Floating on Bonds
Boracay tries out a novel financial scheme that works
BY MA DIOSA LABISTE
Boracay tries out a novel financial scheme that works
BY MA DIOSA LABISTE
BORACAY - Tourists gingerly balancing themselves on an outrigger on the way to Boracay Island are a quaint sight, but Florencio Miraflores, former Aklan governor and now congressman, would have had none of it for the sake of safety and convenience.
“Boracay will never be world-class if we insist on the banca,” he says, insisting that as the country’s premier tourist destination, Boracay deserves better transportation infrastructure.
Boracay draws many visitors yearly, and this year, the number could reach up to half a million. From a backpackers’ haven in the 1980s, Boracay now hosts resorts, hotels, restaurants, and offers other tourism-related services. Since the 1990s, tourism has become a major industry in Aklan.
“Congressman Miraflores anticipated the growth problems of Boracay in the early 1990s. That is why he moved fast,” says Aklan Gov. Carlito Marquez. Miraflores proposed the construction of a jetty and a terminal building in Caticlan for tourists. It was well received by local business and community leaders but not by pump boat and outrigger operators who were afraid of losing out to bigger and modern vessels.
There was also concern about the impact on the environment of the construction. As the national government, through the Department of Tourism, could not provide funds, Miraflores batted for bond flotation to finance the jetty and terminal building. A bond is a written promise by the issuer to repay a financial obligation in a specified principal amount at a fixed time in the future, with a series of periodic interest payments.
When a local government unit (LGU) is sues bonds, buyers of the bonds become investors in the LGU project. They get back their invested money with interest when the bonds mature.
Miraflores preferred bond flotation to loans because of the high interest rates prevailing in commercial banks. He also refused a Build-Operate-Transfer scheme because many private developers were sitting it out in the wake of the financial crisis in 1996.
The proposed projects cost more but Aklan decided to limit the amount of bonds to P40 million because it was within the province’s capacity to absorb without compromising on the delivery of basic services. It was decided that the money from the bonds would finance the passenger terminal and the reclamation works in Caticlan.
PUTTING IT TOGETHER
“It was the best option at that time,” says provincial accountant Ma. Victoria Salido, one of those who monitored the bond flotation in Aklan. The province approved the bond flotation through an ordinance on April 8, 1997. The governor was given broad powers to negotiate and enter into contracts related to bond flotation.
A bond flotation is a many-layered procedure of securing funds for a project, explains Salido, who had to read up on it because, at the time, the Commission on Audit hardly had any guidelines.
The hiring of a financial adviser, Preferred Ventures Corp., to conduct a feasibility study of the project and certify financial capacity of Aklan to pay its obligations and negotiate with a trustee bank, the Land Bank, was one of the costs incurred in floating bonds. Land Bank was tasked to handle the proceeds from the bond sales, revenues from the project, and remittances from the provincial government.
A licensed underwriter, RCBC Capital Corp. (RCBC) was also hired, while the Local Government Unit Guarantee Corp (LGUC), which advises LGUs on their financing needs, guaranteed the Boracay-Aklan provincial bonds (BAPB).
In another ordinance, Aklan assigned P11.3 million of its Internal Revenue Allotment (IRA), the share of the province from the gross revenue collection of the national government, to Land Bank as a guarantee or payment of the bonds. The amount, called a “sinking fund,” has to be deposited in two installments every year, from 2000 to 2006.
Salido says the BAPB was sold through institutional buying (RCBC made the purchase). Ideally, local investors and the people should have bought the bonds, but there were no takers or local investors in the project.
With money from the bonds, the province was able to start by January 2001 reclamation work and the construction of the terminal’s basic structure. An environment impact clearance was earlier secured. Six months later, the jetty port started its limited operation, while the passenger terminal opened its doors in 2003 even if construction was still ongoing. It was only in October 2005 when the two facilities operated fully.
From 2000 to 2003, while construction was ongoing, the province had to pay its obligation to the sinking fund from its IRA. Salido says that while this was money intended for basic services, they managed to keep up somehow.
INCREASED EARNINGS
The passenger terminal and jetty are meant to boost revenues. Each passenger who goes to Boracay passes through the passenger terminal in Caticlan and pays P20. On the way home, another P20 is charged at Cagban and Tambisaan terminal and seaport.
The province also earns from stall rentals, cargo, berthing, parking, and advertising fees. Part of the income goes to the Municipality of Malay and Barangay Caticlan.
In the first six months of operation, the Caticlan jetty and passenger terminal earned P2.5 million. They earned close to P10 million and P16 million in terminal and cargo fees in 2004 and 2005, respectively.
As of October this year, the ports and passenger terminal has earned P23.1 million, this time with income derived from the operations of Cagban and Tambisaan.
Marquez says the increase in income came from tourist arrivals and the cargo fees with the opening of the Roll-On Roll-Off (RORO) port, as Caticlan serves as the vital link between Western Visayas and Manila.
By July 1, 2006, the BAPB matured. The sinking fund was enough to pay for the principal plus accrued interest. Marquez says he is proud that Aklan was successful in bond flotation even at the height of the financial crisis.
But bond flotation is not for every local government unit. There are projects that can easily be funded with direct loans without the local government being saddled with added charges and conditions that come with bonds, says Salido.
Marquez says the BAPB scheme worked because it combined revenue-generating and regulating measures. Without these features, the BAPB may be a tough act to follow.
WHAT BORACAY-AKLAN DID
- Anticipated the problems that the growth of the tourism industry would bring.
“Boracay will never be world-class if we insist on the banca,” he says, insisting that as the country’s premier tourist destination, Boracay deserves better transportation infrastructure.
Boracay draws many visitors yearly, and this year, the number could reach up to half a million. From a backpackers’ haven in the 1980s, Boracay now hosts resorts, hotels, restaurants, and offers other tourism-related services. Since the 1990s, tourism has become a major industry in Aklan.
“Congressman Miraflores anticipated the growth problems of Boracay in the early 1990s. That is why he moved fast,” says Aklan Gov. Carlito Marquez. Miraflores proposed the construction of a jetty and a terminal building in Caticlan for tourists. It was well received by local business and community leaders but not by pump boat and outrigger operators who were afraid of losing out to bigger and modern vessels.
There was also concern about the impact on the environment of the construction. As the national government, through the Department of Tourism, could not provide funds, Miraflores batted for bond flotation to finance the jetty and terminal building. A bond is a written promise by the issuer to repay a financial obligation in a specified principal amount at a fixed time in the future, with a series of periodic interest payments.
When a local government unit (LGU) is sues bonds, buyers of the bonds become investors in the LGU project. They get back their invested money with interest when the bonds mature.
Miraflores preferred bond flotation to loans because of the high interest rates prevailing in commercial banks. He also refused a Build-Operate-Transfer scheme because many private developers were sitting it out in the wake of the financial crisis in 1996.
The proposed projects cost more but Aklan decided to limit the amount of bonds to P40 million because it was within the province’s capacity to absorb without compromising on the delivery of basic services. It was decided that the money from the bonds would finance the passenger terminal and the reclamation works in Caticlan.
PUTTING IT TOGETHER
“It was the best option at that time,” says provincial accountant Ma. Victoria Salido, one of those who monitored the bond flotation in Aklan. The province approved the bond flotation through an ordinance on April 8, 1997. The governor was given broad powers to negotiate and enter into contracts related to bond flotation.
A bond flotation is a many-layered procedure of securing funds for a project, explains Salido, who had to read up on it because, at the time, the Commission on Audit hardly had any guidelines.
The hiring of a financial adviser, Preferred Ventures Corp., to conduct a feasibility study of the project and certify financial capacity of Aklan to pay its obligations and negotiate with a trustee bank, the Land Bank, was one of the costs incurred in floating bonds. Land Bank was tasked to handle the proceeds from the bond sales, revenues from the project, and remittances from the provincial government.
A licensed underwriter, RCBC Capital Corp. (RCBC) was also hired, while the Local Government Unit Guarantee Corp (LGUC), which advises LGUs on their financing needs, guaranteed the Boracay-Aklan provincial bonds (BAPB).
In another ordinance, Aklan assigned P11.3 million of its Internal Revenue Allotment (IRA), the share of the province from the gross revenue collection of the national government, to Land Bank as a guarantee or payment of the bonds. The amount, called a “sinking fund,” has to be deposited in two installments every year, from 2000 to 2006.
Salido says the BAPB was sold through institutional buying (RCBC made the purchase). Ideally, local investors and the people should have bought the bonds, but there were no takers or local investors in the project.
With money from the bonds, the province was able to start by January 2001 reclamation work and the construction of the terminal’s basic structure. An environment impact clearance was earlier secured. Six months later, the jetty port started its limited operation, while the passenger terminal opened its doors in 2003 even if construction was still ongoing. It was only in October 2005 when the two facilities operated fully.
From 2000 to 2003, while construction was ongoing, the province had to pay its obligation to the sinking fund from its IRA. Salido says that while this was money intended for basic services, they managed to keep up somehow.
INCREASED EARNINGS
The passenger terminal and jetty are meant to boost revenues. Each passenger who goes to Boracay passes through the passenger terminal in Caticlan and pays P20. On the way home, another P20 is charged at Cagban and Tambisaan terminal and seaport.
The province also earns from stall rentals, cargo, berthing, parking, and advertising fees. Part of the income goes to the Municipality of Malay and Barangay Caticlan.
In the first six months of operation, the Caticlan jetty and passenger terminal earned P2.5 million. They earned close to P10 million and P16 million in terminal and cargo fees in 2004 and 2005, respectively.
As of October this year, the ports and passenger terminal has earned P23.1 million, this time with income derived from the operations of Cagban and Tambisaan.
Marquez says the increase in income came from tourist arrivals and the cargo fees with the opening of the Roll-On Roll-Off (RORO) port, as Caticlan serves as the vital link between Western Visayas and Manila.
By July 1, 2006, the BAPB matured. The sinking fund was enough to pay for the principal plus accrued interest. Marquez says he is proud that Aklan was successful in bond flotation even at the height of the financial crisis.
But bond flotation is not for every local government unit. There are projects that can easily be funded with direct loans without the local government being saddled with added charges and conditions that come with bonds, says Salido.
Marquez says the BAPB scheme worked because it combined revenue-generating and regulating measures. Without these features, the BAPB may be a tough act to follow.
WHAT BORACAY-AKLAN DID
- Anticipated the problems that the growth of the tourism industry would bring.
- Floated bonds to raise money for the reclamation work in Caticlan and the construction of a passenger terminal there.
- Limited the amount of bonds (less than what was needed) to what the provincial government can absorb without straining the budget for service delivery.
- Limited the amount of bonds (less than what was needed) to what the provincial government can absorb without straining the budget for service delivery.
No comments:
Post a Comment