROJECT

CASE 3
BUSINESS POLICY AND STRATEGY
JOFFREY M. URIAN
(Bachelor of Science in Accountancy IV)
Note: The statement/word with italic font style is the explanation and the analysis of the student

In 1996, the proponents composed of Messrs. Mark Taway, Alex Salazar,

Antonio Roxas, and Lorenzo San Jose had organized the Manila Bay Associates
Managers (MBAM); they conceptualized and packaged the Manila Bay Leisure Estate
Project (MBLEP). The proponents facilitated the acquisition of 100 hectares of
reclaimed land as the place they envisioned to develop into a first class commercial,
residential, and recreational community in the cities of Pasay and Paranaque.
At least P10B is needed in order to actualize the project. The proponents fixed
that the development fund would be raised thru securitization or the sale of Manila
Bay Participation Certificates. Mark Taway, being the lead proponent, committed
himself to secure at least 4 of the 6 slots but failed to pay the corresponding 25%
downpayment on the given deadline on December 20, 1998. No investment-grade
securities were ever issued, and MBAM was no longer the projects proponent.
Securitization refers to a process whereby assets are being transferred
or sold on a without recourse basis by the seller to a trust entity or also known
as Special Purpose Vehicle (SPV) and the issuance of asset-backed securities
which depend for their payment on the cash flow from assets sold (Art. 1 of R.A. No.
9267)
* Special Purpose Vehicle (SPV) or Separate Vehicle is a separately identifiable structure, including separate legal entities or
entities recognized by statue. Separate vehicle maybe in the form of partnership or a corporation (Source: Advanced Financial
Accounting Volume 1, Guerrer and Peralt, 2013 Edition pg. 247)
*In this case study, the presumptions concluded by Mr. Urian is that Mr. Taway as lead proponents of the project failed to comply
to its factor (a bank or finance entity in factoring arrangement whereby the entity sells its accounts receivable, with or without
recourse basis) the necessary amount needed to secure the uncollectibility of the receivables (asset of Mr. Taway) factored in by
Mr. Taway. In the end, the development for project resulted in failure.

Entry of New Project Owners:

The YSPI, the main sponsor and the strategic financial proponent, agreed to
provide a seed money of P700 million. The Gain Corporation is the lead
underwriter (as advisor) and organized the consortium* of six (6) financial
underwriters and agreed to take the two underwriting slots. As underwriter,
Gain Corporation shall be responsible for pricing and marketing the securities

to investors.

(Consortium- A consortium is an association of two or more individuals, companies, organizations or

governments (or any combination of these entities) with the objective of participating in a common activity or pooling their
resources for achieving a common goal. Consortium is a Latin word, meaning "partnership", "association" or "society" and
derives from consors 'partner', itself from con- 'together' and sors 'fate', meaning owner of means or comrade.)

Strong Bank (SB), a commercial bank, was invited to participate in the project
and agreed to buy one block worth P1Billion for P800 Million (discount of 20%). SB
paid P200 Million on March 5, 1998, representing the 25% downpayment on its
purchase of Gain Corps purchase block of regular MBLEP Participation Certificates.
YSPI, Gain Corp, and SB have invested a total P1.5 Billion for the project. 80%
went to land acquisition and the remaining 20% was for the consultants, brokers,
and other services.
No call for the payment of the remaining subscription is made because the
project was suspended. This is because no financial no financial institution is
interested in the project due to the financial crisis that hit the nation. Consequently,
the financial position of SB and Gain Corporation was also adversely affected. Thus,
the project was held in abeyance*. (A state of temporary disuse or suspension)
With the suspension of the project, the focus of the project owners, (YSPI,
Gain Corp, and SB) is to consolidate and preserve the 100 hectares development
property.
*Since the land of the proponents is held in preservation it will further result in high
economic value. The increase in market value of land can help the project to
continue in the future when the proponents of the project decided to continue to
pursue the idea. Also the unnecessary economic crisis is a big factor for the success
development of the project, there is no further material loss to be recognized in the
side of the proponents due to wise decision, the preservation of the land.

Proposed Expanded Protection of YSPI; Entry of New

Co-owner
In order to protect and secure YSPI, Gain Corp, SB and Henry Tan, a foreigner
(as a new co-owner, see relevant provisions below re: Henry Tans entry), entered
into a Memorandum of Agreement (MOA) - MBLEP on February 15, 2001. The salient
features of the agreement are as follows:
1. The consolidation and preservation of the assets require additional fund of
P500 Million, more or less. As such, the owners are required to contribute in
proportion to their respective interest in the assets at the time of the call and
if any party failed to contribute, the other party shall advance. In the instant

case, only YSPI has the capacity to provide additional fund and the other
owners on the following dilution ratio:
a. Beginning July 15, 2001, funds advanced by any party shall earn a
premium at the ratio of 1:1.66. However, it will be increased to 1:1 .5 once
DAR approves any of the land conversion application of the assets.
b. Succeeding advances made after the date of the first DAR approval shall
earn a premium of 1:1.66 until such time that DAR approves the
application of any the remaining land conversion in which case, the
applicable premium shall be increased to1:2.5.
2. The contribution of the owners prior to July 15, 2001 and the sharing ratio of
interest of the owners in the projects assets are shown on the next page.
Owner
Share
YSPI
Gain Corp.
SB
Total

Contribution in Billion
.70
.60
.20
1.50

%
46.67
40.00
13.33
100.00

3. In addition to the rights of YSPI as co-owner of the assets held in trust, the
parties also agreed to appoint YSPI as lead co-owner and administrator of the
said assets as such it has perform an act specifically stipulated therein and
shall be entitled to receive an administration fee.
4. There was a move by a certain Mr. Abante, a representative of Mr. Henry Tan
to amend the MOA-MBLEP recognizing Mr. Tan as co-owner of the MBLEP. Mr.
Tan is also an investor of MBLEP thru Gain Corp. in the amount of P 200
Million. Mr. Miguel Ong, President of Gain Corp in his September 23, 2004
letter interposed no objection on the proposed amendment. Ms. Ashti Danaya
requested SB to comment on the proposed amendments, and the same was
transmitted to the Legal Department of YSPI for review.
5. As February 2006, the total funds advanced by YSPI on top of its initial
contribution amounted to P300 Million. Applying the dilution ratio, the
amount stood at P950 Million or 56% share of P1.8 Billion while that of SB and
Henry Tan remained at P200 Million with 11%. Gain Corp. share also remained
at P500 Million (22% new percentage share).
*Co-Ownership, there is co-ownership (co-possession) whenever the ownership
(or possession) of undivided thing or right belongs to different persons (Article
484). Co- ownership of property does not of itself establish the existence of a
partnership, although co-ownership is an essential element of partnership.
ARTICLE 1811 of partnership code sited A PARTNER IS CO-OWNER WITH HIS
PARTNERS OF SPECIFIC PARTNERSHIP PROPERTY. The incidents of this coownership are such that: (1) A partner, subject to the provisions of this Title and
to any agreement between the partners, has an equal right with his partners to
possess specific partnership property for partnership purposes; but he has no

right to possess such property for any other purpose without the consent of his
partner; (2) A partners right in specific partnership property is not assignable
except in connection with the assignment of rights of all the partners in the
same property; (3) a partners right in specific partnership property is not subject
to attachment or execution, except on a claim against the partnership. When
partnership property is attached for a partnership debt the partners, or any of
them, or the representatives of a deceased partner, cannot claim any right
under the homestead or exemption laws; (4) A partners right in specific
partnership property is not subject to legal support under Article 291.

*PARTNERSHIP DISTINGUISHED FROM CO-OWNERSHIP

ELEMENTS
CO-OWNERSHIP
Creation
Generally created by law.
It
may
exists
even
without a contract
Juridical Personality
None

Purpose
Duration

Disposal of Interest

Power to act w/ third

persons

Effect of death

The common enjoyment

of a thing or right
An agreement to keep
the thing undivided for
more than 10 years is
not allowed.
Co-owner may free do
so.

Co-owner
cannot
represent the ownership;
hence,
a
judgement
secured against only one
of the co-owners will not
bind the co-owners.
The death of co-owner
does
not
necessarily
dissolve
the
co-

PARTNERSHIP
It is always created by a
contract either express
or implied.
It
has
a
juridical
personality separate and
distinct from that of each
partner.
Realization of profits.
Under the law, there is
no limitation upon the
duration.
A
partner
may
not
dispose of his individual
interest
in
the
partnership so as to
make the assignee a
partner unless agreed
upon by all the partners.
In the absence of any
stipulation
to
the
contrary, a partner may
bind the partnership.

The death of partner

results in the dissolution
of the partnership.

ownership.
Source: The law on Partnership and Private Corporation, De Leon and De Leon,
Jr.,2013, ed.

Major Amendments to New MOA

Below are the major amendments made in the MOA- MBLEP:
WHEREAS, the party agreed to amend the MOA-MBLEP to reflect the
foregoing agreements;
NOW, THEREFORE, for and in consideration of the above premises and of the
mutual covenants, agreements and stipulations herein contained, the parties do
hereby mutually declare and agree as follows:
Section 1

Section 2

Section 4
thereof.

YSPI, GAIN CORP. and SB hereby recognize Henry Tan as a coowner of the project to the extent of his contribution through
GAIN CORP. in the amount of Two Hundred Million Pesos (Php
200,000,000.00) and the corresponding reduction of GAIN
CORPs contribution in the project from Six Hundred Million
Pesos (Php 600,000,000.00) to Four Hundred Million Pesos (Php
400,000,000.00)
Henry Tan hereby assumed the rights and obligation of GAIN
CORP in the project to the extent of its contribution of Two
Hundred Million Pesos (Php 200,000,000.00) pursuant to the
provision of the MOA- MBLEP.
Section 2.1 Article II, Section 2.2 shall now read as:
2.2
The Parties shall open a New Trust Account in the
name of YSPI, GAIN CORP, SB, AND HT, with YSPI as
the appointed Trustee and custodian of the
documents relating to the assets;
2.5
The parties agree to include the following
provisions:
2.5
GAIN CORP, SB, and HT shall hold YSPI, its officers,
representatives and assigns, free and harmless
from any and all claims and liabilities arising or in
connection with the performance of its duties as
Lead Co- Owner, unless YSPI is duly proven to be
grossly negligent in the performance of its duties.
This amendment is deemed effective as of and from the date

Funds Invested as of February 28, 2006

Each of the Parties in the Assets (in Billion) is as follows:
Owners
2006

Original

Additional Investment As

Investment % Share
YSPI
.70
46.67
GAIN CORP.
.40
26.67
HENRY TAN
.20
13.33
SB
.20
13.33
TOTAK
1.50 100.00
100.00

.30
0.00
0.00
0.00
.30

of

February

28,

Investment % Share
1.00 55.56
.40
22.22
.20
11.11
.20
11.11
1.80

Furthermore, it is indicated under Section 3.0 that all provisions of MOAMBLEP which are not affected by said amendments shall continue in full force and
effect.
In a letter dated November 23, 2004, Atty. Cortez submitted the comments
and observations, but he did not mention whether SB concurred or disagreed with
the amendments. Instead, Att. Cortez wanted to clarify the rationale of this
provision:
GAIN CORP., SB, and Henry Tan shall hold YSPI, its officers, representatives
and assigns, free and harmless from any and all claims and liabilities arising from or
in connection with the performance of its duties as Lead Co-owner, unless YSPI is
duly proven to be grossly negligent in the performance of its duties.
This provision has no relation to the above said request of Mr. Tan, which was
the basis for amending the MOA-MBLEP.
Call for a meeting of owners/proponents:
Ms. Ashti Danaya, manager of Ybarro Sangre Properties Inc. (YSPI), has
requested for a meeting with the project proponents to resolve issues relevant to
the MOA approval.
During the meeting, Atty. Cortez asked, Is there a significant effect with the
inclusion of Mr. Tan as co-owner since he is a foreigner? After which, he expressed
his disagreement on the provision making YSPI exempted and free from any
liabilities since it gives a blanket authority to the YSPI to act and perform functions,
though such actions may not be beneficial to the SB. Furthermore, such actions are
subject for abuse by the people in YSPI.
Ms. Danaya averred that such stipulation in the amended MOA was due to the
insistence of YSPIs lawyers.

Atty. Cortez also presented in the meeting the extent of their exposure,
applying the dilution ratio since SB could no longer provide additional investment.
Besides, YSPI had provided additional funds, such that the shares of others were
diluted already.
Atty. Cortez further queried if it would be better to offer this project to
outsiders. Ms. Danaya replied:
It is not easy to pull out your investment at this point since the economy is
down and not stable due to the political instability and the presence of security
threat. But if in the event there would be demand for it, let us know first so we can
match it. However, at this point, the YSPIs cash is tied up with other projects.
Meantime, we shall be maintaining the assets to safeguard from abrupt
deterioration. Again, cost to be incurred shall be added up to the investment.
Ms. Danaya expressed her hopes as she informed the group of the following
developments in the country:
- The peso broke into the 50 to the dollar level for the first time in over three
years due to the influx of hot money from portfolio investors and remittances
from overseas Filipino Workers for their childrens graduation. The peso hit
the key psychological barrier of 51 right after the foreign exchange markets
opening and set a 3 year high of 50.88 to the dollar (Philippine Daily
Inquirer, March 8, 2006, pA1).
- Moreover, strong foreign investments in local stocks, bonds, and bank
products also supported the peso, as net portfolio inflows hit $515.3 million in
February, reversing the net outflows of $117 million in January (BSP,
Philippine Daily Inquirer, March 6, 2006, pB1).
- NEDA Director Dennis Arroyos commented, The government remains
confident economic growth targets will be met despite the declaration of
emergency rule (incidentally, now lifted) and attendant political uncertainty.
Increasing globalization, together with growing political numbness of
Filipinos, will ensure that the economy grows at a faster pace this year (cited
in the Business World on March 6, 2006, pS1/1).
- The Department of Tourism has made a comprehensive program to make the
Philippines more attractive as a tourism destination. If this program were
carried out, increase in tourist arrivals indeed has a causal link to foreign
investments.
Henry Tan gladly told to the group, that the chamber passed in the third and final
reading the extension of the special purpose vehicle (SPV) law by two years. The
chamber also granted fiscal incentives for the sale of bad assets from financial
institutions to SPV companies. The Senate approved a bill that is seen to reduce
about P200 Billion of the estimated P500 Billion worth of bad assets to the financial
community (Business World, March 9, 2006).
Mr. Tan further mentioned that there is a proposal made by the Charter
commission to lift or do away with Protectionist provisions in the current

Constitution and welcome the entry of foreign investors in areas previously reserved
to Filipino citizens.
Mr. Miguel Ong of Gain Corp also shared some information:
- Some political analysts foresee that the country will be rocked by political
tremors throughout the remaining term of the President, i.e., till 2010. Various
groups will continue to challenge her hold of the Presidency. Politics,
therefore, remains the single biggest threat to the Philippines economy
recovery. Thus, Standard & Poors rating of the Philippine condition has
fluctuated on an upgraded to downgraded basis or vice-versa. Ratings of this
nature hold a persuasive sway in the influx of foreign investments.
- Inflation rate February climbed to 7.6% year-on-year from 6.7% in January
after the government started implementing a two-percentage point increase
in the expanded value added tax rate last month. The NSO said overall prices
of heavily weighted food items on a monthly basis went up by 1% in February
(Manila Standard, March 9, 2006, pB1).
The proponents have not come up with a concrete and clear action on the future
of the project. All of them agreed that they would hold another series of
meetings. Ms. Danaya closed the discussions by requesting co-owners to make
themselves available for the next meetings.