NDC mulls $150-m investment in PAL

The Manila Times
Thursday, December 17, 1998
Jun T. Ebias

The state-owned National Development Corp. (NDC) has agreed to invest $150 million in the ailing Philippine Airlines (PAL), using the proceeds of a proposed loan from Japan’s $30-billion Miyazawa initiative.

Finance secretary Edgardo Espiritu said NDC will borrow $150 million from the Miyazawa fund and use the entire amount to subscribe to the $150 million (P6 billion) worth of preferred shares that PAL would issue to raise much needed capital for its rehabilitation.

"l am looking at a possible avenue, that of NDC investing in the form of preferred shares convertible to common shares or redeemable," Espiritu told newsmen. "PAL will issue the entire $150 million.”

Espiritu said that the government picked NDC invest in PAL since it could avail of financing from the Japanese Export-Import Bank (Jeximbank), the main proponent of the Miyazawa which is aimed at bailing out crisis-hit countries in the region.

Under its charter, Jeximbank cannot lend directly to the government nor can it guarantee sovereign borrowings.

After the preferred shares have been issued to NDC, he said, PAL could undertake an initial public offering of its shares.

Analysts, however, said by issuing preferred instead of common shares, NDC would neither have voting powers nor a control stake in PAL. This privilege, they said, is reserved for a foreign partner which might be interested in acquiring a 40 percent stake in the company after it has been rehabilitated. Espiritu refused to comment on this.

Another option, he said, is for Land Bank of the Philippines or the Development Bank of the Philippines (DBP) to 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,” he said.

To stave off PAL’s permanent closure, the government is looking for several options after negotiations between PAL and two foreign airline firms – Cathay Pacific Airways Ltd. and Northwest Airlines -- collapsed a few weeks ago. The two firms were being eyed as PAL’s strategic partner and would have acquired a 40 percent stake in the flag carrier.

Under the Miyazawa plan, named after its proponent Japan’s Finance Minister Kiichi Miyazawa, private enterprises in hit countries hit by the currency crisis could avail of financing for debt restructuring.

Under a rehabilitation plan submitted to the Securities and Exchange Commission (SEC) on Dec. 7, PAL said it would need $150 million in fresh equity to make it viable again. Of the amount, $90 million would come from local investors including its majority owner Lucio Tan. The rest would come from a strategic partner.

The plan also calls for the restructuring of its $2 billion debts owed to both foreign and local creditors.@