PNB term sheet may be signed by tomorrow

The government and the group of tycoon Lucio Tan are rushing to have a term sheet signed by tomorrow, outlining the details of the proposed reverse privatization that will restore majority control of the debt-saddled Philippine National Bank (PNB) to the government.

Finance Secretary Jose Isidro Camacho who was authorized yesterday by PNB creditors, Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corp. (PDIC) to head the government negotiating team, said both parties are trying to come up with an acceptable term sheet by Wednesday.

"The term sheet entails the basic agreement. We will try our best to have it signed this week so that there will be no more reversals or changes from earlier commitments," Camacho said.

While the term sheet does not consist of the final agreement it binds both parties to stick to the terms of the agreement so that the delayed privatization and rehabilitation of the bank could proceed, he added.

Earlier, the BSP said it will discuss the restructuring of a P15-billion unpaid loan of the PNB only after Tan and the government sign an agreement on the reverse privatization of the bank.

The two parties agreed earlier to set Nov. 16 as their deadline to came up with a final agreement on how the bank’s debts will be restructured and subsequently, its rehabilitation program worked out.

Tan earlier was said to have agreed to reduce the par value of PNB shares from P60 to P40 per share.

Just as soon as an agreement is nailed, the other components of the turnover will be threshed out. These include the conversion price for shares that Tan will give up and which will be absorbed by the government through a debt-to-equity conversion scheme, management control of PNB, settlement of the bank‘s obligations to the government and later on, the joint sale of shares by both groups.

PNB has an existing P25-billion emergency loan from PDIC and the BSP.

Of the P25-billion loan, P15 billion is owed to the BSP and P10 billion to PDIC.

Depending on the specific terms of the deal, the debt-to-equity conversion or reverse privatization will increase the government’s stake in the country’s sixth biggest lender to close to 50 percent from its current stake of 16 percent.

Currently, Tan’s group owns roughly 67 percent of PNB while the state holds a 16-percent interest in the bank.

Specifically, government will assume BSP loans to PNB by swapping for its P15 billion in bonds and Treasury bills. On the other hand, PDIC‘s loan of P10 billion to PNB will be swapped with shares in the bank.

PNB incurred the loan when it was deluged with heavy withdrawals in October of last year.

The plan involves infusing fresh capital and the entry of a new senior management team which is expected to work on the turnaround of the bank and make it profitable and "attractive" to potential buyers of government’s and Tan’s stakes in the bank.

Both parties also agreed on a scheme to appoint their respective representatives in the management of the PNB.

Under the proposed mechanism, government will nominate its own people while Tan selects from the government nominees.

Currently, there is an interim management led by PDIC president Norberto Nazareno and former central banker Feliciano Miranda Jr., as president.

Sources said Nazareno can continue managing the bank because PDIC also has a loan exposure in the bank, but when the final team is composed, he could be replaced and appointed as bank director.