Government, Tan reach accord on PNB

In a surprise move, the government and the Lucio Tan Group (LTG) disclosed yesterday that they had reached an agreement paving the way for the rehabilitation of the debt-saddled Philippine National Bank (PNB).

The major issues that were resolved in a special meeting last Monday 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 president Feliciano L. Miranda said in a press statement, the government, through the Department of Finance (DOF), Philippine Deposit Insurance Corporation (PDIC) and the Lucio Tan Group said they reached an agreement on the conversion price and amount of PNB outstanding obligations that will be converted into equity.

The conversion price was set at P40 per share for a total amount of P7.8 billion.

With the conversion, government will raise its 16 percent stake to 44.98 percent, while the Tan group will dilute its interest to 44.98 percent from about 67 percent. This will provide the bank additional equity it needs to beef up its capital base.

Aside from the conversion price, both parties also agreed to offset PNB’s loans to government entities up to a maximum of P10 billion, with the remaining P1.6 billion to be restructured over 10 years at T-bill rates plus one percent.

With a rehabilitation plan underway, both parties agreed to implement major changes in organization and management.

As agreed upon, government is entitled to nominate four members to the PNB board, one independent director and the president. It will also nominate the chairman of the board, chairman of the executive committee, chief financial officer, corporate secretary and the deputy general counsel.

The Lucio Tan Group will nominate four members to the board, one independent director, general counsel, assistant corporate secretary and deputy chief finance officer.

Both parties also agreed in principle on an exit mechanism that details how the stakes of government and Tan will be disposed off after it has been rehabilitated. However, the terms and mechanics of the eventual joint sale still have to be threshed out.

Miranda said the next step would be the signing of a detailed term sheet that will be the basis for the execution of a memorandum of agreement (MOA).

The agreement should speed up plans to rehabilitate the bank with the government converting into equity, PNB’s P25-billion loan from the Bangko Sentral ng Pilipinas (BSP) and the PDIC.

The plan entails the government assuming BSP’s loans to PNB by swapping for it 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 emergency loan when it was deluged with heavy withdrawals in October of last year.