Metro Pacific may spin off Nenaco into separate entity

Metro Pacific Corp., the local flagship company of Hong Kong-based First Pacific Co., may spin off beleaguered subsidiary Negros Navigation Co. (Nenaco) into a separate entity altogether, a move that is expected to shield the parent firm from the problems currently faced by the shipping company. 

Manuel V. Pangilinan, First Pacific chief executive officer, told The STAR that Metro Pacific has no plans of infusing additional funds into Nenaco. "After all, Metro Pacific itself does not have the funds to invest in Nenaco," he said. Metro Pacific owns 97.6 percent of Nenaco.

But while Metro Pacific has no plans of bailing out Nenaco, Pangilinan said Nenaco is like a sick child that cannot just be abandoned. "Thus, we are considering spinning off Nenaco," he pointed out. The planned spinoff of Nenaco will not require court approval, Pangilinan added.

Metro Pacific acquired a majority equity stake in Nenaco in 1998 and during the period since has infused both equity and assumed Nenaco debts in exchange for equity, amounting to P5 billion over the past six years.

Nenaco recently secured court approval to desist making any payments to its creditors, who also cannot enforce payment on the shipping firm. Specifically, the Manila regional trial court order, "stays the enforcement of all claims, whether for money or otherwise... against the petitioner, its guarantors and sureties..." Nenaco has debts totalling P2.5 billion.

The company has also been prohibited by the court from selling, encumbering, transferring, or disposing in any form any of its properties. The court has appointed Sulficio Tagud Jr. as rehabilitation receiver. The bank shipping specialist was chairman of property developer Camella Homes, and was formerly with investment bank Ayala Investment and Development Corp.

According to Nenaco, the purpose of the stay order is to ensure the sanctity of its assets while the RTC of Manila considers its rehabilitation program and to prevent any creditor from attempting to gain advantage over others in an attempt to seize or attach any of its assets.

Nenaco earlier said the filing was triggered by a debt payment dispute with Cebu-based Tsuneishi Heavy Industries Inc., which is 20-percent owned by conglomerate Aboitiz and Co. Inc., which is also engaged in shipping. Nenaco owes Tsuneishi around P130 million for dry-docking and ship repair services.

The company filed a petition with the Manila RTC to enter into a corporate rehabilitation program with a prayer for an immediate suspension of debt payments.

Under a court-approved corporate rehabilitation program, Nenaco intends to implement an equitable and orderly debt reduction and restructuring program, addressing its consolidated debts and trade payables of about P2.5 billion, while preserving its assets for cash generation and future growth.

A rehabilitation committee, comprised of Nenaco chairman Daniel Lacson, directors Manuel Pangilinan and Edward Go, Metro Pacific president and CEO Jose Ma. Lim, and Nenaco president and CEO Conrado A. Carballo, was recently created to oversee the efficient administration of Nenaco’s debt rehabilitation program.

SEC Penalizes Nenaco For Violation Of Disclosure Rules

The Securities and Exchange Commission has imposed a P75,000 penalty on Metro Pacific Corp. shipping unit Negros Navigation Co. Inc. for violation of the agency’s disclosure rules.

This after Nenaco failed to satisfactorily explain why it failed to comply with Section 17 of the Securities Regulation Code, which requires all listed corporations to disclose any known trend, event or uncertainty that may have a material impact on their liquidity.

In its reply to the show-cause letter issued by the SEC, Nenaco said it had nothing to report at that time because its finances showed positive operating results, sufficient to support operations as shown in its statement of cashflows for 2002 and 2001.

Nenaco disclosed in its third quarter report filed with the SEC that it has achieved significant progress in debt reduction and fiscal stability. It, however, failed to mention any uncertainty that may adversely affect its financial standing.

"We regret to inform you that this Office finds no merit in the explanation given. As admitted in the letter, the company was at that time negotiating for restructuring of debt which is a clear indication of possible liquidity problem if negotiations fail," Justina Callangan, head of the SEC’s Corporation Finance Department, said.

"Please note also that nowhere in the company’s third quarter report could we find that it is in the said process of negotiation. What were stated in the Management’s Discussion and Analysis of Financial Condition and Results of Operations are statements which do not reflect the actual liquidity position of the company," Callangan further said.

Callangan said Nenaco should pay the assessed fine within five business days from receipt of the order. Otherwise, the matter shall be referred to the agency’s legal officers for appropriate action, she said.– Zinnia dela Peña