WB, IMF work out scheme for distressed firms

The World Bank and the International Monetary Fund (IMF) are working out a scheme to develop and monitor implementation of a corporate sector reform program.

In a paper, the World Bank said the scheme would focus on reforming the Securities and Exchange Commission (SEC) -- administered process for dealing with distressed corporations unable to meet their loan obligations and which have filed for debt relief with the SEC.

According to the World Bank, there is a need to monitor the performance of distressed firms since there has been widespread financial restructuring in the corporate sector.

The SEC reports that in 1997 and 1998, 55 corporations filed for suspension of payments on debts totalling P109 billion. However, the World Bank noted that in 1999, the number of companies filing for suspension of payments declined dramatically to only 12 in the first 10 months of 1999 and the total debt involved also declined to P19 billion.

"These numbers indicate that although the crisis has affected Philippine corporations, most firms have reasonable levels of indebtedness and manageable exposures to foreign currency debt," it said.

The World Bank specifically cited the case of National Steel Corp. (NSC), noting that on March 2, 2000, the SEC appointed a three member interim committee to oversee the country's largest steel maker.

In December 1999, the NSC filed for suspension of payments in order to prevent creditor banks from foreclosing on its assets.

Earlier, in November 1999, NSC announced the immediate closure of its steel operations in Iligan City, Mindanao after it was unable to raise the $130 million in capital needed to continue operations.

On Nov. 18, its bank creditors initiated foreclosure proceedings against NSC.

The World Bank also noted the case of another large corporate group, Uniwide, LandBank a government-owned bank, proceeded with foreclosure action even though the company had been granted suspension of payments by the SEC on P11.1 billion in debts, including P6.95 billion owed to 14 Philippine banks.

In late February 2000, the Casino Group, the second-largest retailer in France, announced it was taking a stake in Unified, which would be facilitated by the recent passage of the Retail Trade Liberalization Act.

New rules and procedures for the SEC-administered processes for suspension of payments were adopted in December last year. However, under the newly adopted rules and procedures, SEC retains sole discretion in deciding whether to abide by the will of creditors.

The World Bank has extended a grant of $1.03 million to serve as assistance to the SEC to draft new rules and time bound procedures for dealing with suspension of payments. The United States Agency for International Development (USAID) has also fielded a long-term consultant to assist SEC in implementing the new rules and procedures once they are adopted.