Sugar miller Victorias Milling Corp. seeks to renegotiate the terms of its rehabilitation plan with creditor banks, aiming to slash P5.86 billion in its remaining debt faster than originally envisioned given the sharp decline in interest rates over the years.
The proposed changes are hoped to strengthen the company’s balance sheet and make it more globally competitive by 2015, when sugar tariffs across the Association of Southeast Asian Nations will be reduced to a range of zero to 5 percent from 28 percent at present, VMC chair Wilson Young said in an interview on Monday.
In a disclosure to the Philippine Stock Exchange, VMC said its board had voted to propose the following amendments to the rehabilitation plan and debt restructuring:
— Prepayment of P500 million in convertible notes and conversion into equity of the remaining convertible notes (worth about P1.48 billion) as soon as approved
— Reduction of interest rate on restructured debt to 8 percent from 10 percent a year on the peso-denominated loans and 5 percent from 6 percent on the foreign currency loans.
VMC also seeks to include in the new terms an option for it to undertake voluntary prepayment on the restructured loan without any penalty. The sugar firm also proposes that the joint venture seat in its board of directors be allocated to the director who will be elected its president.
If accepted by banks and approved by the Securities and Exchange Commission, the proposed new round of debt restructuring will reduce VMC’s annual debt burden by P180 million a year as the company will no longer pay the convertible notes and it will get lower rates on the other long-term debt, Young said.
At present, VMC spends some P500 million each year, or about a third of its cash flow for debt servicing.
Young said VMC had already consulted the banks about the proposal and provided them with the data they were asking. He added that the 8-percent annual interest rate sought was still “very competitive” in the current market environment.
VMC’s rehabilitation plan was last amended eight years ago. At that time, the 10 percent yearly interest rate was already a big concession.
For this new round of restructuring, VMC has given creditor-banks until May 31 to decide on the proposal.
“We have to get 100 percent consensus for it to happen,” Young said. Because VMC shares will soon resume trading, Young added that banks would have an exit mechanism if they convert more debt into equity.
After the conversion of the P1.48 billion debt into equity, creditor-banks will increase their interest in VMC to 74 percent from 54 percent at present.