Globe Telecom gets $50-M loan

Globe Telecom has signed a $50-million term loan facility with Norddeutsche Landesbank Gironzentrale, Singapore branch.

The loan is a five-year facility with a floating interest rate. Globe officials said the proceeds of the facility will be used to refinance other, more expensive debt.

“As we refine our processes and reengineer our systems, we expect that we will continue to optimize our cost structures across the whole organization,” Globe chief financial officer Delfin Gonzales earlier pointed out.

By the end of 2007, Globe expects its debt level to go down to $650 million. As of end-December 2006, total debts amounted to $800 million. Also by year-end, around 15 percent of total debt portfolio will be dollar-denominated (net of swaps).

Globe’s capital expenditure budget for 2007 is around $250 million, which Gonzalez said might be financed locally if the rates continue to be favorable.

Earlier, the Bangko Sentral ng Pilipinas (BSP) approved the redemption by Globe of $300-million senior unsecured notes in April this year, five years ahead of its original due date.

Based on current market rates, Globe expects to realize cumulative after-tax savings in interest expense of about P2.32 billion over the remaining life of the notes.

This year, there will be a one-time impact to net income of about P1.17 billion, largely non-cash in nature, coming from the decline in mark-to-market values of the related derivatives. “But this will not undermine our core operating performance and will even improve out longer-term financing cost profile as after-tax savings of P444 million a year in interest expense is generated over the remaining life of the notes,” Gonzalez emphasized.

To finance the early redemption, Globe recently signed an underwriting agreement with Standard Chartered Bank for a P5-billion corporate notes issue which is expected to be finalized by next month. In addition, the company is finalizing another refinancing loan of $50 million.

Gonzalez said the balance of the amount to be prepaid, or around $150 million, will be sourced from internal funds. Globe is securing the requisite credit consents to permit the call.

The company said it is redeeming the notes to take advantage of the low interest rate environment. Globe will make the formal call to the trustee sometime next month after refinancing has been secured.

Benchmark 10-year Philippine rates have dropped significantly from 8.78 percent in 2002 when the notes were initially issued, to 6.2 percent as of end-2006.

At the same time, Globe’s credit rating improved from BB to BB+ (S&P’s long-term foreign issuer credit rating) and from Ba3 to Ba2 (Moody’s senior unsecured debt rating).

“This validates the soundness of our debt restructuring approach. In 2002, we built in a call option to provide us the flexibility to redeem the bonds should interest rates fall,” Gonzales said.

In emphasizing that the accounting impact of bond redemption will not affect Globe’s operating performance, Gonzales added that even if Globe opted not to redeem the notes, the mark-to-market value of the call option would still have been charged to the P&L over the life of the notes. However, reversal to the P&L is accelerated due to the early redemption of the notes.

Despite doubling its corporate income taxes, Globe Telecom reported a historic high P11.8-billion net income for 2006, 14 percent more than the previous year’s earnings of P10.3 billion despite.