Espiritu wants loan for PAL to be coursed thru NDC

Business World
Thursday, December 17, 1998
Ma. Salve I. Duplito

The Estrada government may direct National Development Corp. (NDC) to borrow $150 million from Japanese government’s so-called Miyazawa Initiative to support troubled Philippine Airlines (PAL).

Finance Secretary Edgardo Espiritu told reporters yesterday this was one of the options the government may tap since direct lending under the Miyazawa facility, launched by Japan recently to help revive Southeast Asian economies, is not allowed.

He said in return PAL could issue preferred shares worth $150 million to NDC. “But these are all temporary measures because we want to save a vital company. That’s why we are looking at preferred shares,” he said.

Mr. Espiritu further explained the preferred shares PAL will issue could either be convertible or redeemable after a certain period or eventually sold to the public through an initial public offering.

“These are all options while we are waiting for the response of the Jexim (Japanese Export Import Bank) and the OECF (Overseas Economic Cooperation Fund) on our request for assistance for PAL,” he said.

Mr. Espiritu earlier said he will ask representatives from the OECF and the Jexim Bank for help in rehabilitating PAL, possibly through the Miyazawa scheme. The plans then have not yet taken shape, on whether which government agency will take up the cudgels for the beleaguered flag carrier.

The Finance secretary, one of the Cabinet officials known to be closest to President Estrada, said government financial institutions like the Development Bank of the Philippines (DBP) could also be used as conduits in tapping the Miyazawa initiative for PAL.

“But these will be conditional on the approval of the rehabilitation plan by the SEC, creditors, and a professional management group,” he said.

Finance Undersecretary Lily Gruba said this could be similar to the loan granted to Thailand for corporate debt restructuring. “But we don’t know yet the scheme or modalities of the loan,” she said.

PAL is the biggest company so far that crumpled because of the currency crisis, and some say, mismanagement. It is suffering from a $2.1-billion debt overhang, a labor problem, and macroeconomic parameters farthest from its plans when it decided to go through an ambitious refleeting scheme.

Under its rehabilitation plan submitted recently to the SEC, PAL would need $150-million fresh capital infusion to become viable, an amount that is seen to wipe away its pressing obligations and keep it competitive in the face of increasing airline companies.

Creditors have appeared lukewarm to the rehabilitation plan, still waiting for a successful deal between PAL and a strategic investor that could breathe new life into the company.

Talks with Singapore Airlines and Cathay Pacific Airways Ltd. and the US’ Northwest Airlines have collapsed.

Mr. Espiritu said creditors have also indicated that they want a change in PAL’s management. He said creditors could even create a professional management group to take over PAL’s operations, or hire a credible group to do it.@