A creditor of Romualdez-held Benguet Corporation considered the mining company in default and demanded immediate payment of its P316 million loans.

Trading of the company’s stocks at the local bourse was halted for one hour on Monday.

In its disclosures to the stock exchange on Monday and Tuesday, Benguet Corporation said Marathon Asset Management, a special purpose vehicle, sent them a letter last February 4, 2009 demanding payment within 90 days from the creditor’s earlier demand letter dated November 24, 2008.

On February 26, four days after Marathon’s deadline, Philippine National Bank (PNB) sent a Notice of Default to Benguet citing Marathon’s formal letter to the rest of Benguet’s creditors. PNB is the Mortgage Trust Indenture (MTI) trustee, or the entity assigned to administer a pool of assets that Benguet had offered as collateral to its creditors.

According to Benguet’s 2008 annual report, “As security for the loans, the Company executed, and is committed to maintain, the MTI in favor of a local bank as trustee for the pari passu and pro rata benefit of the creditors covering all the real properties and assets of the Company’s gold and chromite operations.”

The company’s gold and chromite operations respectively accounted for 24 percent and 42 percent of total revenues.

Procedures

On April 24, the Philippine Stock Exchange asked the listed mining firm to confirm, deny, or clarify information that the creditors have declared Benguet in default.

Benguet’s assistant corporate secretary Reynaldo Mendoza replied to the stock exchange that “The Company deemed the letter of Marathon to PNB not material to warrant a disclosure.”

Mendoza said Marathon did not abide by the procedures specified in the MTI before it could declare Benguet in default.

“It is unfortunate that Marathon has not followed the MTI/Restructuring Agreement (RA) when it wrote PNB about the non-payment of the portion of debt it holds. Under the MTI/RA, majority of the creditors must concur before the Company can be declared in default,” Mendoza wrote

Benguet said the MTI/RA is confidential and could not provide a copy to the exchange, but cited several provisions, including how “majority creditors” is defined as “at least 60% of the total credits.”

Mendoza said Marathon held a P316.337 million loan, which is equivalent to only about 25 percent of the Benguet's total loans to creditor banks.

We tried to reach Benguet’s president, Benjamin Philip Romualdez, for comments but he has yet to respond to our request.

Repayment plan

The 106-year old gold and copper mining company has been through the ups and downs of the industry’s fickle cycles. It holds several mining permits to operate and/or maintain various mining sites all over the country. It peaked in the 1980’s when it operated 5 major mines at the same time: the Benguet Gold Operations (BGO), Benguet Antamok Gold Operation (BAGO), Dizon Copper Gold Operation (DCO), Masinloc Chromite Operation (MCO), and Paracale Gold Operation (PGO).

Based on its latest financial submissions to the PSE and the Securities and Exchange Commission, Benguet’s consolidated bank loans increased to P3.6 billion in 2008 from P3.1 billion in 2007. More than half, or P1.9 billion, of the outstanding loans as of end-2008, is due to accrued interest and penalties.

Benguet also cited the hike in the peso equivalent of their bank loans to the depreciation of the peso against the dollar. Some of Benguet’s secured bank loans are dollar-denominated.

Foreign exchange fluctuations are a double-edged issue to Benguet since a peso appreciation also translates to higher revenues to the company, since sales proceeds are mainly in US dollars.

As of end-December, the peso to dollar exchange rate was at P47.485 higher as compared to P41.401 in 2007.

Way back in June 1999, Benguet was working on a repayment plan for its outstanding loans (restructured in 1993) with its creditor-banks after the latter declared Benguet in default several months before.

To prevent the foreclosure of the assets under the MTI, Benguet settled major portions of the loans’ interest charges. It was also working on a Memorandum of Understanding with its creditors to formalize the repayment plan.

The signing of the MOU, however, hit a snag when Benguet requested for more time to settle the principal portion of the loans that matured in June 30, 2002.

“As of April 17, 2009, the MOA has not yet been finalized and signed by the parties,” Benguet said in its 2008 annual report.

It added that the firm was “unable to pay the interest due starting on June 30, 2002.”

The interest charges were supposed to be “automatically charged to the Company as soon as an event of default occurs. In the meantime that the MOA has not yet been finalized, the creditor banks have agreed not to enforce the collection of the amount.”

As of end-2008, Benguet’s loans (principal and interest) subject to the repayment plan amounted to P2.9 billion. Of this amount, the loan principal amounted to P1.5 billion.

When the Special Purpose Vehicle (SPV) Act was passed in 2002, some of Benguet’s creditors sold their debt holdings to SPV companies. Marathon was one of them.

Benguet said it continued to “discuss with its creditors and is confident that a mutually acceptable resolution of the old debt will be reached in due time.”

‘Uncertainty’

The company’s external auditor, SGV & Co., wrote in its opinion that the company’s inability to pay its maturing bank loans and related interests, and the fact that its current liabilities exceeds its current assets by P3.8 billion, “indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.”

In 2008, the company realized P483 million losses, bringing its cumulative losses to P4.8 billion by yearend. As a result, the company’s capital deficiency reached P1.6 billion by December.

To address the capital deficiency, Benguet’s principal stockholders—Palm Avenue Holding Company, Inc. and Palm Avenue Realty and Development Company—infused P315 million as private placement in 2007 and an additional P120 million in 2008.

Benguet said it used these additional funds to develop various mining projects.