IFC exit from PriceSmart seen to affect firm's credit rating

The International Finance Corp.’s (IFC) exit from PSMT Philippines Inc. may affect PriceSmart’s credit rating, according to William S. Go, minority shareholder of PSMT.

IFC had originally lent PSMT $12.5 million, maturing in June 2012 and payable semi-annually at a fixed rate of 7.44 percent.

IFC, the private sector investment arm of the World Bank, participates in private business ventures to bolster the credibility of the project and enable it to gain easy access to financing and capital.

However, PriceSmart bought PSMT’s remaining $10.4-million loan from IFC to help PSMT improve its balance sheet and reduce its debts.

Go questioned the loan buyout, commenting, "why is there a need for the mother company in the US to absorb the loan in the first place? It only shows lack of confidence on the ability of the Philippine unit to pay off the indebtedness."

Go cited the fact that after posting a profit of P9.6 million in 2001 and P1.3 million in 2002, PSMT reported a loss of P350 million in 2003.

PSMT’s losses, Go added, is projected to increase further to P465 million for 2004.

Despite its losses, however, PSMT president Benjamin Woods has assured that PriceSmart is committed to stay in the Philippines and has no intention of closing shop despite its current corporate spat with a minority shareholder.

According to Woods, "we are here for the long-term."

While the Philippine operations of PriceSmart is still not profitable, Woods said, the company is still in its infancy and is prepared for losses.

Woods disclosed that in other locations of PriceSmart, the company allocates three to four years before expecting to post a profit.

PriceSmart’s Philippines operations, Woods pointed out, has only been three and a half years.

Thus, PriceSmart Philippines, Woods said, is just about to end the first phase of its operations here.

Woods pointed out that being the pioneer in warehouse shopping in the Philippines, it is bound to be copied and faces increased competition.

Although he could not cite absolute figures, Woods said that Philippine sales last year grew by around 14 percent.

PriceSmart, Woods stressed, is committed to giving the best to Filipino consumers as "we do things right."

The bulk or 70 percent of PriceSmart’s goods, Woods explained, is sourced from other countries, primarily from the United States and also from such countries as China.

The rest or about 30 percent of its goods, Woods said, are sourced locally.

Recent stories about PriceSmart’s alleged impending closure and financial anomalies, Woods clarified, are "false and malicious."

He said that the corporate spat with minority shareholder William Go was triggered by a lawsuit filed by PriceSmart in the US over Go’s failure to fulfill his financial obligation to PriceSmart.

Furthermore, Woods said, PriceSmart had also terminated its importations through Go and is now importing its products directly.

As such, Woods said, Go’s own lawsuit here may stem from Go’s other business concerns.

Woods said that Go’s lawsuit is intended to distract PriceSmart from its primary goal of building up the company here in the Philippines.