Tan, government start talks to keep status quo at PNB

Taipan Lucio Tan and the government have started talks to maintain the status quo at the Philippine National Bank (PNB) and are discussing the terms for the possible extension of their joint agreement for at least two more years.

Top-level sources privy to ongoing talks disclosed that the government has become lukewarm to selling its shares, while Tan himself was not eager to buy, at least not at this time.

Market sources have already ruled out the possibility that Tan would be willing to co-own PNB with a third-party should the government push through with its plan to sell its shares in the bank.

According to sources, however, the government prefers to extend the joint agreement rather than be forced to sell at a loss when the agreement expires in September.

Sources said the extension of the joint agreement would be to the interest of both Tan and the government since neither is eager to change the status quo at a time when market conditions are not good.

Finance Secretary Cesar V. Purisima would not confirm nor deny the talks but according to sources, government would be selling its PNB stake at a loss because the break-even level was at P40 per share. At yesterday’s trading at the PSE, PNB closed at P33 per share.

In the agreement signed by Tan and the Philippine Deposit Insurance Corp. (PDIC) in 2002, government agreed to convert part of PNB’s P25-billion loan into equity in the bank, effectively buying back some of the shares that it sold to Tan when the bank was privatized.

Tan, on the other hand, agreed to give the government irrevocable voting rights to the extent of the preferred shares that government would be receiving through the PDIC.

The irrevocable voting rights gave the government a total of 44.98-percent voting interest in PNB, exactly equal to what would be left to Tan at the end of the transaction.

When the agreement expires in September, however, the government would be reduced to one board seat in PNB unless the agreement is extended.

According to the source, the government was better off extending the agreement, hoping that in two years, prices would have improved and it would be able to sell its PNB stocks for profit.

As for Tan, the source said the beer and tobacco magnate appears willing to extend the agreement as well. "Maybe he can not mobilize the funds to buy out the government, or maybe he’d rather have the government in PNB until it has turned around completely," the source said.

Either way, the source said Tan’s inclination was to extend the joint agreement and not to "rock the boat" at least for another two years.

"In two years, Tan will also have more options–the bank will be more attractive by then and if he decides to buy the government out, he will have a better bank than the one he will have now," the source said.