The saying “You know who your true friends are when you are down” will be tested when broadcasting giant ABS-CBN Corp. sits down with its creditors to discuss its outstanding loan obligations.
With the nonrenewal of its franchise by Congress and, in the process, the cessation of its lucrative radio and TV broadcasts, ABS-CBN faces the difficult task of managing its loan portfolio.According to reports, it has more than P21 billion in loans that have repayment periods of up to 2027. If the debts of its subsidiary companies are included, its consolidated liability would reach P26.5 billion.
That debt represents approximately 2.5 percent of some P8.4 trillion in existing loans of the country’s banks.
Assuming ABS-CBN fails to pay those loans, the Bankers Association of the Philippines believes the banking industry can absorb the losses that may result from such default.
Chances are, those loans are “clean loans,” meaning, they are not secured by shares of stocks or real estate and were extended on the strength of the company’s excellent credit standing and track record as a paying debtor.Bear in mind that ABS-CBN is owned by the Lopez family who has other businesses, e.g., energy generation and commercial leasing, that have substantial and steady revenue streams.
The closure of ABS-CBN will hurt the family’s pockets, but that will not send it to the dog house.
With the family’s hefty financial resources, filing for bankruptcy to avoid the payment of debts may be far-fetched if only to keep unsullied its credit reputation that dates back to the 1900s.
It is doubtful if the banks (in particular Bank of Philippine Islands and Union Bank of the Philippines, which are the principal creditors) will call in the loans in case ABS-CBN defaults in the payment of any scheduled amortization.
Banks think and plan long term.
In the absence of fraud or bad faith, banks try to as much as possible accommodate borrowers who may be experiencing temporary or unexpected financial problems that prevent them from meeting their credit obligations.Some borrowers may be down now, but they can rise and grow in the future and remain in the banks’ roster of trustworthy borrowers. And knowing the Filipinos’ utang na loob (or sense of gratitude) attitude, favors granted in times of need will not be forgotten.
In the same token, banks that adopt a hard line in the payment of loan obligations and immediately seize the borrower’s mortgage when it defaults on a payment remain forever in the latter’s mental blacklist.In the late 1980s, when the Philippines was negotiating for the restructuring of its loans with foreign banks, then Central Bank Gov. Jobo Fernandez was confronted with the problem of banks demanding stiff concessions as a condition for their agreeing to the restructuring.Exasperated by the unreasonable posture, Fernandez reportedly told those banks that if they do not withdraw their demands, they will be blacklisted from doing business in the Philippines after the country has recovered from its economic problems.
Fazed by that threat, the recalcitrant banks pulled back and went along with the restructuring.
For strategic considerations, it is reasonable to expect the banks to restructure ABS-CBN’s loans by, among others, giving it a grace period in the amortizations and extending the term of the loan.
Where feasible, the parties may consider entering into dacion en pago (property is delivered as part payment of a loan) arrangements over ABS-CBN’s real estate properties in the provinces that are suitable for residential or commercial development by the banks’ subsidiary or affiliate companies.
Whatever form the loan restructuring may take, however, it is inevitable that its interest rate would have an upward adjustment to compensate for the losses that the bank may incur on account of the restructuring.
That would be a small price to pay considering the adverse consequences that may arise, especially with regard to the Lopez family’s credit reputation, if ABS-CBN defaults on its loans.It will be interesting to find out who among the company’s creditors will be its true friends in this moment of crisis. INQ
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