SEC Moves to Fast-track PAL Rehab

Malaya

Monday, December 21, 1998

Vic S. Lopez

The Securities and Exchange Commission (SEC) is currently crafting a formula on how to best handle negotiations with each of the 9,000 creditors of cash-strapped Philippine Airlines (PAL) on the flag carrier's rehabilitation plan.

Sources said the SEC intends to categorize the creditors based on criteria they will agree on. The creditors will then choose among themselves the representatives who will be authorized to appear before the SEC hearing panel.

This way, the source said, the SEC will be able to hear the opinion of the creditors and fast-track the rehabilitation of the beleaguered airline.

“We just don't have enough space and time to meet with all of them," the source said.

This is the first time that the SEC is handling a rehabilitation plan of a company with this huge number of creditors.

“We know that every creditor wants to be heard,” The SEC official said.

The SEC said that hearing for the rehabilitation plan may take until February next year.

PAL counsel Estelito Mendoza said it will take time before all creditors can submit their responses to the plan since PAL's creditors are spread all over the world.

The SEC has convened a special task force that will study and analyze the rehabilitation plan to fast-track the hearings.

The task force will submit to the hearing panel its recommendation within 30 days from Dec. 7.

The SEC has asked PAL's interim rehabilitation receiver (IRR) to furnish copies of its rehabilitation plan submitted last Dec. 7 to all its creditors. The creditors are then given 15 days upon receipt of the plan to give their comments, suggestions or objections to the plan.

PAL's creditors include foreign and local banks, including government financial institutions such as Philippine National Bank which has the biggest exposure.

Among the local creditors are Allied Banking Corp.; China Banking Corp.; PCI Bank; RCBC; Equitable Bank; Union Bank; Security Bank; Westmont Bank; International Exchange Bank; Banco de Oro; Urban Bank; Land Bank of the Philippines; UCPB; GSIS; and Bureau of Treasury, P207.023 million.

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

One of the features of the submitted rehabilitation plan calls for the injection of additional capital of $150 million by PAL shareholders as part of the financial restructuring plan for the airline.

PAL said the shareholder equity injection will 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 be 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 comprise over 90 percent of the new equity ownership of the company.

The plan requires that after the reduction in par value of the existing common shares and the contribution of new equity, the shareholding stake of employees shall equal five percent of the then existing equity of PAL.

“PAL remains committed to finding a strategic partner and continues to make concerted efforts to develop an acceptable agreement. The financial restructuring plan provides an opportunity to facilitate the securing of a strategic partner," PAL said.

The so-called Base Business Plan for PAL projects a cash flow before financing costs of $30 million in the current fiscal year (1998-1999), increasing to $358 million fiscal year 2000-2003.

PAL filed a petition to rehabilitate the airline with the SEC last June 19, 1998 after it was not spared by the Asian economic crisis. The financial crisis and the reduced demand for air travel placed severe pressure on PAL's cash flow.

Operations have been scaled down to key profitable international and domestic routes. Personnel have been reduced from 12,986 in May 1998 to 8,589 as of Nov. 7, 1998.

PAL is the leading carrier in the Philippines with a domestic market share of 63 percent, and has a strong franchise with Filipino travelers.