2nd batch of ERAP bonds to carry more flexible terms

The second tranche of the P50-billion ERAP bonds will carry more flexible terms, including a 10-year maturity period and convertibility to quasi-equity instruments. While negotiating for revisions in the terms of the first tranche, the National Development Co. (NDC) said the revised terms will be applicable to the second tranche worth P5 billion which will be issued once the first tranche is used up.

NDC general manager Samie Lim told reporters that the second tranche of the ERAP bonds (coined from Economic Recovery through Agricultural Productivity) will not have the mismatch that the first tranche had against the projects it was designed to finance.

The first tranche of the bond had a five-year maturity period. However, since agricultural projects have a long gestation period -- usually lasting eight to 10 years -- the government will be forced to shell out cash to retire the bonds long before the projects start generating profits.

Lim said the NDC will try to renegotiate the terms of the bonds. He said NDC has requested the Bureau of Treasury to release the list of subscribers in order to get the negotiations underway.

According to Lim, government will ask its creditors to extend the maturity period from five years to 10 years. He said government is also studying a proposal to make the bonds convertible into quasi-equity instruments such as convertible debenture.

"We will negotiate for these terms to be applicable to the first tranche but for sure, the second tranche will be issued with the same flexible terms," Lim said.

Lim said the second tranche will not be released until the first tranche has been used up. "We are being very careful in screening the projects," Lim said. "Moreover, we don't want P10-billion worth of proceeds that we have to move while servicing interests."

After almost one year, government has not approved a single project under the ERAP bonds program although a total of 66 projects worth P35 billion being applied for financing.

Since the ERAP bonds are exclusively for agricultural projects, Lim said the fund will co-finance only about P10.6 billion of the P35 billion needed for the 66 agricultural projects.

However, Lim said only nine of the agricultural projects have been approved by NDC technical group so far and they would have to be approved by the NDC board before qualifying for ERAP funding.

In the meantime, government has been paying interest since the bonds were launched in April 1999. Lim said the proceeds of the bonds have been invested in Treasury bills but he did not say whether government is making money or losing while serving interest earnings on the bond.

The proceeds from the ERAP bonds were originally intended for big ticket agricultural projects supposedly to have the highest impact on the sector.