Gov’t lures Jeximbank to extend PAL $150 M

The Manila Times
Saturday, December 19, 1998
Jun T. Ebias

The government plans to give Japan's Export- Import Bank (Jeximbank) priority over all secured creditors of Philippine Airlines (PAL) in the payment of debts to convince the bank to lend $150 million to the troubled airline even without a state guarantee.

Finance Secretary Edgardo Espiritu yesterday said this strategy would assure Jeximbank it would get its money back upon maturity of the loan.

Espiritu said this option is being eyed instead of extending a government guarantee on PAL loans or infusing fresh equity into the ailing firm. He said the government would discuss this option with PAL creditors.

PAL owes over $2 billion to more than 9,000 creditors composed of foreign and local financial institutions and suppliers.

"The loan that will come from the Miyazawa fund must be superior over other loans to PAL," he told newsmen. "This way, Japan will be given priority when payment comes over other creditors.

Under existing rules, secured creditors would have the first claim over the assets of PAL in case it is liquidated. PAL has submitted a rehabilitation plan which contains measures that would make PAL profitable once more to the Securities and Exchange Commission (SEC).

Asked if the creditors would be willing to agree to such a scheme, Espiritu expressed optimism that they will.

The Jeximbank loan will be channeled to the state-owned National Development Co. (NDC) which, in turn, will buy the preferred shares that would be issued by PAL.

Espiritu said the shares are convertible into common, giving NDC more say in the management of PAL since it could now vote during its Board meetings.

The NDC, he said, is amenable to the proposal. "NDC is willing to study the proposal," he said.

According to Espiritu, European creditors would help PAL look for a foreign investor that would infuse 40 percent equity in the firm after negotiations with Cathay Pacific Airways Ltd. and Northwest Airlines collapsed early this month.

"The Junior creditors (European banks and suppliers that have claims in PAL) agreed to look for investors," he said.

While PAL is still looking for a foreign investor, he said the firm would be managed by a group of Filipino professional managers.

Desperate to rescue PAL from closure, the government is exhausting all possibilities to keep it afloat.

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

Japan has set aside $30 billion under the plan of which the Philippines is eyeing at least $2 billion that would be disbursed next year.

As part of its rehabilitation plan, PAL said it would need $150 million in fresh funds to make it viable. Of the amount, $90 million would come from local investors including its majority-owner Lucio Tan. The rest would come from a strategic investor.

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