DOJ Opinion No. 018, s. 1996

DOJ OPINION NO. 018 , s. 1996 January 24, 1996 The Secretary of Finance Department of Finance Manila Sir : This has reference to your request for opinion concerning the loan of the National Home Mortgage Finance Corporation (NHMFC) from the World Bank IBRD, through the National Government (NG), in the original amount of US$76.73 Million which is the subject of "conversion to equity" under Section 6 of R.A. No. 7835 ("Comprehensive and Integrated Shelter Financing Act of 1994"), which reads: prcd "SEC. 6. Capitalization of National Home Mortgage Finance Corporation (NHMFC) . The authorized capital stock of the NHMFC is hereby increased from Five hundred million pesos (P500,000,000) to Five billion five hundred million pesos (P5,500,000,000) to expand its leveraging capability based on the volume of mortgage loans being serviced, to improve its profitability by reducing the average cost of its funds made available for home-lending programs, and to enable the NHMFC to maintain the debt-to-equity ratio of 10:1. Thus, Section 3 of Presidential Decree No. 1267 is hereby amended to read as follows: 'Sec. 3. Capitalization . The Corporation shall have an authorized capital stock of Five billion five hundred million pesos (P5,500,000,000) divided into Five million five hundred thousand (5,500,000) shares of common stocks with a par value of One thousand pesos (P1,000) per share, to be fully subscribed and paid by the Government of the Republic of the Philippines. 'There shall be a continuing annual appropriation to be remitted to the Corporation starting from calendar year 1995, and subsequently thereafter until the entire authorized capital stock shall have been fully paid: Provided, however, That the National Government loan relent to the corporation in the amount of US$76.73 Million under the World Bank Financed Housing Sector Project is hereby converted to equity .'" (Emphasis supplied.) You state that the NHMFC's understanding of the underscored portion of the aforequoted provision is that only the original principal loan relent by NG to the NHMFC in the amount of US$76.73 Million is "automatically converted to equity and any interest incurred and to be incurred by said loan will already be for the account of the NG", otherwise, "it will consume a substantial portion of NHMFC's additional equity, and will therefore receive less cash infusion from the NG which is detrimental to NHMFC". You also state that the Department of Budget and Management (DBM) and the Bureau of the Treasury (BTr), on the other hand, think that the conversion of the aforesaid loan to equity "will have to be affected following the procedures prescribed under Joint DBM/DOF/GCMCC Circular No. 1-88 dated July 20, 1988" which "essentially provides for specific guidelines and procedures in the conversion of NG advances into equity or subsidy" and which likewise provides that "the conversion program will have to be within the equity ceiling set by DBM and . . . will not have material adverse effect on the cash position of the NG". In this connection, you pose the following specific questions: "Since the law did not specifically state that the conversion is automatically appropriated, what is the timing and programming of the conversion? Will it be an outright conversion? (This would be a substantial drain on Government's financial resources). If so, is this consistent with the principles and intent of annual budgetary appropriations? Or, will the conversion be made as the principal payments fall due? The loan is payable from February 1994 to August 2008. Assuming this is so, who bears the interest cost of the unpaid portion of the loan?" Regarding the view of the NHMFC, we agree that only the principal amount of US$76.73 Million, excluding interest, is converted to equity by operation of law. This is clear from the language of the aforequoted provision that "the National Government loan relent to the corporation in the amount of US$76.73 Million . . . is hereby converted to equity". The law does not mention interest. The rule is that when the language of the law is clear and unequivocal, there is no room, for construction or interpretation (Aparri vs. Court of Appeals, 127 SCRA 231; United Christian Mission Society vs. Social Security Commission, 30 SCRA 983) and the law must be taken to mean exactly what it says (Insular Bank of Asia and America Employee's Union [IBAAEU] vs. Inciong, 132 SCRA 663). Corollarily, a meaning that does not appear nor is intended or reflected in the language of the statute cannot be placed therein (Manikad vs. Tanodbayan, 127 SCRA 724). However, we do not entirely agree with the proposition of the NHMFC that "any interest incurred and to be incurred by [the] loan will . . . be for the account of the NG". The reason is that before the equity conversion is effected, the amount retains its character as a loan of the NHMFC from the World Bank IBRD, through the NG, for which the former (NHMFC) should be held liable as debtor. Thus, interest which had accrued prior to the conversion should be for the account of the NHMFC, while interest to be incurred after the conversion should be for the account of NG which becomes the primary obligor after the conversion. With respect to the contention of the DBM/BTR that the debt-to-equity conversion contemplated in the aforequoted provision should be subject to the DBM/DOF/GCMCC Joint Circular No. 1-88 dated July 20, 1988, we note that the said circular is intended to govern "requests of government-owned and/or controlled corporations (GOCCs), which include financial institutions, or indorsements for conversion of National Government advances or interest payments and principal repayments on loan of GOCCs into equity or subsidy". In the instant case, there is no request or indorsement to speak of since the conversion is already effected by operation of law. Hence, the specific guidelines embodied in the circular relating to the "manner of proposal", "processing of proposal", and "guidelines in evaluation" to be observed for purposes of approving proposals for conversion find no applicability with respect to the equity conversion of the US$76.73 Million which is already "approved" by virtue of the law. Coming now to your specific questions, we note that the main thrust thereof relates to the "timing and programming" of the conversion in the light of the amended provision of Section 3 of P.D. No. 1267 (quoted supra as part of Section 6 of R.A. No. 7835), particularly the second paragraph thereof which, for facility of reference, is requoted as follows: "There shall be a continuing annual appropriation to be remitted to the Corporation starting from calendar year 1995, and subsequently thereafter, until the entire authorized capital stock shall have been fully paid: Provided, however, That the National Government loan relent to the corporation in the amount of US$76.73 Million under the World Bank Financed Housing Sector Project is hereby converted to equity ." (Emphasis supplied.) The abovequoted provision sets the manner by which the NG shall pay the authorized capital stock of the NHMFC, of which, the NG is the sole subscriber. The provision envisions a staggered mode of payment, effected through annual budgetary appropriations, starting from calendar year 1995 and continuously thereafter until the entire authorized capital stock of Five billion Five hundred million pesos shall have been fully paid. By virtue of its proviso, the World Bank IBRD loan in the amount of US$76.73 Million relent by the NG to the NHMFC is converted to equity which gives rise to your inquiry as to the "timing and programming" of the conversion in view, as you said, of the failure of the provision to state that the conversion is automatically appropriated. We reiterate our view earlier stated that the conversion of the principal loan US$76.73 Million is ipso jure or by operation of law, which means that it is an outright conversion, and, therefore, the full amount of the loan (US$76.73 M) thus converted to equity should be deemed part of the fully paid capital of the NHMFC and no longer to be included in the amount of the authorized capital stock outstanding and unpaid, payments for which shall be effected through a continuing annual appropriation starting from calendar year 1995, and annually thereafter until the entire authorized capital stock shall have been fully paid. It bears stress that upon conversion of the loan to equity, the NG becomes the principal obligor and shall be liable from then on to the re-payment of the loan in accordance with the original terms of the loan agreement with the World Bank IBRD. The loan repayments shall, of course, be subject to the usual procedure adopted for the servicing of loans of the government. Please be guided accordingly. Very truly yours, (SGD.) TEOFISTO T. GUINGONA, JR. Secretary