Gov't mulls special fund for distressed firms

The government is considering the creation of a multi-billion peso special "competitiveness" fund to assist distressed companies that are temporarily experiencing liquidity problems, Finance Secretary Jose Pardo said yesterday.

Pardo said the government would issue Erap Bonds through the National Development Co. (NDC) to raise the money for this facility. Malacañang gave NDC the go-signal to issue P50-billion bonds last year. So far, the NDC has issued only P5 billion, the proceeds of which were supposed to be used for lending to agri-related industries. But so far this fund has remained untapped.

Pardo said beneficiaries of the Erap Bonds, will be expanded to include not only agri-related firms.

"We want to see how we can create a special facility that will help distressed companies that are experiencing temporary dislocation because of higher cost of money and depreciation of the foreign exchange which will make imports more expensive," he said.

He noted many firms applying for debt relief with the Securities and Exchange Commission could still be saved and made profitable if financing were made available to sustain their operations.

Pardo said the facility would lend at a lower cost and then have the loan converted into equity in the company once it turns in profits. The idea, he said is to match the lending of banks, that is, if a bank lends P100 million to a certain company, the government, through the special facility, would lend also the same amount.

"Ours will be at cheaper cost. Then we can convert it into preferred shares," he said.

President Estrada would soon issue a new directive to create the special fund. He said the Department of Finance is coordinating with Gary Teves, secretary general of the inter-agency Economic Coordinating Council (ECC).

However, he did not indicate if the fund would be managed by the government, through the NDC, or the private sector. He also did not say whether this would be in a form of subsidy to the private sector, something which is not allowed under the World Trade Organization.

Pardo said most businesses, are now complaining about the lack of credit as banks have been placing their funds in safe investments like government securities or the BSP's overnight facility. He said firms have a difficult time looking for short-term working capital requirements.