PSALM to prepay $300-M yen-denominated loans

ALFONSO, Cavite — The Power Sector Assets and Liabilities Management Corp. (PSALM) is planning to prepay another $300 million worth of yen-denominated loans within this year, a top company official said.

In a speech during the Economic Journalists Association of the Philippines-San Miguel Corp. (EJAP-SMC) annual seminar at the SMC Management Training Center here, PSALM president Jose Ibazeta said this prepayment plan forms part of the $2.4 billion that the Department of Finance (DOF) allowed them to restructure this year.

“We are hoping that we could retire another $300 million within this year. These are yen loans,” Ibazeta said.

He said they have secured necessary approval from the fiscal and monetary authorities to undertake the prepayment scheme.

PSALM, he said, would be able to go ahead with the prepayment plan due to expected proceeds from its privatization efforts.

This year, Ibazeta said they expect to raise $1.9 billion from the sale of the National Power Corp. (Napocor) transmission and generation assets.

“We believe we are in a good position to lower the Napocor debts,” the PSALM chief said.

He said based on the latest figure, Napocor’s debts now amount to $7.2 billion.

Bulk of the proceeds from privatization will come from the “full payment” of US-based AES Corp. for the purchase of the 600-megawatt Masinloc power facility in Zambales.

Ibazeta said Masinloc Power Partners Corp., the vehicle used by AES to acquire the coal-fired facility, is expected to sign an agreement to pay the entire $930 million this week.

Last month, PSALM had prepaid $174 million worth of yen-denominated loans of the Napocor.

PSALM said the three loans (worth a total of ¥16.887 billion) to Napocor were extended in 1995 and 1997 by the Japan Bank for International Cooperation-Overseas Economic Cooperation Fund (JBIC-OECF) to finance a number of transmission projects.

Two of the loans amounting to ¥7.3 billion and Y8.8 billion will originally mature in 2027, while the other loan worth ¥1.2 billion will fall due in 2025.

In prepaying the loans of Napocor, PSALM is fulfilling the second part of its mandate — liability management — as stipulated in the Electric Power Industry Reform Act (EPIRA).

Aside from helping reduce the country’s debt burden, the prepayment will improve Napocor’s liability profile.

“The move will also diminish the state-owned power firm’s exposure to foreign currency risks,” Manuel Marcos M. Villalon II, manager of the loan administration division of PSALM’s treasury department, said.

Villalon said the prepayment will also facilitate the consent of the JBIC-OECF to the privatization of the National Transmission Corp. via a 25-year concession contract.

The prepayment, he said, will likewise enable Napocor to save on interest payments and guarantee fees that could be used to prepay the other loans of state-run power firm to further trim its stranded debts.

The funds for the prepayment of the loans will come from the privatization proceeds that PSALM has accumulated in fulfilling the first part of its mandate under the EPIRA — the sale of Napocor’s generation assets.

The proceeds have reached an estimated $500 million as of December 2007.

As defined in the EPIRA, all proceeds generated from the power privatization program will be used to settle Napocor’s $7-billion debt.

Any residual Napocor debt after the prepayment through the privatization of the company’s assets will be considered “stranded.” This may be paid through the application of the Universal Charge for stranded debt.

“It is, therefore, in the interest of all Filipinos to have a successful privatization of Napocor’s assets to minimize, if not do away with, the Universal Charge for Stranded Debt as provided for under the law,” Ferdinand George Florendo, PSALM manager for Capital Markets and Risk Management said.