Philippines Signs Debt Rescheduling Agreement

NEW YORK — The Philippines on Friday signed a $13.2-billion debt rescheduling agreement with more than 400 foreign commercial banks that includes provisions to allow conversion of some debt into ownership of Philippine property.

According to Manufacturers Hanover Trust Co., head of the country’s bank advisory committee, the pact reschedules $9.3 billion of debt over 17 years with 7 1/2 years of grace on repayment of principal.

It also reduces the interest rate margin on the $9.3 billion from 1.625% to .82% over the London Interbank Offered Rate, a fluctuating fee big international banks charge one another for large loans.

The margin on $925 million of new money granted in 1985 is lowered from 1.75% to .82%, and an existing $3-billion trade facility will be prolonged for four years. The country has about $28 billion in foreign debts.

Investment Notes

As part of the financing package, the Philippines will sell U.S. dollar-denominated Philippine investment notes that will allow it to make some interest payments.

The investment notes, one of several methods international debtors and creditors have begun using to satisfy some loans, will be convertible into Philippine pesos in order to fund government-approved investments in the Philippines.

Banks may hold the notes to maturity, trade them at a profit or sell them to others wishing to make investments in the Philippines. The sale of investment notes will reduce the amount of hard currency the Philippines will have to spend to service its foreign loans.

The first issue of the notes is planned for September, Philippine Finance Secretary Jaime Ongpin said.

Ongpin described the package as significantly more favorable than the first round of commercial bank restructuring in 1984. But he warned that the deal by itself would not solve the Philippine debt problem.