Question & AnswerQ&A (BSP CIRCULAR NO. 1361 s.1992)
The main objective is to assist in the rehabilitation of distressed banks by allowing holders of eligible Central Bank credit to convert their debt into long-term equity investments in distressed local banks, thereby strengthening the banking system.
Qualified participants include holders of eligible Central Bank credit, whether original creditors, banks, non-banks, or individuals able to acquire such debt in the secondary market, subject to limits under existing banking laws and regulations.
The Program covers investments in local commercial, thrift, or rural banks that are distressed or under a Central Bank-approved rehabilitation program.
Eligible debts include: (A) principal maturities of external debt covered by the Central Bank Restructuring Agreement, (B) advances under the New Money Agreement, (C) New Money Bonds, and (D) other debt obligations approved by the Monetary Board.
The Program initially sets aside US$100 million face value of Central Bank Convertible Debt on a first-come, first-served basis.
Applicants must pay a non-refundable application fee of P15,000 to the Central Bank upon submission of their application.
Key steps include: surrendering Central Bank debt holdings, issuance of non-negotiable Peso-denominated CB Notes by the Central Bank, and using these CB Notes either to acquire equity in distressed local banks or to settle outstanding obligations between the bank, Central Bank, and PDIC.
The recognized present value of the CB Notes is 75% of face value; investors subscribe to shares equivalent to the total face value with 75% deemed paid and 25% treated as unpaid subscription amortized equally over five years.
Eligible domestic debts include current and past due borrowings with the Central Bank such as CB-IBRD loans, emergency loans, special time deposits, overdrafts, accrued interests, liquidated damages, penalties, and unpaid fees; regular loans (rediscounts) are excluded.
The investor has ninety (90) days from the approval date to close the transaction; failure to do so results in automatic lapse of approval.
Yes, provisions of Circular No. 1267 related to repatriation of capital and remittance of dividends, among others, apply to transactions under this Program unless inconsistent.
A 'Distressed Bank' is one experiencing bank runs, continuous reserve or capital deficiencies, operational losses, or as determined by the Monetary Board upon recommendation by the Supervision and Examination Sector.
The Monetary Board has the sole discretion to approve or disapprove applications for conversion transactions.