South Road Properties Cebu’s fountain of wealth

By Ehda M. Dagooc
The Freeman
Thursday, January 17, 2008

Cebu City is seen to become the richest Local Government Unit (LGU) in the Philippines as soon as the South Road Properties (SRP) will start to accommodate operating locators.

Cebu Investments and Promotions Center (CIPC) managing director Joel Mari S. Yu said the city is not relying on the revenue it will generate from lot sales and lease of the 300 hectare economic zone, but rather it will be making more money out of the percentages it can generate from utility and other service providers.

CIPC, a non-profit, non-stock company, owned by the Cebu City government, but privately run, is commissioned to market and promote the SRP.

For power demand alone, the City government stands to get 22 to 24 centavos in every kilowatt consumed by the locators, as franchise fee. In water consumption, SRP management gets P5 to P10 per cubic meter sold.

SRP is projected to consume 99 megawatt in the next nine years for commercial operation.

In telecommunications, SRP will get six percent of the gross income of all telecom companies providing services at the SRP locators.

SRP also gets about five percent in every gross income generated by other service providers, such as security agencies, or other contractors.

According to Yu, SRP will become Cebu’s “source of wealth”. “We will be making enough money.”

“If we will be able to solve all the problems, and finalize all the deals, I am confident that SRP could start to take off within this year,” Yu said.

The 160-hectares of the ecozone, is already being eyed by three big conglomerates in the country. All these three companies have already identified their respective areas within the 160-hectare site.

Yu said Cebu will have to wait for a little more time, as the Cebu City government led by Mayor Tomas R. Osmeña is still clenching good deals with big companies, which expressed strong interest to locate at SRP.

On the other hand, one of the primary problems that keeping the SRP from taking off, is the establishment of a Special Purpose Corporation (SPC), that supposedly will manage the City government-owned zone.

According to Yu, it is very important for the Cebu City government to establish a SPC, as investors are demanding to deal with a privately-run corporation to make sure that SRP will be insulated by political interference.

“As early as five years ago, I already told the Mayor to establish a separate entity to manage SRP. I still stand by it today hoping that he will do it,” Yu said.

The marketability of SRP is very strong. However, the City government should install SPC, just like any successful economic zones.

In the next three years, Yu is optimistic that SRP could generate an average of 50,000 jobs for Cebu.

SRP will not only become Cebu City’s source of wealth, but it will also become the pride of every Cebuano, as development of the coastline economic zone is spectacular, Yu said.

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Cebu City can rake in P8B from 3 South Road Properties investors

By Doris C. Bongcac
Cebu Daily News
First Posted 02:46pm (Mla time) 01/08/2008


Revenues amounting from P8 billion to P10 billion may be added into the coffers of the Cebu City government if Mayor Tomas Osmeña closes a deal with three investors who wanted to acquire portions of the South Road Properties (SRP).

The city government can then take care of its P6 billion loan with the Japan Bank for International Cooperation (JBIC) and spend for basic services that will benefit especially the urban poor.

Osmeña said it will already be easy for the city government to negotiate with JBIC and convince the foreign funding agency to allow Cebu City to rid of its loan guarantors.

The city government allocates at least P500 million from its annual budget for debt servicing. Of the amount, only P300 million represent payment of the city's debt with JBIC while the remaining P200 million is shared by the national government and the Land Bank of the Philippines (LBP).

The national government, through the Department of Finance, acts as the guarantor of the city's loan while LBP is the city's depository bank.

“We plan to negotiate with Japan to waive the guarantee fee. If the project (SRP) is already moving, we will be in a position to take the project away from Land Bank,” Osmeña said.

Osmeña said he is now studying proposals that he received from two of the three investors who are interested at the SRP.

He said one investor is interested to construct a high rise condominium and a mall at the SRP.

He said each of the three investors is interested to acquire of 40 to 50 hectares of the SRP. One investor is interested in Pond F that is located near the sea.

If half of the 300 hectare- reclamation area is sold to investors, this will earn the city P8 billion to P10 billion, the mayor said.

Osmeña however said for this year, he wanted to entertain the best offer submitted by the three investors.

Income is only a secondary consideration. Osmeña said that he is more concerned on how these investors would develop the property to spur the city's economy and create employment opportunities.

The downpayment of P500 million that he expects to receive from one investor is already enough to pay for this year's amortization with the JBIC.

“We only need one of the three investors so we do not get bankrupt. If we close one deal safe na ta. I'm pretty sure of that granting that we do not have an Association of Southeast Asian Nations (ASEAN) crisis next week,” he said.

Having a major investment at the SRP is also expected to boost its marketability.

“I'm pretty sure that even if we get one investor, when the construction starts, the price of land at the SRP will go up anyway,” he said.

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Tomas Wants ‘To Pay Directly’ ( South Road Properties )

Sun.Star
Tuesday, January 08, 2008

AFTER making the first sale at the South Road Properties (SRP), Cebu City Mayor Tomas Osmeña wants to leave out the National Government and the Land Bank of the Philippines (LBP) from the loan agreement with the Japanese Government.

This is because P200 million of the P500 million the City Government pays for the SRP loan annually goes to the National Government and the LBP, the conduit bank for the loan, he said.

A source at the LBP, however, said that this might not be possible.

Being an Official Development Assistant (ODA) project funded by the Government of Japan, a sovereign guarantee is required.

But Osmeña said he will start negotiating with the Japan Bank for International Cooperation (JBIC) as soon as the City closes a deal with any of the three developers that have submitted proposals to buy or lease SRP lots.

“After our first initial lump sum payment, we will ask to waive the requirements for guarantee fee and if we can pay JBIC directly because out of the P500 million, P200 million is income of the National Government from the loan,” he told reporters yesterday.

The 290-hectare development cost the City 12,291,866,796 yen in foreign loans in 1995. The City has so far paid some P1.5 billion for it and has earned only P25 million from the project.

What the City can do, the mayor said, is to negotiate with JBIC or other creditors in Japan to deal directly with the City so they can do away with guarantee fees paid to the Department of Finance (DOF) and the LBP.

The City will end up paying less every year, he said.

“One of the biggest sources of profit of LBP is the SRP and it’s not even their money that we borrowed, they are only collecting from us for JBIC. I saw it at the beginning, na alkanse gyud ta (we would be at the losing end) but I said that time never mind,” said Osmeña.

“In other words, we can always tell our creditors: Is there a way we don’t have to pay the National Government and we just pay directly to JBIC? Anyway our collateral is there (SRP). But before we do that, we have to show our solvency first,” he said.

But the source clarified that the LBP does not charge the City any guarantee fee. They merely collect the fee and remit it to the DOF.

“If it’s an ODA project, the donor country would always want a sovereign guarantee. The transaction is always between the two governments through their respective government depository banks and in the case of the SRP, it’s the JBIC and the Land Bank,” the source told Sun.Star Cebu.

The source privy to the loan transaction also said that LBP is involved in all ODA project and there is no precedent to what the mayor wants to happen.

Sun.Star also checked with the City Treasurer’s Office and based on their records, only P40 million was paid to the DOF as guarantee fee in 2007.

The DOF collects a guarantee fee of one percent of the total outstanding loan balance for the year.

The Cebu Investments Promotion Center (CIPC), the marketing arm of the SRP, has projected the sale of at least 140 hectares by June, which can yield P8 to P10 billion for the City.

But even if the sale materializes this year and the City is able to get the amount, Osmeña said they do not necessarily have to use the entire amount to pay off the loan even before the 2020 deadline.

“It’s not necessary to pay off the loan in full because we have 20 years to pay it. Once we establish that the financial risk to the City is not so much because the project is moving, then we’ll keep the loan as it is, but without the government collecting P200 million from us,” he said.

In his first news conference after arriving from a two-week holiday in the US, Osmeña said he already has two of the three proposals from major developers.

The proposals are for the purchase of 40 to 50 hectares of land for each buyer, but the mayor said there is so much haggling going on that he has to evaluate the offers further.

“As usual, naay hangyo-hangyo but they’re not touching the prices. Their request is that they want to lease a major property for a mall but they will buy land for a high rise condo... We only have to make one sale and that will take care of the loan payment for a year,” he said.

Osmeña said the City needs only P500 million for debt servicing this year, which they can get from the down payment for the sale of the first 40 hectares.

He further said that he will take time to study the proposals to make sure that all developments at the SRP will be integrated and will create a stronger economy and employment opportunities for the city.

“The minimum proceeds for the three offers is P8 to P10 billion for the 140 hectares if it’s a sale and that’s only one-half of the SRP. So our priority is not to go bankrupt.

We sell at least one, safe na ta (we’re safe). Granting there is no Asian crisis, we’re pretty well settled,” Osmeña said. (LCR)

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Cebu Offers Reclaimed Area ( South Road Properties ) to Developers

CEBU CITY — The Cebu City government hopes to bid out about half of the 300-hectare South Road Properties (SRP) early this year to pay for some P5-billion owed the Japan Bank for International Cooperation (JBIC).

Three listed property developers, the names of which are being withheld pending Commission on Audit (CoA) approval of the bidding process, are said to have expressed interest in separate lots.

Joel Mari S. Yu, managing director of the Cebu Investment Promotions Center (CIPC), said two firms had submitted proposals while the third promised to deliver its offer before January 15.

"Once we get all proposals, we will evaluate whether these conform to CoA rules and regulations. We don’t know when we can finalize this, but all the major issues have been resolved," Mr. Yu said.

"We made sure that the three developers will introduce different developments so they won’t kill each other. We’re already on the fine print of the proposals," he added.

The CIPC is the exclusive marketing arm of the Cebu City government for the SRP, a reclamation project envisioned to catalyze growth in the southern part of the city.

All three developers plan to embark on mixed-use developments, each with a retail component, Mr. Yu said.

Only one will construct a mall, while another will focus on an integrated approach to providing infrastructure for the information technology industry.

"We’re crossing our fingers that all this will push through. The proceeds will take care of the city government’s amortizations for not just this year," he said.

The city government secured a ¥12-billion loan in 1995 for the reclamation project, which was renamed South Road Properties and declared a special economic zone in 2005.

All three interested bidders are listed on the Philippine Stock Exchange, Mr. Yu said.

"We have to clear everything with the CoA. The city government wants to make sure that it’s right the first time. And we have investors who don’t want to get egg on their faces," he said.

Last April, SM Prime Holdings, Inc. President Hans T. Sy confirmed that his firm wanted to acquire part of the SRP. Mr. Sy then said they planned to introduce a mixed-use development similar to the SM Central Business Park in Bay City in Pasay.

SM Prime has just completed the expansion of the SM City Cebu mall, called the Northwing, and is currently scouting for properties in Cebu for two more malls. SM is also on the lookout for two more properties in "certain strategic targets in the Visayas".

There are presently four SM malls in the Visayas — one in Cebu, one in Bacolod City in Negros Occidental, and two in Iloilo City.

Other developers that previously reported to have expressed interest in the property are Ayala Land, Filinvest and Robinsons Land.

Officials of these companies have declined to confirm the reports.

Mr. Yu has assured prospective locators at the SRP that there will be adequate power and water. Visayan Electric Co., Inc. has installed power distribution lines while Mactan Rock Industries, Inc. has built a desalination plant that can supply a minimum of 800 cubic meters of bottled-quality water per day.

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Target: 3 South Road Properties deals by June

By Linette C. Ramos
Sun.Star Staff Reporter

THE marketing arm of the South Road Properties (SRP) remains optimistic about the sale of the 295-hectare project this year, even if only P25 million has so far been recovered from the P1.56 billion the Cebu City Government paid for its loan in 2007.

City Hall officials are looking forward to a more promising year.

The Cebu Investments Promotion Center (CIPC) has projected the sale of half of the titled reclaimed lots this year or at least 100 hectares of land, with one to three deals closed by June.

Joel Mari Yu, managing director of CIPC, revealed yesterday that they are already in the final stage of the negotiations with the three buyers, following the release of a memorandum on the price of the lots.

Yu said the bidding for the sale or lease of the lots can begin soon after Mayor Tomas Osmeña signed the memorandum establishing the minimum floor price of the SRP lots, which were divided into three lot categories.

Both the City and the developers of mixed-use projects will be ready to enter into a sale contract by the first or second quarter of 2008, he added.

Each buyer wants to purchase 40 to 50 hectares, and construction will begin by June if any of the deals are closed.

The much-awaited sale will not only help pay for the loan the City incurred for the 295-hectare SRP in 1995. It will also fund projects that have been shelved for lack of funds, including the annual cash gifts for all senior citizens and the renovation of the City-owned Gotiaco building.

Records of the City Treasurer’s Office showed that the City paid P1,564,208,449.04 from 2005 to 2007, more than half of the amount going to interest payments.

P902,000 a day

Of the amount, P678,821,589.50 was for the payment of the principal for the 12.292-billion yen loan (P5.958 billion as of August 2006) while the remaining P885,386,859.54 covered the interest.

In 2007 alone, the City shelled out P579,836,436.05 for the principal and interest payments.

With P329,149,159.69 paid for the interest of the loan last year, the City was shelling out roughly P902,000 a day for interests alone.

Payments are made in two tranches every year, in February and August. The City has until 2025 to pay the loan but it may opt to pay in advance if all the lots are sold before that.

For 2008, P504.98 million of the City’s P2.5-billion annual budget was earmarked for debt servicing for the SRP but the actual loan payment could be less, especially if the peso continues to gain strength this year.

The City has so far earned only P25 million from the facility, which represents the advance payment of Bigfoot Global Solutions for a 25-year lease on two hectares.

Commissions

“Even if only one of the three proposals is closed this year, we feel we’ve already made a very big win for Cebu City. But we have to remember that we will earn not only from the sale or lease of lots. The bigger income will come from our commissions on all utility firms that will operate there,” Yu told Sun.Star Cebu.

The amount has not been established yet but certain Philippine Economic Zone Authority (Peza) rules allow the City Government, as owner of the facility, to collect commissions from the income of utility firms that will operate in the SRP.

Peza has accredited the SRP as a special economic zone.

The City is entitled to commissions from suppliers of electricity, liquefied petroleum gas, telecommunications, security companies, concessionaires and canteens, among others, Yu said.

“Our income from that will far outweigh what we will get from the lease or sale of lots because the latter is a one-time deal, while the commissions will be a permanent source of cash flow for the City,” he continued.

Before leaving for the United States for the holidays, Osmeña also said he is optimistic the City will sell some lots in the early part of the year.

He earlier announced that the first sale will be made in the last quarter of 2007 but negotiations on the minimum floor price of the lots took longer than expected.

Negotiations

After the minimum floor price has been set, Yu expects the final stage of the negotiation to wrap up soon.

Based on the mayor’s memorandum, the sale offer for lots on Pond F, which makes up the entire 1.4-kilometer stretch facing the sea, is at least P15,000 per square meter.

The 17-hectare Pond F can easily earn P2.5 billion for the City, but Yu said the amount can be more depending on the winning bid.

There will be no lease agreement involving any Pond F lot, as specified by the mayor.

For lots located within 80 meters from both sides of the South Coastal Road and the Mambaling Access Road, the minimum floor price is at P11,000 per square meter.

The lots, which are classified as prime properties, will also be open for lease agreements at a minimum price of P70 per square meter per month.

All other lots outside Pond F and the 80-meter area from the coastal and access roads are considered non-prime properties and will be sold for a minimum price of P8,000 per square meter or leased for P28 per square meter per month.

Floor price

“That’s only the minimum floor price, which means that if anyone bids lower than P15,000 for Pond F, among ilabay iyang proposal. The same goes for other lots… I expect in 2008, we will be able to sell at least 50 percent of the SRP, or about 100 hectares. We are still on track if we close even just one or all three deals,” Yu said.

He declined to name their buyers but some of the biggest commercial developers in the country earlier expressed their interest to buy—SM Prime Holdings Inc, Filinvest Land Inc. and Robinsons Land Corp.

The SRP, a pet project of Osmeña during his first term as mayor, was funded by a loan from the Japan Bank for International Cooperation (JBIC).

Of the 295-hectare facility, only 210 hectares have been titled under the City Government’s name.

Although covered by the Presidential Proclamation, the 60-hectare Pond A has no title yet because it is still underwater and has yet to be filled up.

The coastal road, approximately 21 hectares, is owned by the National Government and cannot be titled under the City’s name, while some 11 hectares are being contested by private individuals who showed approved surveys for the lots.

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