VMC mancom bullish on firm's ability to pay debts

The management committee of cash-strapped Victorias Milling Corp. (VMC) has expressed confidence that the company can start servicing its debts in eight or nine years time through internally generated funds once the proposed new VMC rehabilitation plan is put into effect.

It also said that with no buyer in sight for VMC, the banks are studying the possibility of getting an outside company like Jardine-Davies which owns one sugar mill and manages another one to run VMC either on a management contract basis or a joint venture arrangement.

This developed as VMC management, headed by president Manuel Manalac, submitted an alternative rehabilitation plan together with the Bank of the Philippine Islands after failing to come up with an agreement over the proposed rehab plan with the rest of the mancom members.

In an interview with The STAR Gerardo Anonas of East-West Bank who heads a group of 25 banks to which VMC owes P6.56 billion said the proposed rehabilitation plan, which is now awaiting decision from the Securities and Exchange Commission, hopes to address payment to bank and trade creditors, give value to shareholders, and improve company operations.

The plan, as approved by a majority of the mancom members including Anonas, calls for conversion into equity of around P1.1 billion worth of all unpaid interests and part of the principal obligation. The amount of convertible notes will also be increased to P2.4 billion, which will eventually leave VMC with a debt burden of P3 billion.

It also calls for a joint venture partner who will manage VMC and provide an initial capital infusion of P300 million which will either be in the form of equity or advances (loan, future purchases or tolling). The amount will be used to reduce VMC's manpower from 2,700 to 1,700. This according to Anonas, will translate to a P160 million a year in savings.

The VMC board will also be reconstituted so that three seats will go to existing VMC shareholders, one seat for secured creditors, six seats for creditors with debt conversion, and one seat for the joint venture partner.

On the one hand, the alternative plan submitted by Manalac's group calls for the conversion of 100 percent of the principal loan amount of P4 billion into equity with another 30 percent of equity going to existing shareholders valued at around P1 to 1.5 billion. It hopes to reduce the debt level to around P2 billion.

But Anonas said Manalac's proposal does not stand a chance with the SEC and is 'onerous.'

"With Victorias experiencing a P700 million negative return as of March even with appraisal increase, the company is insolvent. We are not going to give him 30 eprcent," Anonas said in a telephone interview.

Manalac, in another interview with The STAR, said the proposal of the management committee does not have 'financial muscle' and was meant to address the concerns of creditors who may go for liquidation.

He also said their proposal will make it more attractive for new investors to come in. "In fact, we are still talking to some," he said.

Anonas, for his part, emphasized that VMC is better off as an ongoing concern and with improved operations, the company can pay a P3 billion debt level.

He also said that with the secured creditors owning P1.3 billion of the P6 billion debt of VMC and the clean creditors owning 75 to 80 percent, liquidation is no longer an option 'because we do not want the minority to benefit.' East-West is a clean creditor of VMC.

Meanwhile, Anonas said the strength of 25 creditor-banks as shareholders of VMC should not be underestimated.

"I have reports that VMC sugar quedans are selling at a P50 to P60 per bag discount. And why is that? The company has lost all institutional credibility. Big buyers like Coca-Cola are not buying from it. But with the banks at the helm, the company's value will be enhanced," Anonas said.

The VMC mancom head told the STAR that they already have commitments from some parties who are willing to bring to Victorias mills for refining an additional one million bags of raw sugar worth around P140 million a year.

He said the clean creditors have also received indications from sugar end-users who are willing to buy from VMC if there is a change in ownership and if the banks take over. "There is a strong possibility that the biggest buyer -- Coca Cola -- will start buying from us," Anonas added.

The Bank of the Philippine Islands (BPI), one of the creditors of debt-saddled Victorias Milling Corp. (VMC), wants the Securities and Exchange Commission (SEC) to immediately dissolve the company and liquidate its assets.

In a motion to terminate proceedings, BPI said that although VMC's management committee repeatedly requested for time to submit an alternative plan, no acceptable plan was submitted, including the most recent one it submitted to the SEC which calls for a number of measures such as debt restructuring, debt-to-equity conversion and reduction of workforce.

BPI said the infusion of fresh capital which is one of the foundations of the rehabilitation plan, can never be achieved, especially after the failed bidding last March 21, 2000 for 53 percent of the capital stock of VMC. No bids weer submitted within the given period.

BPI also cited Section 4-26 of the Rules of Procedures on Corporate Recovery which states in the case of the "failure of the rehabilitation of the debtor because of failure to achieve the desired targets as set forth" in the rehabilitation plan, the commission will terminate the proceedings."

It is also provided in the rule that upon termination of the proceedings, the debtor will be dissolved and liquidated, including the management committee.

Thus, BPI said the SEC should immediately terminate proceedings, dissolve the management committee, order the company's dissolution and appoint a liquidator.

VMC is still hoping it can reserve its cash-strapped offers, it is seeking the SEC's approval of its revised rehabilitation plan, formulated after the failed bidding for 53 percent of the company.

The management committee of VMC said the revised plan is more feasible. Under the revised plan, the terms and conditions of the debt restructuring will be the same as originally approved by the SEC but the changes will be in the amount to be restructured.

To reduce the debt that will be restructured, VMC proposed to convert into equity all unpaid interest and part of the principal obligation to the non mortgage-trust-indentures (MTI) creditors, the amount to P1.1 billion. The original P1.5 billion conversion to convertible notes will be increased to P2.4 billion. These two actions will reduce the restructured debt level to about P3.05 billion. -- Rocel Felix