In response to several issues raised in news items pertaining to Commission on Audit findings on alleged lapses in corporate bonds investments, the Philippine Health Insurance Corp. has issued a statement that PhilHealth’s investments in corporate bonds are all rated Triple “A” in strict compliance to Republic Act 10606 or the National Health Insurance Act of 2013.
Triple “A” is the highest credit rating conferred to long term investments and obligations of the highest quality; and virtually carries no risks.
On the issue of seven of the bond issuers’ prospectuses being not notarized, PhilHealth said that the minimum requirement for registration of securities with the SEC is only the submission of a preliminary prospectus and not the notarized prospectus as provided for in Securities Regulation Code Rule 8 and 12.
PhilHealth has already secured notarized prospectuses from the six of them while the remaining unnotarized prospectus considered official for the said Bond Issuance can be found in the website of the Philippine Dealing System.
On one bond issuer submitting unaudited financial statements, PhilHealth said that the unaudited financial statements cited by COA were obtained from secondary financial market data source which publishes audited financial statements of listed corporate bonds and securities.
On the non-presentation in paper of one of the Bond Issuer’s credit ratings, PhilHealth noted that considering that the said bond is a publicly listed company, all material reports such as credit ratings containing public disclosure of every material fact or event that occurs that would reasonably be expected to affect investor’s decisions are disclosed with the Securities and Exchange Commission. It is therefore public knowledge that the bond cited by COA is a blue chip company and rated Triple “A”.
PhilHealth, meanwhile, said that the negative list which restricts investments in coal and oil was approved by the PhilHealth Board only in 2018. PhilHealth purchased the said bonds in February 2014. PhilHealth will no longer renew the said investment when it expires on 2021.
These bonds comprising less than 1 percent (or 0.67 percent) of total investments were offered to PhilHealth at an attractive yield of 150 basis points over comparable government securities. These continuously generated higher returns for PhilHealth.
On a separate issue, PhilHealth said that it has been certified as public health workers in 1999, adding that the Notice of disallowances on benefits as Public Health Workers by the COA are still under consideration by Supreme Court.
It also commented on alleged hospital overpayments, which it said was substantially discussed in previous press statements. We defer making further statements on the matter.
PhilHealth made the clarifications after the COA called its attention for reportedly placing the government fund at risk over questionable investments in corporate bonds amounting to P14.34 billion.
According to COA’s 2018 annual audit report on PhilHealth, the state firm bought bonds from several corporations with questionable financial statements and creditworthiness.
“Lapses in the selection of corporate bond investment totaling P14.345 billion were noted, contrary to Section 27, Paragraph 2 of Republic Act 10606 (National Health Insurance Act of 2013) as amended, exposing government funds to undue risk of loss,” the COA report said.
COA reported that seven out of the 14 prospectuses of the bond issuers were unnotarized, putting the validity of their bond offerings in question.
A prospectus is a legal document mandated to be submitted by the bond issuer to the Securities and Exchange Commission. It shall contain the issuer’s company profile, a description of the fund offering, the fund’s fee structure and other information that might be required by the investors or prospective clients.
“The notarized prospectuses from bond issuers would ensure security feature as to the veracity of the contents thereof, as falsities/misstatements made in a notarized document expose the affiant to criminal charges,” the COA said.
The audit body also noted that the financial statement of one of the bond issuers was unaudited in violation of investment rules.
“As much as possible, the financial statements must be audited by one of the prestigious auditing firms in the Philippines to be able to attract the public to purchase the bond offerings. However, it was noted that PhilHealth used the unaudited financial statements of one of the bond issuers in the evaluation of financial status and its creditworthiness,” the COA said.
COA said PhilHealth also used un-updated financial statements in evaluating the reserve funds of five bond issuers.
Another bond issuer, state auditors said, also failed to present the requisite Philippine Rating Report by the Philippine Rating Services Corp., a domestic credit rating agency accredited by the Bangko Sentral ng Pilipinas.
It added that “bond issuers were not evaluated on their capacity to pay interest on their securities.”
“Review of the evaluation report disclosed that (PhilHealth’s) Investment Division – Treasury Department (ID-TD) disregarded the evaluation of the corporate bond issuers’ capacity to pay interest on their securities without default during the last five years prior to the date of [bond] acquisition, contrary to Section 27, Paragraph 2 of RA10606.” the COA said.
“The ID-TD informed that since the bond issuers were rated ‘AAA,’ they have the strongest capacity to repay their debt obligations and therefore no need to evaluate their history on paying interest on their securities,” it said.
The COA also said that one of the bond issuers is a holding company engaged in power generation and distribution and retail of electricity, which is considered as “unethical investment” under PhilHealth’s own Corporate Order 2018-005 dated Jan. 26, 2018.
“It (holding company) uses hydrothermal, geothermal, solar, coal and oil on their power distribution. The use of coal and oil requires minerals through mining which is among the ‘negative list’ of investments that is considered not ethically and socially responsible by PhilHealth,” the COA said.