PCIB Backs PAL Rehab Plan; PNB Bucks Dilution of its Stake

Manila Standard

Wednesday, December 23, 1998

Philippine Commercial Interna­tional Bank (PCI Bank), one of the local creditors of cash-strapped Phil­ippine Airlines, has okayed the downsizing of fleets of the airline and the sale of the excess aircraft to partially settle PAL's domestic syn­dicated loan.

In a filing submitted to the Securities and Exchange Commission (SEC) in connection with the reha­bilitation plan of PAL, PCI Bank said the airline's Rotables and Airbus en­gines should be sold and that the pro­ceeds should be applied for partial payment of the $60-million domes­tic syndicated loan facility.

PCI Bank said: "After all, this suggestion is similar to what petitioner (PAL) did with respect to an­other syndicated loan secured with Airbus planes. The proceeds of the sale were applied to the syndicated loan.

Under the rehab plan it submitted, PAL proposes a downsizing of its fleet from 52 aircraft to 22 air­craft. With the reduction, there would also be a reduction of Rotables and Airbus engines because these would no longer be needed.

Another creditor, Philippine Na­tional Bank (PNB), however, is op­posing the reduction in the par value of existing common shares of PAL from P5 per share to P0.01 per share.

“We believe this valuation is too low and will substantially dilute our interest in the company,” PNB told the SEC. PNB is seeking a clarifi­cation on how the interim rehabili­tation receiver (IRR) arrived at the P0.01 valuation of the share.

PNB also told the SEC that IRR has classified its short-term loan for $66 million as only partially secured. However, the bank said, their docu­ments show that the loan is fully se­cured by with a real estate mortgage on the land and building of PAL lo­cated in Makati and mortgage par­ticipation certificates issued in PNB's favor on the mortgage trust indenture of Asia Brewery.

PCI Bank, for its part, said the re­hab plan did not mention the composition of the permanent receiver.

It suggested that the receiver (whether temporary or permanent) should be multi-party with the credi­tors represented by at least two rep­resentatives.

On the fully and partially secured claims (PAL's rehab plan calls for a maturity of 15 years), PCI Bank said the maturity of both the secured and partially secured claims should be limited to 10 years inclusive of the five-year grace and five-year repay­ment periods.

PAL is chaired by business ty­coon Lucio Tan. Its creditors include local and foreign banks. Of the lo­cal bank creditors of PAL, PNB has the biggest exposure.

Other local creditors are Allied Banking Corp., China Banking Corp., PCI Bank, RCBC, Equitable Bank, Union Bank, Security Bank, Westmount Bank, International Exchange Bank, Banco de Oro, Urban Bank, Land Bank of the Philippines, UCPB, GSIS, and Bureau of Treasury.

Foreign creditors include Instituto De Credito Oficial thru National Development Co.; Banco Exterior de Espana; the US-based Chase Manhat­tan Bank and Chase Manhattan In­ternational Finance Ltd.; Nissho lwai Corp.; Hongkong and Shanghai Banking Corp., $5 million; Banque National de Paris; Credit Lyonnais; and Kredietbank N.V.

One of the features of PAL's re­hab plan calls for the injection of additional capital of $150 million by PAL shareholders. This will be a part of the financial restructuring plan for the airline.

PAL said the shareholder equity injection would be made in two trenches — $90 million to be paid following approval of the rehabili­tation plan and or before the implementation date, and $60 million to he paid on a date to be agreed but in any event, no later than 180 days following the implementation date.

The existing common shares of PAL will be reduced from P5 per share to P0.01 per share. The share­holder equity injection will consist of over 90 percent of the new equity ownership of the company.