Subtext in 8990 Holdings-Security Bank arrangement

8990 Holdings, Inc., now the top mass-housing developer in the country in just 12 years, has again surprised the investing world with the partnership it struck with Security Bank, the No.1 bank in terms of Return on Equity (ROE), signing a P2-billion loan against its Contract to Sell receivables on a “without recourse” basis.

That “without recourse” basis is the most interesting subtext to have come out of the partnership agreement, which signifies that 8990 Holdings has earned its own right as a bankable mass-housing company with an equally bankable model in its housing finance that is the envy of the housing industry.

In an industry where there are so many non-payers (look at the growing list of acquired assets in the housing loans to members of the Social Security System, Pag-Ibig and Government Service Insurance System), 8990 Holdings’ bankable proposition about its housing finance receivables, only means to say that Security Bank, which for the past seven years has earned the highest ROE, the yardstick that investor icon Warren Buffett looks at first before investing, has agreed to hold the receivables as its own.

There is a marked difference between a loan given on a “without recourse basis” and a “with recourse basis” in that the lender agrees to bite its losses should there be non-payers in the former, while the lender can go after the borrowing firm’s own assets in the latter. This means that 8990 Holdings “has earned its stripes as a bankable borrower that there is no need for the Security Bank to go after its assets should the loan against the receivables not be paid.”

Once again, 8990 Holdings has come up with a disruptive innovation: one where its receivables could be taken out by banking institutions and thereby it could aggressively pursue its thrust to build homes for the multitude. For 8990 Holdings President and CEO JJ Atencio, “the agreement with Security Bank signifies a serious interest for banks to partner with 8990 and establish for the mass-housing sector a viable alternative for housing finance in the Philippines.”

Signed last March 16, the partnership agreement is different from the first time 8990 Holdings offloaded its CTS receivable last October whereby BPI Family Savings Bank agreed to lend P1 billion to 8990 Holdings against its CTS receivables but with a with recourse period of up to two years. This recourse period, though, is for BPI’s savings bank to have a two-year window by which it could convert the CTS receivables into its own housing finance program, dubbed Kayang Kaya Pabahay Program.

This just goes to show that 8990 Holdings has come a long way from its initial foray into the housing business where it first started in the provinces before venturing into Metro Manila. The fact that Security Bank, has agreed to undertake the assumption of 8990 Holdings CTS receivables speaks of the bank’s high regard for the way 8990 Holdings conducts its business.

For 8990 Holdings has continued to electrify the investing world with its own thrust to provide homes to the multitude. In fact, it could be surmised that 8990 Holdings’ electrifying success in providing affordable housing projects and with huge profits to show, could be the reason why the big housing players in the industry have, of late, been joining the mass-housing bandwagon.

What is noticeable though is that 8990 Holdings, in the stock-market parlance, still has “a leg up” in its business, as it continues to put together markedly different housing projects. Its entry into the country’s most densely populated area, Tondo, where it is building several high-rise condos is another disruptive innovation in the housing industry.

The company is pursuing a sustainable business model even letting of a big source of its income, the CTS. Last year, the housing giant earned 34 percent more from its receivables to P1.2 billion. But in disposing of the receivables, the company has enough elbowroom to proceed with its various other projects and possibly come up with innovative thrusts, such as having its first prepaid electricity program in its housing units.

By the looks of it, 8990 Holdings could even have its own 8990 paper where it could serve to bridge the information gap for its various stakeholders, especially the buyers of its condo and housing units. Imagine having a captive market for its own newspaper and magazine where it could provide a platform for its various endeavors later on.

That is how business insiders have so highly regarded the company that they are even anticipating what next moves 8990 Holdings would come up with that would disrupt the market.

After all, the mass-housing developer, JJ Atencio, continues to mystify the market.