Japan Bailout Fund Eyed for PAL

Manila Standard

Tuesday, December 15, 1998

The Estrada administration will tap Japan’s bailout loan package for as much as $150 million in funds with which to boost the finances of ailing Philippine Airlines, Finance Secretary Edgardo Espiritu said yesterday.

The Japanese bailout came as an option for the PAL rescue following the collapse of buy-in talks with Hong Kong-based Cathay Pacific Airways Ltd.

“Corporate restructuring is one of those available for financing from the Miyazawa Fund. Since PAL is a key utility firm, we’re going to talk to Japan Export-Import Bank (JEXIM) and Overseas Economic Cooperation Fund (OECF) for the $150 million needed to make it viable,” Espiritu said.

The $30-billion Miyazawa fund is a quick-disbursing loan being extended by Japna to the Asian countries battered by the currency crisis. The Philippines hopes to obtain up to $2 billion of the total package.

“This is hand in hand with public clamor to save PAL at all cost," Espiritu said. “The President himself doesn't want to close down PAL."

Espiritu said the funds would be used to beef up PAL’s capitalization in preparation for the eventual issuance of preferred shares to new local investors. PAL is majority owned by tycoon Lucio Tan, whom the Department of Justice has charged in court with P25.2-billion tax fraud.

“Maybe we’ll do it in the form of preferred shares, they'd be given priority in (dividends) payment or maybe even in the form of preferred convertible shares,” Espiritu said.

Although the government would be the one to talk to Japan for the bailout package for PAL, Espiritu said it was not necessary that the loan should be shouldered by the state.

"There are people writing letters to save PAL," he said. "Let’s ask for the color of their money."

The finance chief said the government preferred that PAL's controlling stake, now held by tobacco magnate Lucio Tan, be turned over to a new inves­tor.

But Espiritu said the government would still have to convince Japan to include PAL restructuring under the Miyazawa initiative. "They did it (corpo­rate restructuring) with Thailand and Indonesia, but I don't know if they'd agree to do the same here,” he said. “Their thinking is that the Philippine situation is not as bad as of those countries."

If Japan would not agree to the Philippine proposal, Espiritu said there was no choice but to look for other foreign investors in lieu of Cathay which had pulled out of the negotiations.

Espiritu said the International Finance Corp. (IFC), the investment banking arm of the World Bank, was still willing to invest in PAL if there would be a strategic partner which would come in and efficiently implement its restruc­turing program.

Should any deal push through, the new foreign partner, along with IFC will take up 40 percent of PAL while the Lucio Tan group's controlling stake will be reduced to 30 percent, at the most. On the other hand, 20 percent of PAL, as promised by Tan, will be turned over to the employees under a stacks offering plan while the remaining 10 percent will be left to minority share­holders, including the government financial institutions.