The BSP’s Monetary Board allowed the transaction that resuscitated the Piltel’s non-performing loans and converted them into obligations of the much wealthier Smart Telecoms.
BSP deputy governor Alberto Reyes said the approval by the MB was good for banks since the Piltel loans would no longer be booked as non-performing loans.
"They’re active loans now and new promissory notes will be issued," Reyes explained. "This would also free up the provisioning that Piltel’s creditors had to set aside to cover the risks of these NPLs."
Reyes declined to disclose which banks constituted Piltel’s former creditors but he said majority of the banks were foreign overseas banking units of large foreign banks and foreign currency deposit units (FCDUs).
The MB also agreed to exempt Piltel’s creditors from their overbought limit to allow the swap and gave banks the option of booking the swap under their foreign currency deposit units (FCDUs).
The exemption was sought by Piltel’s two biggest creditors, the Bank of the Philippine Islands and Land- Bank of the Philippines. The banks asked the BSP to exempt the transaction that would swap their Piltel debt into a 10-year Smart debt or 12-year low-yield, sovereign-backed bonds.
Under the proposed swap, Piltel creditors had the choice of swapping Piltel debt for either cash, Smart bonds or sovereign bonds. Most Piltel creditors preferred to receive dollar-denominated Smart bonds but this would force them to exceed the $5-million overbought limit set by the BSP.
Reyes said the MB approved the exemption but Piltel creditors were also given the option to instead book the transaction under the FCDUs of the banks.
"From a regulatory and administrative standpoint, its cleaner to just book the swap in their FCDU because it can be reflected as asset and liability," Reyes said.
"It’s a one-shot accounting treatment that need not be repeatedly explained."
Otherwise, Reyes said BSP examiners would have to keep subtracting the booked amount from the banks‚ total forex holdings.
Moreover, the bonds could also end up in the banks‚ investments in bonds and other debt instruments (IBODI) accounts which has been under close scrutiny by the BSP.
Sources said the BSP naturally preferred that Piltel creditors book the transactions under their FCDUs to prevent the possibility of adding fuel to the IBODI fire.
Piltel has about P25.5 billion in outstanding debt and this transaction is the first major attempt of the mother company, Philippine Long Distance Telephone Co. (PLDT) to usher its rehabilitation.
However, the transaction would proceed only if at least 75 percent of Piltel’s debt would be swapped with discounted cash, low-yield government-guaranteed bonds or Smart’s medium-term loan.
Piltel has about P13.5 billion in net operating loss carryover or Nolco benefits incurred in 2001 and 2002 that should lead to tax savings of P4.3 billion this year and next for Smart.