SEC turns down East West petition to convert VMC debt to equity

Gotianun-led East West Banking Corp. cannot compel sugar firm Victorias Milling Co. (VMC) to convert about P350 million worth of debt notes into equity, the Securities and Exchange Commission en banc has ruled.

Favoring an appeal filed by VMC, the SEC denied East West’s motion to force the sugar firm to allow the bank to swap its convertible notes into equity, which could enable the bank to unlock higher values from its debt exposure in VMC.

Previously, a hearing panel from the SEC allowed East West to reject VMC’s offer to redeem the notes and move to claim shares in exchange for these convertible notes but this was overturned by the SEC en banc, VMC told the Philippine Stock Exchange yesterday.

“We want to convert because we believe that is our right,” East West president Antonio Moncupa Jr. said in a text message. “Converting also serves the interest of both VMC and East West. It strengthens VMC’s capital position and it also helps East West recover its losses during the time VMC was in a difficult position.”

“With these considerations, we continue to explore our options and we are not ruling out an appeal,” Moncupa said.

If East West were allowed to swap its convertible note holdings into equity, the bank has the option to sell its shares to the open market. VMC’s shares closed at P4.80 per share at the stock market on Thursday, surging by 11.63 percent from the previous day.

But if East West were to accept VMC’s prepayment offer, it would get only around P2 per debt unit.

East West is the only major creditor-bank that has refused to accept VMC’s bid to prepay debt in accordance with the debt restructuring agreement (DRA), arguing that conversion should be given preference over prepayment.

VMC, however, said that the very purpose of rehabilitation among others was for creditors to be paid. “Besides, the central bank won’t allow bank creditors to convert simply because their position will change from creditor to equity holder, which will violate rules of banking,” a source from VMC said.

“Also there is a conversion period within the DRA of two months from the start of October to end of November each year. Doris Dumlao-Abadilla