Retailer Puregold Price Club Inc. decided to settle a P5.09-billion debt issue ahead of maturity because of a change in the tax treatment on proceeds from these securities, which otherwise would have made debt servicing more costly.
In a disclosure to the Philippine Stock Exchange, Puregold said it had remitted to Metropolitan Bank and Trust Corp.-Trust Banking the full amount as payment for corporate notes issued on Oct. 24, 2012.
Puregold had issued the corporate notes at an interest rate of 5.4481 percent per annum for the five-year tenor (worth P4 billion) and at 5.8673 percent per annum for the seven-year tenor (P1 billion). The issuance was arranged by First Metro Investment Corp.
A source privy to the transaction said Puregold’s issuance of corporate notes—or debt notes catering to no more than 19 selected institutional investors—was really meant to be a term borrowing.
However, the source said a recent clarification in the tax ruling of the Bureau of Internal Revenue would make it more costly for the company.
“Initially we did it on the basis of creditable withholding tax and then the BIR’s clarification said it’s subject to final withholding tax of 20 percent,” a company source explained.
Under the new scenario, the source said, Puregold would have to shoulder the final tax because the holders of corporate bonds would want to keep their yield in the same level as agreed upon.
“From our end it’s an additional cost,” the source said, thus explaining why Puregold had to terminate the loan ahead of maturity.
In lieu of this debt prepayment, the source said Puregold may instead source funding from bilateral loans from banks, thus taking advantage of record-low interest rates.
“We have practically zero availment of our bank lines and, given the continuing liquidity, the bank lines will cost much less,” the source said. “Anyway, we have a very strong cash position and we have a very substantial unutilized bank lines.”
The source added that the debt prepayment would be discussed when Puregold submits its first quarter financial results on April 26.
The source said the results of the first three months were “very good.”