City wants to pay off foreign loan for SRP by borrowing P3B-A A +A
Tuesday, June 17, 2014
THE Cebu City Government is eyeing a loan to pay off the South Road Properties (SRP) foreign loan before the next amortization is due in August.
Three banks have made offers with interest rates that are much lower than the Japan Bank for International Cooperation (JBIC) loan that entailed an annual interest of 11 percent.
City Administrator Lucelle Mercado said the Development Bank of the Philippines (DBP) offered to lend Cebu City P3 billion with an annual interest rate of 4 percent.
She said the Philippine National Bank (PNB) offered the same rate.
Land Bank of the Philippines (LBP) offered a loan with an interest rate of 4 to 4.5 percent.
But Mercado said she hopes to get an offer with 3-percent interest. “We always want to get the best offer,”she told Sun.Star Cebu.
By paying off the balance of the JBIC loan before it matures in 2025, the City Government hopes to avoid the annual interest of 11 percent. The Cebu City Government borrowed 12.315 billion yen (P5.3 billion based on yesterday’s exchange rate of P0.43 to one yen) from JBIC when it began work on the SRP in 1997. The LBP served as conduit
bank of the loan.
Since the loan was in Japanese yen, payments were also subject to foreign exchange, which sometimes expanded the City’s debt service.
According to a Statement of Debt Service posted on the Cebu City website, P230,135,943 of the City Government’s 2013 annual budget was allotted as payment to the principal loan and P227,354,651.61 to the interest. But it lost P119,630,723.67 because of the currency exchange.
Mercado said that since the City is planning to take out a peso loan, it would not face the same predicament.
Councilor Margarita Osmeña, chairperson of the City Council committee on budget and finance, has no objections to the plan to borrow funds to pay off the JBIC loan.
“Why not? As long as everything is transparent, I don't see any problem to terminating the old loan for a new loan, as long as it will improve the financial standing of the City,” she said in a phone interview.
Last March, Mayor Michael Rama opened the possibility of restructuring the SRP loan.
Interest payments until 2025 would cost the City about P1.15 billion.
Rama admitted talking with PNB officials last Monday in Manila but he did not elaborate. He said LBP has also sweetened the deal.
In a June 10 letter to Rama, LBP assistant vice president Elsie Fe Tagupa offered a credit facility to refinance the JBIC loan, but subject to the approval of the top management. She proposed a loan of P3 billion, to mature in August 2025.
Processing fees and other similar fees will be waived, according to the LBP proposal.
Mercado admits the process of taking out a loan from another bank to pay off the SRP loan is a lengthy process considering the involvement of the National Government, which is the guarantor of the loan.
Since LBP is the conduit bank of the JBIC loan, it can automatically debit the amortization from deposits under the city's name.
Published in the Sun.Star Cebu newspaper on June 18, 2014.