PAL questions valuation of shares

Philippine Airlines is questioning the price which the government financial institutions (GFIs) are asking PAL to pay for the shares which they have been trying to sell back to the airline company.

Calling the valuation "onerous," PAL said it is willing to settle the claim of the GFIs if the valuation is reviewed and possibly scaled down.

The GFIs have sent two demand letters asking for the settlement of the put option where PAL agreed to buy back government’s share for P5 each.

The government, through the GFIs, hopes to raise P2 billion from this transaction.

However, PAL has refused to settle the claim by questioning the valuation and pointing out that the government had agreed not to exercise the put option until the flagship carrier has been restored to financial health.

Because of this, the GFIs are planning to go after Asia Brewery and Fortune Tobacco which were listed as guarantors of the put option signed by the airline.

Land Bank of the Philippines (Landbank) president Margarito Teves said PAL’s refusal serves as a signal for PAL’s creditors to go after Tan’s flagship companies, Asia Brewery and Fortune Tobacco.

"This is actually good for the creditors because we can now go after Asia Brewery and Fortune," Teves said. "They were guarantors of the put option and under the agreement, they would have to settle the claim if PAL can not."

Teves said Landbank has initiated the proceedings against Fortune and Asia Brewery. He said the other GFIs are likely to do the same and issue demand letters to the two companies.

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 GFIs had decided not to exercise their rights to the capital call. In exchange, however they asked PAL chairman to enter into the put-option agreement where he would buy government’s remaining shares at P5 per share.

PAL, however, has raised some legal questions, pointing out the fact that the government had agreed not to exercise its put option until the flagship carrier has been restored to financial health.

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.

According to Finance Secretary Jose Isidro Camacho, the legal question put forward by PAL, is not necessarily a problem. He said PAL is well in a position to settle the claim since it has two strong guarantors: Fortune Tobacco and Asia Brewery.