Japan Amenable to Pal Bailout Plan

Philippine Daily Inquirer

Friday, December 18, 1998

By Doris C. Dumlao

JAPAN is open to the government’s proposal to use part of the Miyazawa fund to raise $150 million in fresh equity for cash-strapped Philippine Airlines, Finance Undersecretary Lily Gruba yesterday said.

“They are open to it. They are just looking at how the mechanism would work,” she said.

Gruba said the government hoped to conclude negotiations with Japan for the country’s share of the Miyazawa initiative before the end of this year.

Although corporate restructuring was allowed by Japan under the Miyazawa initiative in the cases of Indonesia and Thailand, Finance Secretary Edgardo Espiritu was earlier concerned that Japan might not approve of the same bailout strategy for the Philippines.

Gruba said although Japan knew that the Philippines was not in the same boat as these other Southeast Asian countries as far as the magnitude of corporate distress was concerned, the government had stressed that the PAL rehabilitation was a special case.

“We told them that the President himself had requested this because PAL is vital to us,” she said.

An emerging option from the government is to tap the state-controlled National Development Co. (NDC) to invest in PAL on a temporary basis while prospects for the entry of strategic investors were still bleak. This means that a portion of the Miyazawa loan will be coursed through NDC.

The Miyazawa fund is a quick-disbursing loan approved for release by Japan to Asian countries battered by the currency crisis. The Philippines hopes to obtain up to $2 billion of the $30-billion total package.

“But they (Japan) are also studying the other option, that is a two-step loan from government financial institutions, most probably the Development Bank of the Philippines,” she said.

Under the alternative plan, Japan will lend to DBP which, in turn, will re-lend to PAL the $150 million needed to make the flag carrier viable again.

Gruba said the loans to be tapped by these government entities would be repaid by whoever would eventually come out as PAL’s strategic partner. But if no such investor comes in, she said the present shareholders would assume the debt burden.

PAL's dominant stockholder is tobacco and beer magnate Lucio Tan, who owns more than a 50-percent stake in the beleaguered flag carrier.

Gruba said, however, that the plan to help PAL through the Miyazawa fund would need solid support from the airline's creditor.

PAL is saddled with $2 billion worth of liabilities owed to more than 1,000 creditors and suppliers. It was so far the biggest company in the country that sought a suspension of debt payments from the Securities and Exchange Commission.