Banks still shun sugar loans

Three years after the collapse of sugar giant Victorias Milling Corp., banks are still wary about lending to sugar companies and the industry is facing serious cash problems despite the availability of special lending facilities for sugar refiners, millers and planters.

Documents from the Economic Mobilization Group (EMG) show that the banking sector has placed the sugar industry in a "watchlist" following the collapse of VMC, the oldest and biggest sugar conglomerate in the country. The EMG report quoted a report by the Philippine Sugar Millers Association (PSMA) which said that banks withdrew from lending to the sugar industry after the VMC was put under receivership, for fear that its collapse foretold the collapse of the industry as a whole.

PSMA has been lobbying for the EMG to endorse a $130-million special fund facility specifically for sugar millers that would come out of the 24th Yen Loan package, arguing that special funds were needed to fill in the gap left by the banking sector.

The PSMA said domestic demand for sugar has grown steadily by four percent annually, indicating that despite the industry's impending withdrawal from the export market, the domestic market was a lucrative enough alternative.

"Despite the apparent opportunities, industry exposure of private banks is low," said PSMA executive director Jose Maria Zabaleta. "Furthermore, the exposures that do exist are mostly in the trading segment which is short term and high-risk."

Zabaleta said that to determine the opportunities in the sugar industry, lending institutions should use the "segmented approach" and look for potentials in the other sectors such as milling and planting. "Banks can even tap millers for supervised credit to farmers," he said.

According to the National Economic and Development Authority (NEDA), there are 12 existing lending facilities available to the sugar industry that currently have low availment rates.

NEDA said that instead of creating yet another fund facility, there is a need to assess the actual requirements of the sugar industry that are not being met by the existing lending facilities.

The EMG document also revealed that private banks have not actually stopped lending to the sugar industry but have been evaluating loan applications on a case-by-case basis while applying the usual stringent qualifications.

Land Bank of the Philippines president Florido Cosuela asked the PSMA to provide benchmark figures such as debt-to-equity ratio marks for the industry as part of the effort to prove that sugar-related companies were credit-worthy.

"Benchmark figures for the industry will allow potential lender banks to compare among companies for risk assessment," Casuela said.

NEDA however still rejected the sugar miler's application for a loan under the Japanese yen loan package now under the Japan Bank for International Cooperation (JBIC) and carries concessionary rates.

Documents obtained from the EMG revealed that NEDA had evaluated the application filed by the Philippine Sugar Millers Association (PSMA) under the 24th Yen Loan Package and raised questions about loan disbursement that were not answered.