BayanTel sinks under $477m of debt – News Analysis
Mary Ann Li Reyes
After several years of struggling to keep its head above water, debt-laden Bayan Telecommunications (BayanTel), the Philippines telco owned by the Lopez group’s Benpres Holdings, has finally hit the wall with its creditors and is currently mapping out a legal strategy and reviewing its options after the Bank of New York filed a petition for corporate rehabilitation of the telco last month.
BayanTel chief finance officer Gary Olivar told Telecom Asia the first hearing on the petition, which the bank filed on the instructions of Bayantel’s unsecured bondholders, will be held in late September.
Olivar said it was unfortunate that the petition came at a time when there were no other major items left on the table as far as BayanTel’s negotiations with its creditors for a restructuring agreement involving $477 million in debts it racked up expanding its network infrastructure.
However, the debt restructure has been years in the making–BayanTel hasn’t made any interest payments to the bondholders since the third quarter of 2000.
Company officials explain that while BayanTel is EBITDA-positive, the huge debt burden has been weighing down on the telecom firm, not least because of the drastic shift in exchange rates. The peso dollar exchange rate was around P26:$1 at the time the debts were incurred. As of mid-August, the exchange rate was around P55:$1.
In fact, the receivership petition is the latest chapter in the saga of the downslide of what was once one of the Philippines’ more promising CLECs in the early days of competition.
The lean years
While BayanTel ranks third in the fixed-line business, behind PLDT and Digital Telecommunications, it has also been posting widening net losses for the past few years as its voice and data revenues continue to drop and its operation expenses keep rising, particularly in relation to marketing, international leased circuit expenses, and the costs of hammering out its debt restructure.
Times have been tough all over in the Philippines fixed line market, thanks to heavy competition, falling IDD rates, and the rising popularity of mobile phones. The latter is ironic given that BayanTel holds a cellular license, but hasn’t been able to work up the capital to build a network in what is already a fiercely competitive mobile space. BayanTel also lost some key leased-line business from WorldCom and Teleglobe after both carriers filed for Chapter 11 last year.
Some of BayanTel’s problems, however, are self-inflicted. The telco saw its fixed-line customer base erode steadily in 2001 and most of 2002, due mainly to a crackdown on bad-debt subscribers, before business started to pick up again in October last year. Meanwhile, it’s been an uphill fight to win customers back, not just from the heavy competition but also in part because of BayanTel’s poor reputation stemming from problems several years ago with congestion and battery outages.
Earlier this year, BayanTel president and chief executive officer Eugenio L. Lopez III said the company expects to return to profitability once it restructures its debt, $200 million of which is in the form of bonds while the balance represents loans from banks.
Olivar says that the rehabilitation filing won’t affect BayanTel’s operations. “There are no changes as far as operating plans are concerned. We are still focused on stabilizing our voice business and expanding on our data concerns,” he says.
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