Finance Secretary Jose Isidro Camacho told reporters that PAL raised legal questions on government’s plan to call on the agreement signed in 1996 where Tan agreed to buy the shares after six years, at P5 per share.
The government had announced last month that it would exercise its put option on its remaining shares, resigning to the fact that it could never recover the value of its original investment in the airline.
According to Camacho, the basic contention forwarded by PAL was that the government had agreed not to exercise its put option until the flagship carrier is restored to financial health.
This means the transaction will depend on whether PAL and the government can agree on exactly how stable PAL has become since it was put under receivership.
Industry sources said PAL’s current book value stands at 33 centavos per share.
Although its performance has improved since it went under receivership, PAL is still a long way from being out of the woods as it reported losses of P1.6 billion to P1.8 billion during its fiscal year ended March 2002, although this is better than the original projected loss of P2.7 billion for the period.
The legal question put forward by PAL, according to Camacho, is not necessarily a problem. He said PAL has two guarantors that are financially healthy and can foot the bill to settle the transaction.
"They have two guarantors, Asia Brewery and Fortune Tobacco," Camacho said.
The Development Bank of the Philippines, Land Bank of the Philippines, Government Service Insurance System and the AFP-Retirement Service Benefits System have all decided to exercise their put option this May.
The put option agreement was signed after the PAL board agreed to require existing shareholders to raise P3.4 billion to finance its ambitious re-fleeting program, the plan that eventually caused the collapse of the country’s biggest airline.
The GFIs had decided not to exercise their preemptive rights to the capital call and in exchange, they asked Tan to enter into the put-option agreement. Government used to own 40 percent of the airline but this has been diluted significantly since 1995 when Tan’s holding company, PR Holdings, controlled 67 percent.
The National Government still owns a total of 4.26 percent broken down as follows: GSIS with 1.37 percent, LandBank with 0.69 percent, AFP-RSBS 0.31 percent, DBP with 0.36 percent, PNB with 0.46 percent and NG which directly holds 0.95 percent.
Tan himself directly owns 53.79 percent while PAL employees still own 2.61 percent. The new investors that infused capital into the airline together own 35.15 percent and other investors control 4.19 percent. – Des Ferriols