NDC eyed as conduit for $150-m loan for PAL

Manila Standard
Thursday, December 17, 1998
Jay-Anne E. Dancel

The Philippine government might tap the National Development Co. (NDC) to save cash-strapped Philippine Airlines (PAL) through a temporary investment of $150 million in the ailing airline, Finance Secretary Edgardo Espiritu said.

In an ambush interview, Espiritu said NDC could borrow cheap funds abroad with the backing or guarantee from the Japanese government through the Miyazawa initiative.

He said PAL could issue preferred shares worth $150 million to NDC in return for the “temporary" investment in the ailing airline.

"But these are all temporary measures because we want to save a vital company. That's why we are looking at preferred shares," he noted.

He said the preferred shares to be issued by PAL could be convertible or redeemable after a certain period, or PAL could even sell these shares to the public through an initial public offering.

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

The government earlier announced the possibility of asking Jexim and OECF for a bridge financing to PAL also through the $35-billion Miyazawa loan, a special financing package for crisis-hit countries in the region.

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 noted.

Espiritu said government banks like the Development Bank of the Philippines and the Land Bank of the Philippines could be tapped to serve as conduits in extending the loans from Japan's official lending arms to the airline.

"But this will be conditional on the approval of the rehabilitation plan by the SEC (Securities and Exchange Commission), creditors and a professional management group,” he noted.

Under PAL’s proposed rehabilitation plan, the country's flag carrier would need at least $150 million in fresh equity infusion to bring the airline back on the road to recovery. PAL is saddled with a total $2.1-billion debt.

Espiritu said the management group could be created by the airline’s creditors which would takeover PAL management in the absence of a strategic investor.

The government recently announced that negotiations for the entry of Hong Kong-based Cathay Pacific Airways Ltd. as a strategic investor in the local airline already collapsed.

In a separate interview, PAL chief financial officer Jaime Bautista said PAL continued to pursue negotiations with other groups but he said the prospective investors did not want to be named until firm agreements were in place.

On the issue of management control, he said: "We will listen to creditors (in the absence of a strategic partner).”@