Land Bank Welcomes Plan to Tap Japan Fund for PAL

The Manila Times

Friday, December 18, 1998

The Land Bank of the Philippines yesterday said it is open to government’s proposal that it relend funds to Philippine Airlines (PAL) from loans to be drawn from Miyazawa Fund.

The state-owned bank, however, stressed it will not increase its stake in the financially troubled airline.

“Land Bank will not put in additional equity into PAL, but may be amenable to providing bridge financing so long as PAL can show there’s money coming somewhere in the near term, ” Land Bank president Florida Casuela said.

The Department of Finance is eyeing Land Bank as a possible investor of the $150-million which PAL needs for extra capitalization.

Finance Secretary Edgardo Espiritu said either Land Bank or another state-owned bank, Development Bank of the Philippines, may borrow from the Miyazawa fund and relend the proceeds to PAL.

“These are all temporary measures. These are just options that we are looking at since we don’t want the government to come in,” Espiritu said.

The $30-billion Miyazawa fund, named after Japanese Finance Minister Kiichi Miyazawa, was offered earlier this year by Japan to private enterprises in Asian countries battered by the financial crisis.

The Philippines can draw up to $2 billion from the fund. However, financing will be available only to financial institutions such as commercial banks.

State-owned Land Bank, which provides to credit needs of farmers, has 2.5 percent direct stake in the airlines. Its stake covers 75 million common shares worth P770 million.

“Land Bank has recently added to the loan loss provision for its PAL exposure, so if the flag carrier declare bankruptcy tomorrow, the bank will have completely recovered the loss,” Casuela said.

Another option being eyed by the government is for the National Development Corp., another government coming into PAL since it could draw from the Japanese Export-Import Bank (JeximBank), the main proponent of the Miyazawa plan.

Under the financial rehabilitation plan it submitted to the Securities and Exchange Commission (SEC), PAL said it would need $150 million in fresh equity to become viable again.

Of the amount, $90 million would come from local investors including the group of PAL chair Lucio Tan. The balance of $60 million should come from a strategic investor.