However, company officials emphasized that should Smart acquire PLDT’s interests in Piltel, it is not Smart’s intention to enter into a legal statutory merger with Piltel nor does it intend to use Piltel as a backdoor listing vehicle. Under its franchise, Smart is required to go public by August this year but officials earlier said that they will ask government to allow the company to defer its listing until 2007.
Smart will secure the necessary consent and waivers from its creditors and debt guarantors to allow it to acquire PLDT’s interests in Piltel consisting of 767 million common shares (45.3 percent of Piltel’s outstanding common shares) and 59 million Series K convertible preferred shares (convertible into Piltel common shares at a ratio of 170:1). The consideration for the share transfer will be determined at a later date, officials said.
The acquisition plan, however, is subject to the successful completion of a proposed debt exchange transaction with Piltel’s creditors.
Smart announced yesterday that it is inviting Piltel creditors to sell their debts to Smart in exchange for either cash (in US dollars or pesos) and/or dollar-denominated Smart debts and/or dollar-denominated bonds guaranteed by the government. Smart has allocated about $20 million for the cash offer alone.
Piltel creditors have four weeks from the date the letters of invitation are issued to submit their offers.
Smart said it will only proceed with the debt transaction if at least 75 percent of existing Piltel debts is exchanged for one or more of the menu of options; and certain minimum acceptance thresholds for each facility are met.
Piltel is the country’s third largest cellular mobile telephone service provider with around 2.9 million subscribers as of end-2003, or 13 percent of the market.
In June 2001, Piltel completed the restructuring of about P41.1 billion in debts and other claims owed to banks, trade creditors, bondholders and preferred shareholders.
As a result of the restructuring, which now covers over 99 percent of Piltel’s indebtedness, P20.5 billion of Piltel’s debt were released in consideration for Piltel Series K convertible preferred shares which were then exchanged for PLDT convertible preferred shares, while the other P20.5 billion were restructured into loans having terms of 10 to 15 years.
The terms of the restructuring also entailed the issuance of a letter of support from PLDT for the benefit of Piltel and its creditors whereby PLDT is obligated to provide up to $150 million to make up for any shortfalls in Piltel’s operating cash flows required to discharge its obligations to the creditors. As of Dec. 31, 2003, $50.2 million remains available under the PLDT letter of support.
Company officials explained that should the proposed transaction be successfully completed, PLDT will be able to rationalize its wireless business segment, with Smart gaining full access to Piltel’s expanding subscriber base and improving revenue streams.
PLDT’s wireless group is also expected to realize benefits from the closer operational alignment of Smart and Piltel, an increase in the share in Piltel’s revenues streams and other cash and tax savings.
These positive effects, however, will be partially offset by increased interest expense and foreign exchange exposure arising from the issuance by Smart of new debt.
But officials emphasized that the terms of the new debt have been designed to mature after Smart pays off its existing GSM loans and will not adversely affect Smart’s key financial ratios, which will remain comfortably within prescribed limits.