Rama wants to “restructure” SRP loan deal

CEBU, Philippines - To address the loan interest fluctuations, Cebu City Mayor Michael Rama wants to “restructure” the South Road Properties loan agreement before the year ends.

“I am very serious that the issue on guarantee fees has to be addressed this year,” he said.

The mayor is set to meet the Local Finance Committee, composed of the city’s budget officer, city accountant, city treasurer office, city councilors, and his secretary Belinda Navasquez next week to deliberate on the matter.

Also, he wants the council to hold a special session to tackle the issue and make proper legislative intervention to aid the bulging guarantee fee.

“It carries great urgency so that we will be seeing the future with the sense of optimism. We are talking about billion so we cannot just ignore unless the council would not want to solve our problem,” Rama said.

Once the loan is restructured, the problem on drainage, coastal, traffic system, reconstruction of the city hospital would be addressed easily, Rama said.

“Almost P3 billion is a continuing burden eating up millions of our general funds. Basically it’s a P3 billion worth of projects and basic services taken away from the Cebuanos. All of these problems on drainage, traffic system, infrastructure projects could have address so easily if we are not paying for the guarantee fees,” he said.

The city government is obligated to pay the national government one percent of its loan balance as guarantor. At present, the city has an outstanding balance of P2.9 billion based on the prevailing foreign exchange rate.

Cebu City was granted P5.6 billion loan by JICA to undertake the 300-hectare South Reclamation Project. The loan will mature in 2025.

The city has already paid a total of P6.8 billion, which is bigger than the original SRP loan, inclusive of the national government’s guarantee or commitment fee amounting to P546.36 million.

The bulk of what the city has paid, so far, has gone to interest payments and the national government’s share termed as “guarantee” or “commitment” fee.

If the city continues paying its loan, which is yen-denominated, until 2025, it is projected to suffer a foreign exchange loss of approximately P992.63 million.

The city sets aside approximately P300 to 500 million a year for the SRP loan. Of this amount, P150 million to P200 million is for the interest to the conduit bank.

Among the solutions seen by the city government is to allow a local bank to restructure the loan by converting the foreign denominated loan into peso to free the city from ballooning guarantee fees due to foreign exchange rate loss.

The interested banks include the Development Bank of the Philippines, Philippine National Bank and Land Bank of the Philippines.

The LBP has offered city an interest rate of 4.5 percent to pay in full the P2.9 billion, while DBP is offering an interest rate of 4.25 percent fixed for five years with P3 billion allowable loan. This is a maximum borrowing capacity of a local government unit as mandated by the Bureau of Local Government Finance.

The city pays 11 percent of the loan amortization loan to LBP for its being the conduit bank for the loan.

Rama clarified that the loan buyout is not only limited to LBP whom assured to assume the one-percent guarantee fee of the outstanding balance payable to the Department of Finance starting this month.

“That would bring us to make the choice. Why, is there such thing we should stick out with them (LBP). I thanked them for consuming the 1-percent guarantee fee. But they have done that long time ago,” he said. — Kristine B. Quintas/JMO (FREEMAN)