The Economy
P2-B bonds mulled for railroad right of way, work force attrition
National Development Co. (NDC) is mulling the issuance of P2 billion worth of zero coupon bonds for the clearing of the Philippine National Railways’ right of way along the Caloocan-Alabang railroad track, or the South Manila Commuter Railway, as well as for the rationalization of PNR’s work force.The non-interest bearing bonds will be backed by PNR’s 1.5 hectare property in Divisoria, Manila, said a source from the NDC, the Trade department’s investment arm.
The property used to be the Tutuban station of PNR, but is currently used as a mall which is run by Tutuban Properties Inc., a subsidiary of publicly listed Prime Orion Philippines Inc., which, in turn is affiliated with Hong Kong-based Guoco Holdings. The lease of the property expires in 2016.
"PNR needs P2 billion to clear the squatters for the Korean-fun-ded line and to retire their own people. They have the Tutuban Mall, which they can bid out after 2016. What NDC is planning is to issue zero-coupon bonds and to give Tutuban as collateral to the bond float," said the NDC official, who declined to be named.
Since the bonds would be non-interest bearing, however, the most that PNR and NDC could raise from the issuance would be P700 million to P800 million.
"This will not be enough, but it’s the best we can do," the source said.
He said that PNR "is hoping that they could get future budgetary considerations" to augment the funds that will be raised from the zero coupon bond issue.
Asked on the timeframe for the bond issue, the source said, "this is still under study."
The source said the bonds could be structured so that they will mature in 2017, or one year after the lease on Tutuban expires, to give the government time to dispose of the property and raise enough funds to redeem the debt instruments.
Guoco Holdings will be given the right to match the best offer for the property, the source said.
If PNR fails to dispose of Tutuban by the time the bonds mature, the source said that the property could be turned over to the lenders.
But the source said that the bonds will not be given sovereign guarantee. "That is the constraint," he said.
Bonds issued without sovereign guarantee are perceived to be risky since repayment would be done by the issuing agency alone, as opposed to government-guaranteed bonds which would have the Philippine government backing the debts should the issuing agency default on its commitments.
Lenders demand high returns for debt instruments that are not backed by the Republic of the Philippines.
The rehabilitation of the South-rail has been stalled for two years despite a $100 million official development assistance pledged for the project by the Korean Export-Import Bank. The Philippine government has not been able to raise counterpart funds for clearing the project’s right of way.
The project entails rehabilitation of the existing 34.05 kilometer track, construction of 18 stations, the reconstruction of two bridges and purchase of seven airconditioned three-car diesel trains.
It was earlier reported that 30,000 families would be displaced with the clearing of the right of way for the project.
The plan to issue non-interest bearing bonds that would be backed by the Tutuban property came after the Budget department refused to advance P1 billion for the relocation of squatters in the project’s right of way on the grounds that PNR could not repay the amount.
The Finance department, for its part, has also refused to advance funds to the railways agency.
It had already advanced P220 million for dept payments in June, bringing PNR’s total advances to P13 billion.
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