The Business Dailly
Wednesday, December 2, 1998
By ARVIN P. PANES AND MARIE A. SURBANO
The International Finance Corporation (IFC) — the World Bank's financial arm — is willing to put as much as $22.5 million into Philippine Airlines (PAL) on the condition that it will have a ''strategic investment partner" in the carrier.
Finance Secretary Edgardo B. Espiritu told reporters a partner who would be expected to cover the remaining amount of the entire $150 million (P6 billion) needed to revive PAL could either be foreign or local.
"IFC wants a restructuring program for the airline. It wants the expertise of a strategic partner," Espiritu said.
"IFC wants to put in as much as 20% ($15 million) to 30% ($22.5 million)," he affirmed.
Notwithstanding IFC's intention to infuse money into the distressed airline, Cathay Pacific Airways Ltd. remains committed to its negotiations aimed at acquiring a stake in PAL, Espiritu said.
The Swire-owned Hongkong firm continues to be unfazed by Lucio Tan's talks with Northwest Airlines seeking an arrangement wherein the carrier would assume a manager's role in PAL, Espiritu said.
The finance chief indicated agreement with Tan's objective regarding Northwest.
Tan is the majority owner of PAL.
Last Chance for Filipino PAL?
Espiritu further confirmed that government had denied Tan's petition for financial assistance for his hemorrhaging airline due to issues involving ownership.
Reportedly, Tan was asking the national government for funding amounting to anywhere between P6 billion and P9 billion.
Sources privy to the ongoing PAL-Cathay dialog have disclosed that the measure had been the last option government and Tan could explore if they wanted to resuscitate PAL without control of the airline effectively passing into foreign hands.
"Government should do this if it really wants to help PAL," the source stressed.
When queried on the matter, Espiritu responded, "it is not right for government to do so because PAL is already a private firm."
He also pointed to the fact that the coffers of the national government were lacking content, as evidenced by the widening budgetary gap seen to hit P40 billion by the close of the year and P68.4 billion by 1999.
Espiritu noted that the feasibility of Cathay's offer for a buy-in would be determined by the Securities and Exchange Commission on Dec. 7, the date by which Cathay is expected to have submitted the results of its due diligence study of PAL to the SEC.
Protecting Interests
While politely declining to come up with the cash, a government representative yesterday declared official willingness to help Tan find an investor to help save the debt-ridden PAL after the latter had recently put the breaks on the deal with Cathay Pacific.
In an interview, Executive Secretary Ronaldo Zamora said government still holds a sizable stake in PAL which it needs to protect.
"Remember it is not Lucio Tan alone who is involved in PAL. We also have billions of pesos to protect," Zamora stressed.
According to Zamora, the government stake in PAL represents 28% of the carrier. Throwing a monkey wrench into PAL's efforts to find a new investor would in the process put the national flag carrier into a far more unsetting situation.
We hold 28% of PAL. The question is how do you get PAL to go beyond what it is doing and get it to operate profitably," he pointed out.
Zamora admitted to government being unaware of recent developments in the negotiations between Tan and Northwest Airlines.
"These things can change overnight," Zamora said.
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