GIHL, which belongs to the Ispat Group of India, will also have to secure a standby letter of credit for another P1 billion as part of its total payments to the creditor banks.
Upon signing of the Memorandum of Agreement among the creditor banks and GIHL, a P1 billion cash up front was paid by the Indian steel giant.
However, not all of the P1 billion cash up front would actually go the banks as some of the funds would be for expenses and only about P500 million would be paid to the banks.
Finalization of the purchase agreement among the banks and GIHL is expected to take 90 days from end-January.
The creditor banks are seeking the new bonds as assurance of payment by GIHL which is supposed to pay P12.25 billion for NSC over a period of eight years.
This developed as news of a probe against Ispat is being conducted by the Indian government in New Delhi.
The Indian government is reportedly investigating Ispat Industries for "alleged exposure to Rs 85000 crore of public funds, erosion of networth and high accumulated losses."
The Indian government is ordering the investigation of Ispat under section 235 of the Indian Companies Act and the case has been referred by the government to the Serious Frauds Investigation Office (SFIO).
Ispat Industries, however, claims that it is not aware of any investigation being launched by the SFIO and that it was meeting ‘all obligations’ to lenders.
Creditor banks sources stressed that they would not make any new loans to GIHL since GIHL supposedly has its own source of funds.
The banks had chosen GIHL over another bidder because its bid assures the banks of payment regardless if NSC is able to make a profit or not.
The bid of the other losing bidder, the banks had earlier complained, contained a profit-sharing clause that would offer more money depending on NSC being turned around and made profitable.
However, the NSC creditor banks now want to make sure that they will still get paid even if GIHL at some time claims that it cannot rehabilitate NSC.