PLDT to offset Smart receivables to effect non-cash deal on Piltel sale

Philippine Long Distance Telephone Co. (PLDT) will merely offset its receivables from mobile phone subsidiary Smart Communications to effect a non-cash transaction in the latter’s initial acquisition of a 45-percent stake in sister company Pilipino Telephone Inc. (Piltel).

Smart has just entered into a sale and purchase agreement with PLDT to acquire the latter’s 59.3 million Series K convertible preferred shares in Piltel for P2.066 billion.

In an interview with The STAR, PLDT president and Smart CEO Napoleon Nazareno said Smart still owes PLDT in terms of unpaid interconnection charges for using PLDT’s network.

On full conversion, Smart and PLDT will be owning 92.1 percent of Piltel. PLDT’s stake in Piltel consists of 767 million common shares and 59 million Series K PLDT preferred shares convertible into Piltel common shares at a ratio of 170 to one.

Before the end of the year, Smart said it intends to acquire another 45 percent of Piltel held by PLDT through the acquisition of Piltel’s common shares.

Nazareno said that they are now determining whether there is still a need to make a tender offer to the minority shareholders of Piltel, and if needed, how and when this should be done.

Smart intends to convert, as an initial step, 4.825 million of these 59.3 million preferred shares into 820.25 million common shares of Piltel. The conversion will result in Smart owning 32.7 percent of Piltel’s expanded common shares and diluting PLDT’s ownership to 30.5 per cent of Piltel.

The balance of 54.468 million preferred shares will be converted into common shares after Piltel has increased its authorized capital stock. On full conversion, Smart would end up owning about 45 percent of Piltel, with PLDT still holding the other 45 percent until Smart acquires the Piltel common shares still held by PLDT after which Smart will own 92.1 percent of Piltel.

The board of directors of Piltel earlier approved an increased in the company’s authorized capital stock from P3.5 to P12.8 billion to accommodate any conversion of the shares of convertible preferred stock of Piltel, including the Class I Series K preferred stock. The board has scheduled a special stockholders meeting on Sept. 3, 2004 to consider the proposed increase in Piltel’s authorized capital stock.

Smart began the process of buying out PLDT’s stake in Piltel after meeting the necessary requisite for the transaction, which involves acquiring 69.4 percent of Piltel’s outstanding restructured debts from its creditors.

After closing the transaction that involved Smart exchanging cash or its own debts with Piltel debts, Smart is now Piltel’s largest creditor, holding $289 million of Piltel’s $417 million restructured debt. Based on the options chosen by the participating creditors, Smart has issued to them $283 million in new debt and paid $1.5 million in cash.