Finance Secretary Jose Isidro Camacho said the request for the DOJ opinion was submitted last Dec. 21 after government signed a term sheet with Tan that contained the critical features of the rehabilitation plan for PNB.
"We want to make sure that the structure or everything will be legal," Camacho said.
He said the government also asked the DOJ if it was legal for the state-run Philippine Deposit Insurance Corp. (PDIC) to enter into a debt-to-equity scheme to partially settle PNB’s obligations with PDIC.
The PDIC has a P10-bilion loan exposure to PNB, a portion of which, together with the Bangko Sentral ng Pilipinas’ P15-bilion exposure, could be converted into equity as part of the rehabilitation plan.
Earlier, government presented other proposals for government to recover its exposure in PNB if the DOJ rules that PDIC cannot hold shares in PNB. These include finding other state agencies such as another government financial institution or government owned and controlled agency to acquire or hold the shares in PNB that will be subjected to the debt-to-equity swap agreement.
Other proposals include restructuring of the debt or through a dacion en pago or turnover of the banks’ assets to the state.
Finance Undersecretary Cornelio Gison said the supplementary request was submitted to the DOJ because government wants the final ruling to be based on the recently signed term sheet.
"Before signing any MOA (with Tan), we want to make sure that the terms are legally enforceable," Gison said.
Gison said the DOF wants the DOJ ruling to come out before Jan. 20 when the government expects to sign the MOA with the group of Tan.
Last Dec. 21, a term sheet was signed that spell out the process of government’s retaking of PNB and the repayment of the P25 billion in emergency loan extended to the bank last year by the BSP and PDIC.
The salient features of the term sheet include the conversion by government of about P7.8 billion of debt into equity or into tier two capital, convertible bonds or convertible preferred shares at P40 per share with the concurrence of Tan’s group.
The conversion will also involve both parties entering into a joint sale agreement that will have government selling anytime and at any price a controlling block of not less than 67 percent. The sale of a controlling block will boost interest among potential investors while Tan will be given the right of first refusal under this arrangement.
Government’s equity ownership will rise from 16.58 percent to 44.98 percent while Tan’s interest will be diluted to 44.98 percent from about 68 percent.
Also under the conversion plan, Tan agreed to reduce the par value of PNB to P40 per share from P60 per share.
At the same time, government will nominate four board of directors and experienced bankers to the chairmanship and excom including president, and deputy general counsel.
Tan on the other hand, will nominate the general counsel, deputy chief financial officer and assistant corporate secretary, in addition to its four board nominees.
For its part, government agreed to accept a dacion en pago arrangement of verified and unpaid loans of various government agencies up to P10 billion, while extending the balance of the P23.9-billiion exposure estimated at P6-1 billion, net of pre-payments, equity conversion and dacion of government receivables, with an initial term of up to 10 years at a spread of one percent over 91-day T-bills.
Camacho said the term sheet will allow government to have a more direct hand in the governance and management of PNB and bring it back to profitability with the implementation of the rehabilitation plan once the MOU is signed with the group of Tan. – Rocel Felix