AIG to acquire 12% of Smart for P12-B

Leading US firm American International Group, Inc. (AIG) and Philippine mobile phone service provider Smart Communications Inc. are in the final stretches of negotiations over the infusion by AIG of around $240 million (over P12 billion) in exchange for a 12-percent stake in the Philippine Long Distance Telephone Co. (PLDT) subsidiary.

The STAR learned that a signed deal between the two companies is expected to be forged sometime end of March or early April. Smart is 100-percent owned by PLDT and was acquired by the latter in 1999.

The AIG conglomerate, chaired by Maurice R. Greenberg, has been aggressively investing in Asia, particularly in telecommunications companies in Indonesia and Thailand.

AIG is represented in the Philippines by the Philam Group of Companies but the one in talks with PLDT is AIG Hong Kong, it was learned. The STAR was able to reach the AIG Hong Kong representative in the Philippines but was informed that he was advised by the mother company not to divulge any information while the negotiations are ongoing.

"PLDT and AIG are now in discussions over pricing. But we don’t think there will be a problem since Smart is the one that has been pulling up PLDT’s bottom line, which can further be seen by the 2001 yearend results of PLDT and Smart to be announced next week. But, of course, one can never tell. Just look at what happened in the case of PLDT and GMA Network Inc. The deal was abandoned the last minute," sources said.

"But what I can tell you is that AIG has a lot of money and has been aggressively investing," the source added.

AIG is a leading US-based international insurance and financial services organization and the largest underwriter of commercial and industrial insurance in the US. Its global businesses include financial services and asset management, including aircraft leasing, financial products, trading, consumer finance, investment fund asset management, real estate investment management, and retirement savings products. Its common stocks are listed in the New York Stock Exchange and bourses in London, Paris, Switzerland and Tokyo.

In 2001, AIG posted a net income of $5.36 billion, as against $6.64 billion the previous year, due to the impact of Enron surety losses as well as the Northridge earthquake claims that reduced core income by three cents per share. Core income last year was placed at $7.66 billion compared to $6.78 billion.

It was learned that PLDT chose AIG over several other potential investors mainly because the company was not interested in interfering with Smart’s business. "All PLDT wanted was the money, not somebody who would dictate how it should run the business," sources said.

There were talks before that Japan’s Nippon Telegraph and Telephone Corp. (NTT), which has a 15-percent stake in PLDT, was being wooed to invest in Smart.

"But we understand NTT’s position. It used to own shares in Smart at a time when prices were still low and the business has not kicked off. Then it was asked to exchange its shares in Smart with that of PLDT. And now, Smart’s shares are more valuable that those of PLDT. How do you expect NTT to now buy shares in Smart at a higher price," the source pointed out.

But PLDT realized that it was better off not to push the sale of a portion of Smart to NTT, or to technology and service provider Vodafone, but instead to a financial institution since its main purpose for divesting its 12-percent stake in Smart is to raise funds to partly service the telephone company’s upcoming maturing obligations.

The source also brushed aside reports (not The STAR) that business tycoon Lucio Tan was eyeing a stake in Smart. "We have not been approached by Tan’s group. And even if they did, PLDT would not be interested. It would be too messy a partnership," the source pointed out.

PLDT has debts amounting to $2.8 billion, more than 95 percent of which is denominated in foreign currency. It is now faced with some $1.3 billion in debt maturing between 2002 and 2004.

In order to meet its maturing obligations, the company is pursuing refinancing opportunities with its traditional lenders, replacement credits, as well as other windows which it can access in terms of new credit.

PLDT likewise planned to sell up to a 20-percent stake in wireless subsidiary in order to raise around $300 to $400 million but this was later trimmed down to 12 percent.

The company has postponed new investments, including the planned purchase of GMA Network Inc. It has also significantly reduced its capital expenditures from P20 to P22 billion for the whole group in 2002. Of this amount, around P12 billion will go to Smart, PLDT fixed line P8.5 billion, ePLDT P500 million, and the rest for the other subsidiaries.

AIG also has investments in Lopez-owned Bayan Telecommunications (BayanTel) through the Asian Infrastructure Fund which it manages.