PLDT to sell less than 12% of Smart to AIG

An improvement in its cash flow and the availability of other financing sources have prodded telecommunications leader Philippine Long Distance Telephone Co. (PLDT) to further reduce the stake it is willing to give up in its wireless subsidiary Smart Communications, Inc.

The STAR learned that as of yesterday, negotiations with leading US company American International Group, Inc. (AIG) through its Hong Kong unit were still ongoing but PLDT is thinking twice as to whether or not to sell a 12-percent stake in Smart to AIG as originally planned or to reduce the amount further.

PLDT is selling a portion of its stake in Smart, its wholly owned subsidiary, in order to raise funds to pay off maturing obligations. PLDT has around $2.8 billion in debts, of which $1.3 billion is maturing between 2002 and 2004.

PLDT originally intended to sell 20 percent but this amount was reduced to 12 percent, and as of yesterday’s discussions this could still be further reduced. "Definitely, the amount is now much lower than 12 percent based on today’s (Wednesday) discussion. It appears that PLDT does not need to raise that much money from Smart," sources said.

Official sources said selling a stake in Smart, its major cash cow, is the last option for PLDT. "Now that other opportunities to raise funds, such as improved cash flow, refinancing, and new credit appear bright, it seems that selling as much as 12 percent may no longer be necessary," the source said.

Just recently, PLDT was able to secure a $149-million loan facility from KfW (Kreditanstalt fur Wiederaufbau) of Germany. It is a nine-year loan, inclusive of a two-year grace period and is to be disbursed over a three-year period.

Talks with AIG are proceeding smoothly, it was learned. "Suffice it to say that they are negotiating as we are talking," the source told The STAR. It is expected that a deal between AIG and Smart will be forged late March or early April.

AIG is a world leader in international insurance and financial services and is the largest underwriter of commercial and industrial insurance in the United States. Its global businesses include financial services and asset management, including aircraft leasing, financial products, trading, consumer finance, investment fund asset management, real estate investment management, and retirement savings products.

PLDT chose AIG over several other potential investors, including big names in the telecommunications industry, because AIG was not interested in interfering in the business.

The AIG conglomerate has been aggressively investing in Asia, in particular in telecommunications companies in Indonesia and Thailand. It has a minor stake in Lopez-owned Bayan Telecommunications (BayanTel) through the Asian Infrastructure Fund which it manages.

PLDT is currently undertaking a liability management that is aimed at fully covering its $1.3 billion total debt. Besides the German firm, the telecom giant is eyeing other lenders to financially assist the company. "We also expect to announce soon other traditional lenders that will support PLDT in its ongoing liability management initiatives. We are encourage that the serious efforts we have placed in our liability management program are starting to bear fruit," PLDT president and chief executive officer Manuel V. Pangilinan said.

PLDT will announced next week its 2001 financial performance and Pangilinan has indicated that the company would surpass by leaps and bounds its net profits in 2000.

Meanwhile, in a disclosure to the PSE, PLDT corporate secretary Ma. Lourdes Rousa-Chan said "the company has not made a determination with respect to the percentage of interest in Smart to be sold, the structure and terms of the transaction and the valuation of the shares, and it is premature to disclose the identity of the potential investors at this time."