Udenna founder Dennis Uy
The group of Davao-based tycoon Dennis Uy averted a looming debt crisis on Monday by settling P274 million in missed lease payments to the government for its sprawling Clark Global City project.
Fears over a deluge of debt calls emerged during the weekend after a consortium of banks led by BDO Unibank Inc.—the country’s biggest lender and a major supporter of Uy’s rapid business expansion—issued a default notice on Udenna Corp. subsidiary Clark Global City Corp. (CGCC), which is developing a 177-hectare business district in the Clark Freeport Zone in Pampanga.
Shares of BDO as well as Uy’s listed companies fell on Monday as investors weighed debt risks. The creditors’ move to foreclose on debts followed concerns on CGCC’s capability to settle lease obligations.
Raymundo Martin Escalona, president of Udenna, told the Inquirer the P274 million in lease payments owed to state-run Clark International Airport Corp. (CIAC) had been “fully paid.”
“We were in discussions with CIAC for an amicable resolution, which we had until July 27 to settle. However, these were already overtaken by the recent events so we settled payment instead,” Escalona said in a text message on Monday.
Default notice contested
In a separate statement, Udenna said the matter had been settled “to the satisfaction of the majority lender and the consortium banks.”
Otherwise, a loan default would have allowed lenders to foreclose on assets put up as collateral. The situation may rapidly escalate into a debt crisis when cross default provisions are triggered, meaning creditors demand faster settlement of other loans within the group, even the long-term loans.
Udenna’s latest financial report with the Securities and Exchange Commission showed it had bank loans and other borrowings of about P179 billion at the end of 2020, up 48 percent from the previous year. These were mainly in long-term borrowings amounting to P114.3 billion.
In 2017, CGCC entered into a loan deal with BDO, Philippine National Bank, Land Bank of the Philippines and Bank of China-Grand Caymans Branch to help pay for the P50-billion acquisition of GGDC Holdings Inc., majority shareholder of Global Gateway Development Corp. (GGDC), which has leasehold rights to the Clark Global City project.
Udenna had outstanding loans of more than P29 billion owed to the consortium, the company said in a regulatory filing.
The Clark project, which is being leased from the government until 2085, is being positioned as a “world-class city development” beside the Clark International Airport complex.
On Monday, Udenna continued to contest the default notice. “The financial liability stated was not a liability to the consortium banks, but an obligation of GGDC to CIAC, which, as stated above, has already been settled,” Udenna said.
“No material impact” on BDO
“CGCC has assured BDO that it is in the process of updating its obligations to its lessor, CIAC,” BDO separately said in a filing on Monday.
“The relevant obligations of CGCC to BDO are secured and a default will not have a material adverse effect on the financial condition and business of BDO,” it added.
Nonetheless, shares of BDO declined by 4.62 percent to P115.60 per share at the stock market on Monday, contributing to the 0.86-percent decline of the Philippine benchmark index.
Uy-led Chelsea Logistics Holdings Corp., on the other hand, plunged 11.81 percent to P1.12 per share, telecommunications unit DITO CME Holdings fell 3.43 percent to P3.94 per share, Phoenix Petroleum Philippines Inc. fell 10.94 percent to P8.71 per share while Philippine Resorts Group Holdings dropped 2.5 percent to P0.78 per share.
A veteran analyst said the drop reflected negative market sentiments on Uy’s debt obligations.
“Everyone knows that Dennis Uy was very aggressive during the past administration and doubted that he had the funds to be so aggressive,” the analyst, who requested anonymity, told the Inquirer. “So I guess a lot of people are worried that this is just the beginning.”
Uy’s aggressive expansion during Duterte’s term saw assets and debts ballon over the past six years, regulatory filing showed.
Udenna ended 2020 with assets of P310.3 billion—up 10 times from P31.3 billion in 2015. Similarly, total liabilities surged to over P254 billion in 2020 from P21.7 billion six years ago.
Losses in 2020 more than doubled to P8.6 billion, reflecting the challenging conditions brought about by the COVID-19 pandemic.
In the past two years, Uy shed assets to pay down debts. These included the sale of logistics firm 2GO Group Inc. to SM Group last year and the Malampaya deepwater gas-to-power project to billionaire Enrique Razon Jr. in June.