Banks owe National Steel SPV, arbiter rules

An international arbitration court in Singapore has ruled in favor of two special purpose vehicles holding National Steel Corp. debt papers that were claiming damages against a group of creditor-banks that includes the Philippine National Bank.

In a disclosure to the Philippine Stock Exchange, PNB said the Singapore International Arbitration Centre (SIAC) had given a notice of partial award regarding the arbitration proceedings between the claimants Global Steel Philippines (SPV-AMC) and Global Ispat Holdings Inc. and National Steel liquidator Danilo Conception.

“Such award was rendered in favor of claimants including such reliefs as payment by respondents of a certain sum of money that may be subject to set off against receivables from claimants,” the disclosure said.

PNB said it was one of the respondents and that it held a 41 percent interest in the claim.  But its disclosure said it had already set aside the appropriate reserve provision for this.

In 2004, PNB sold the outstanding loans receivable of P5.3 billion from National Steel Corp. to SPV companies. In consideration for the sale, it received zero-coupon notes and cash totaling P4.2 billion, based on PNB’s regulatory filing.

The SPV companies afterwards claimed damages and a suspension of payments on the ground that the consortium of banks and the liquidator breached a duty to settle pre-closing real estate taxes due as of October 14, 2004 for the NSC plant assets.  The respondents were also accused of failing to deliver to the SPVs the assets of NSC free from all liens and encumbrances.

But after the SPVs failed to get relief from Philippine courts, they filed the case with SIAC. The banks and the liquidator disputed the claims, invoking an installment agreement executed between the liquidator and the City of Iligan. As part of the agreement to sell the plant assets to the SPV companies, the liquidator assumed responsibility of settling and paying the pre-closing real estate taxes, while the SPV companies assumed the responsibility of updating the post-closing taxes due after Oct. 14, 2004.

Consequently, all pre-closing real estate taxes due on the plant assets have been paid on an accelerated basis in 2008, based on PNB’s claims.

As a “preservatory” measure, a petition for injunctive relief against the NSC liquidator, secured creditors and stockholders was filed by the SPVs so that the arbitration proceedings under SIAC will not be rendered moot. In 2008, the Singapore High Court granted the petition and restrained the respondents from declaring the SPV companies in default and declaring all installments due until the arbitration proceeding at the SIAC is settled.

In April 2010, the arbitration panel was constituted. The main issues for alleged breach of the asset purchase agreement, damages and suspension of payments were heard before this panel.

The last hearings were held from October 17 to 21 last year prior to the issuance of the recent decision.