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Smart offers to buy PLDT stake in Piltel
Smart Communications, Inc. yesterday formally asked its creditors and guarantors to allow it to acquire the 45.3% interest of parent Philippine Long Distance Telephone Co. (PLDT) in debt-saddled affiliate Pilipino Telephone Corp (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.

In a statement, PLDT said it is not the intention of Smart, a profitable wholly-owned wireless unit, to merge with Piltel, nor does it intend to use Piltel as a backdoor-listing vehicle.

Smart was originally scheduled to hold its initial public offering draws in August last year, but PLDT chairman Manuel V. Pangilinan said this will likely be moved to 2006. Smart has yet to get regulators' approval.

The completion of Smart's acquisition of PLDT interests in Piltel will give Smart full access to Talk N'Text's expanding subscriber base and revenues.

Smart gave Piltel creditors a number of options:

First, creditors could sell their indebtedness in exchange for cash, either in US dollars or in pesos. Smart will allocate $20 million for the cash settlement option, with the maximum exchange price at 40 cents for each dollar equivalent of Piltel debt exchanged.
Second, debts can be sold in exchange for dollar-denominated notes fully guaranteed by Smart. The notes, which will mature in December 2007, will be equivalent to 52.5 cents for each dollar of Piltel debt exchanged. Interest rate is pegged at the London Interbank Offering Rate plus one percent per annum and payable quarterly.
In lieu of this, the notes' maturity could be extended by one year to December 2008 but the equivalent value will be a bit higher at 57.5 cents for every dollar of swapped Piltel debt. The same interest rate will be offered.

Third, if the maturity is extended to 10 years or until June 2014, the fixed interest rate will be at 2.25%, also payable every three months.
Yen-denominated debt could take this option but Smart has to be given at least a 15-month advance notice for early repayment. A 52.5% discount will be given if payout is made by December 2007 or a 57.5% discount it is made by December 2008.

Fourth, the debt is also convertible to dollar-denominated bonds guaranteed by the Republic of the Philippines (or RoP-guaranteed bonds) with a two percent coupon per year. This option, however, is not offered to Piltel bondholders.
Piltel creditors, mainly foreign banks such as Chase Manhattan Bank N.A., Bank of America NT & SA, Credit Agricole Indosuez and local banks such as Land Bank of the Philippines, Philippine Commercial International Bank, United Coconut Planters Bank and Bank of the Philippine Islands, were given until April 19 to submit offers to sell the debts to Smart.

Smart will proceed with the debt transaction only if at least 75% of Piltel's debt, is exchanged either for cash, Smart debt, or sovereign bonds.

Piltel has $403 million in foreign borrowings it intends to restructure. It has commissioned the services of JP Morgan Chase for the restructuring.

The company has been defaulting since 1999 on its debt payments totaling PhP41.1 billion. In 2001, 98% of its liabilities was restructured, leaving its total indebtedness at PhP22.5 billion.

"PLDT's wireless group is expected to realize benefits from the closer operational alignment of Smart and Piltel, an increase in the share in Piltel's revenue streams and certain other cash and tax savings," PLDT said.

Despite Smart's denial, analysts said the move could be a prelude to a merger, which would help PLDT consolidate its mobile phone business and give Smart access to Piltel's improving subscriber base and revenue.

"That's going to be beneficial for Piltel since it will allow them to restructure their debt. It also coincides with the improved outlook on Piltel. It's going to be a bonus if its merger with Smart pushes through," said Asiasec Equities' Oliver Plana.

Piltel, which posted net losses of PhP3.35-billion last year, has shown signs of recovery by attracting a record number of new subscribers last year. -- with a report from Reuters

http://www.bworld.com.ph/current/TopStories/topstory2.html