Victorias Milling proposes debt for equity swap

MANILA, Philippines - Cash-strapped sugar refiner Victorias Milling Corp. (VMC) is proposing a debt-for-equity swap and a divestment program involving its non-core assets as part of its revised rehabilitation plan aimed at staying afloat and seeing its shares traded once again on the stock market.

On the sidelines of the company’s annual stockholders’ meeting yesterday, VMC chairman Omar Byron T. Mier said they will be discussing this proposal with creditors within the first quarter this year. “If you want this company to survive, you have to do that. We want to make sure that the expected cashflow will be enough to service debt,” he said.

From a high of P8 billion, VMC’s debt has gone down to P6 billion, Mier noted. The revised plan involves the conversion of a significant amount of debt into equity. “We will review that and see exactly how much is needed and then we will go the creditors. That will happen maybe by the first quarter of the year,” he said.

To ensure continued operations and raise needed funds, the sugar miller is ready to dispose of its non-core assets including its food processing business and golf course project.

Mier said the company is preparing for the expected elimination of all tariffs on imported sugar by 2010.Under the ASEAN Free Trade Agreement (AFTA), the 10-percent tariff on sugar will be reduced to zero this year.

“That means if you remove the tariff, that is what’s staring us in the face, we will go bankrupt. This is precisely the reason why we have revised the rehab plan to allow VMC to survive in a scenario where the price of sugar drops to around P650 to P700 per bag,” he said.

He said the company has received offers from several parties for a possible buyout but they never came back.

The Lucio Tan Group of Companies hold around a fourth of VMC while commodity wholesaler Cargill, the second biggest shareholder of VMC, owns around 24 percent of the sugar firm.

Mier said the firm is shelving its plan to go into bioethanol so it can just focus on sugar manufacturing. “At this time we want to focus on sugar. The thing with bioethanol is it has its ups and downs. When the price of gasoline drops, it becomes unprofitable,” he said.

He said VMC is also aiming to have its shares traded again to give it more flexibility to raise cash and provide investors with an exit plan. The company has already requested the Philippine Stock Exchange and Securities and Exchange Commission to lift the trading suspension on its shares.

“We’ve been following this up with the SEC. But there are two conditions for the lifting — one is that we have to be profitable in the last few years, which we have complied while the second one is that we must have a deficit in retained earnings,” he said.