SSS Willing to Invest P1B in PAL

Malaya

Monday, December 28, 1998

By PEARL BANTILLO

The Social Security System (SSS) is willing to invest up to P1 billion in equity into debt-saddled Philippine Airlines Inc. (PAL) provided that the flag carrier will show proof that it can be profitable.

The state-owned pension fund placed the minimum investments that it could pour into PAL at P200 million but if it decides to invest the maximum P1 billion, the equity infusion will just eat up only a sixth of a percent of SSS's total assets.

“We can consider (investing in PAL) as long as they can prove it could be a profitable corporation," SSS president Carlos Arellano said.

Arellano added that there must be clearing up of balance sheets of PAL.

Like any other firms whose investible funds are placed in trust by its members, the security system requires the rehabilitation program which includes the entry of a strategic partner, to work out for PAL before a decision of whether or not to invest will take place.

Arellano said that a primary consideration whenever SSS would decide to invest in any company is profitability emphasizing on return on equity (ROE).

So far, all of SSS’ investments in equities have been showing a good 21 to 22 percent ROE.

Arellano noted that their target ROE is 25 percent for equities investments.

SSS is a shareholder of various blue chip companies like Bank of the Philippine Islands, Philippine National Bank, Philippine Long Distance and Telephone Co. and San Miguel Corp.

PAL is saddled with a $2.26 billion debt from various local and domestic creditors and lessors. It filed a petition for debt moratorium to the Securities and Exchange Commission (SEC) in September when PAL started to incur huge losses from operations.

Based on the management's evaluation, PAL needs $150 million equity infusion, split between majority shareholder Lucio Tan's group ($90 million) and the potential strategic partner ($60 million) to allow the flag carrier carry out viably its domestic and international flight operations.

Arellano said PAL may "not necessarily need a new management, only additional management expertise."

Earlier, Finance Secretary Edgardo Espiritu suggested that the creditors committee could among themselves either hire or form a group of professional managers that will operate PAL after acquisition talks with Northwest and Cathay Pacific Airways Ltd. collapsed.