Lucio Tan throwing $505 million lifeline to PAL as part of airline's reorganization

ABS-CBN News

Posted at Oct 27 2021 06:21 PM | Updated as of Oct 27 2021 06:33 PM

Philippine Airlines Airbus A330-300 wide body jet. ABS-CBN News file photo
Philippine Airlines Airbus A330-300 wide body jet. ABS-CBN News file photo

MANILA - Tycoon Lucio Tan’s Buona Sorte Holdings Inc (BSHI) will infuse $255 million, or around P12.75 billion, in fresh capital into Philippine Airlines as part of the ailing carrier’s restructuring, PAL Holdings disclosed on Wednesday.

BSHI will also extend a $250 million 5-year term loan to PAL, to complete the $505 million working capital requirement of PAL under its proposed reorganization in connection with its Chapter 11 bankruptcy filing, the company added. 

PAL Holdings, the parent firm of the airline, said BSHI’s capital infusion will be in exchange for P10.2 billion common shares at a subscription price of P1.25 per share. 

Upon issuance of new shares, BSHI is expected to own 46.77 percent of PAL Holdings. Added to two other Tan-led firms Cosmic Holdings Corporation and Trustmark, the Lucio Tan Group, will own 89.45 percent of PAL Holdings.

The proposal will be presented for shareholder approval, the company said.

“Also to be submitted for consideration of the minority shareholders at said meeting is the proposal to waive the requirement of the Exchange to conduct a rights or public offering in respect of the BSHI Shares,” the company said. 

PAL Holdings said it will “downstream” the $255 million fresh capital from BSHI to its subsidiary, Philippine Airlines Inc (PAI). 

The company said it expects to exit from bankruptcy proceedings “upon completion of the debt-to-equity conversion at the PAI level” which is expected to be filed later this year. 

“Creditors may thereafter, at its discretion, swap its new PAI shares for shares of Issuer (the “Swap”),” PAL Holdings said.

The Swap is expected to take place within the first quarter of 2022, subject to regulatory requirements. 

Once the Swap is completed, foreign ownership in PAL Holdings may increase as creditors become shareholders, the company said.

"Since the exchange ratio for the Swap has not yet been determined with finality, the exact level of foreign ownership cannot as yet be ascertained."

PAL Holdings said its proposed capital increase will be submitted at the Annual Stockholders’ Meeting on Nov. 25 “where independent shareholders may freely vote for or against the proposal.”

The aviation industry was one of the most badly affected sectors by the COVID-19 pandemic, with quarantine restrictions leading to a sharp decline in air travel.

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