PAL Creditors Seen Hesitating to Reopen Lines

Business World

Thursday, December 17, 1998

Ma. Salve Duplito

Philippines Airlines, Inc.’s (PAL) creditors are not likely to reopen their credit lines to be the beleaguered airline, wary of the $2.1 billion debt hanging over the company, Hong Kong Bank Markets has said.

Hong Kong Bank Markets is the Hong Kong-based treasury arm of Hong Kong and Shanghai Banking Corp.

In a study titled Asian Bond Markets: The View, Hong Kong bank unit said: “PAL’s highly leveraged credit profile also cast serious doubts on its bankers’ willingness to extend fresh working capital loans to the company.”

Hong Kong Bank’s wholly owned branch in the Philippines has been chosen to lead PAL’s unsecured creditors committee. Its exposure of $5 million is one of the smallest among PAL’s creditors.

Citing June 1998 figures, the study cited that PAL reported a debt-to-equity ratio that shows the airline has borrowed heavily to finance its expansion plans.

In 1996, PAL undertook a refleeting program that cost billions of dollars, at a time its fledgling competitors were starting to establish their own operations.

Unfortunately, the peso’s unexpected fall against the dollar caught PAL in misstep and took the wind from its wings.

Instead of continuing with its ambitious refleeting program, PAL had to ask the Securities and Exchange Commission (SEC) in June for a moratorium on its debts, two thirds of which are owned to export credit agencies.

“Turning around the company’s financial condition will be challenging,” Hong Kong Bank said.

Even the government has admitted that despite repeated attempts from President Estrada, the search for a strategic investor that would help turn around PAL’s finances and the $150 million fresh capital infusion needed to breathe new life into PAL, has become extremely difficult.

The government is now trying to persuade the Japanese government to extend a loan to National Development Corp. amounting to $150 million, which the agency will in turn relend to PAL.

Under the company’s rehabilitation plan, PAL would need a fresh capital infusion of $150 million, a reduction in manpower, a spinoff in non-core businesses and a debt repayment scheme.