State auditors have questioned the processing of past investments of the state pension fund Government Service Insurance System (GSIS) raising the possibility they were meant to elude the scrutiny of its board.

In 2022, GSIS invested P1.45 billion in renewable energy firm Alternergy through the purchase of 100 million preferred non-voting shares at P14.50 each through a private placement in November of that year.

In April 2022, GSIS also acquired a two-percent stake in Nickel Asia for P1.46 billion.

The board of the pension fund got wind of the twin deals and sought an explanation from GSIS president and general manager Wick Veloso.

Suspicions were raised about the deals since under the rules of the state pension fund, investments under P1.5 billion bypass the GSIS Board’s approval process.

Thus, CoA is now taking a hard look at the investments that deviated from the rules aimed at safeguarding members’ funds from undue risk.

The state fund’s investment accounted for nearly half of the P3 billion equity capital raised by Alternergy, with the company’s initial public offering (IPO) contributing P1.62 billion.

CoA said the Alternergy investment did not comply with the follow-on offer (FOO) or board approval requirement under Sections III (3) (a) (vii) and IV (1) of the Revised Investment Policy Guidelines (RIPG).

The audit agency said that another instance involving purchases of traded common stocks done in a single day, below the P1.5 billion threshold, by the agency may be viewed as “splitting.”

It cited Republic Act 8291 — which amended the Presidential Decree that created the GSIS — that provides that its funds that are not needed to meet its current obligations may be invested under such terms and conditions and rules and regulations as may be prescribed by the Board.

Under its powers and functions, the Board requires that for IPOs and FOOs, the corporation in which the GSIS is investing should have a market capitalization of not less than P5 billion for the trading portfolio and not less than P10 billion for the core portfolio based on the quoted price.

For those investments in companies with less than P10 billion, the Board requires that the shares must be listed on the Main Board of the PSE and the maximum subscription size be five percent of the offer but not to exceed P200 million and the shares must be booked under the trading portfolio.

CoA said the purchase of the Alternergy Perpetual Preferred Shares 2–Series A, which was made months after the acquisition of common stocks on its IPO, did not comply with the FOO requirements.

It said that even assuming that the purchase of the preferred stocks was not through an FOO, the GSIS management was still not in compliance with the prior Board approval requirement when purchasing non-traded stocks regardless of the amount.

The Board also did not distinguish whether the investment in stocks was common or preferred in the application of the FOO and met prior approval requirements, the CoA said.

CoA noted the requirement of board approval for transactions over P1.5 billion or its equivalent could be negated by splitting a single transaction into any number of transactions provided the amount of each transaction was below the limit.

It said there is no provision in the GSIS rules that defines and prohibits the splitting of the transaction to bypass the Board approval requirement.

This defeats the GSIS intent to optimize the returns on investments and at the same time satisfy the safety, security and liquidity requirements, CoA underlined.

CoA’s suspicion that the current GSIS leadership tried to hide certain investments is enough to raise the red flag.