Philippines' PNB Gets a New Bidder

Loida Lewis could pull it off, but tycoon Lucio Tan should think about reducing his asking price by at least 25%, analysts say.

The Philippines Government moved closer towards getting out of ailing Philippine National Bank, with the last-minute entry of a second bidder for the bank. Loida Nicolas Lewis, chief executive of US-based food maker TLC Beatrice International Holdings, entered the bidding ring with an unnamed US bank two days ago. But for the auction to be a success, Philippines must convince Lucio Tan to lower his asking price, analysts say.

The history of PNBÆs share sale is a complex one: The Phillipine government and tycoon Lucio Tan  agreed to sell a combined 80% stake as part of a deal with the International Monetary Fund. The IMF wanted PNB privatized before it released funds to the Philippines. Analysts say the ôrequestö makes sense. PNB, the nation's fourth largest bank, was the bank pillaged historically for political loans. Some of IMFÆs new funds will go towards restructuring the banking sector.

PNB garnered interest from three parties. But when the day for bidders to submit their papers came, only Phillippines-based Rizal Banking Corporation showed up. The Indonesian contender vanished, while Beatrice asked for more time. Philippine authorities had two choices: With only one bidder they could term the bidding process as failed, since it only had one pre-qualified bidder. Technically, it would have still complied with its IMF deal.

ôNot so long ago, Lucio Tan was asked to rescue the bank, but unfortunately, he was unable to turn it around because the bankÆs problems were too deep-seated,ö said Lenor Dela Rosa, banking analyst at GK Goh in Manila.

It's no wonder the authorities broke their own rules by extending the qualification deadline so TLC Beatrice could join the auction set for June 9. But TLC Beatrice didnÆt become the player. Loida Lewis, its chief, appeared instead, with a mysterious American bank as part of her consortium. Lewis was embraced with open arms in the Philippines when she showed up on May 30. She even paid a courtesy call to President Joseph Estrada. And at the PNB shareholdersÆ meeting in Manila, she said in an interview with Bloomberg,ö I donÆt see myself as a white knight. I see myself as a Filipino whoÆs made good in America. If thereÆs some good that I can do, IÆll do it.ö

Not your average white knight

Lewis is certainly well-known in PhilippinesÆs business community. A former US lawyer specializing in immigration, Lewis took over the reigns of Beatrice International after her husband Reginald Lewis died in 1993. The rise to fame & fortune of the LewisÆ is well-told slice of Americana.

Partly-funded by junk bond financier Michael Milken, Reginald Lewis used his TLC group to take over a part of Beatrice international in 1987. TLC Beatrice became a success story. In 1987, when TLC Beatrice reported revenue of $1.8 billion, it became the first black-owned company to have more than $1 billion in annual sales. Reginald Lewis also wrote the bestseller  "Why Should White Guys Have All The Fun? How Reginald Lewis Created a Billion-Dollar Empire." Following his death, the company went through a period of management and shareholder turmoil. Loida Lewis finally stepped in to take over a year later. She took a hard look at the business and began liquidating most of its operations. 

Loida Lewis has always been regarded as having the right stuff.  ôWhatever she has, she earned through a lot of hard work,ö said one observer. Asian-Americans certainly think so. She was feted along with two other businessmen by the Asian-American Federation of New York on May 17.

Lewis says she became interested in buying PNB when she made a trip to Manila in January and noticed that Lucio Tan, who owns 46% of PNB, was planning to merge the bank with his Allied Banking Corporation. She hired ATR-Kim Eng Capital Partners Inc, a Philippines investment bank, to advice her on the sale. Now thereÆs a lot of talk other investors including fund manager Templeton Asset Management, a not-so-happy minority shareholder with a 12% stake, are rallying behind her.

But deal-making aside, everything will come down to pricing.

PNB should be priced lower

Tycoon Lucio Tan needs to reduce his asking price for the bank. Tan wanted Ps160 ($3.73) per share for the bank initially, more than double what the bank is currently trading at. Analysts say Tan will likely accept price of Ps100-Ps120 pesos ($2.33-$2.8) per share. ôAssuming Ps120 per share, the new shareholders would have be putting up US$460 million for an 80% stake and another US$400 million-$500 million to boost the bankÆs capital,ö said a banking analyst in Manila.

A lower price might be necessary given the findings of PriceWaterhouseCoopers. The audit firm disclosed that non-performing loans made up 39% of the bankÆs loanbook by end-March 2000, higher than its reported figure of 31%. PWC applied international accounting standards that are far more stringent than PhilippinesÆ current provisioning rules, analysts added. The audit firm also reported that 40 loans made up 51% of the bankÆs gross loans, and that 31 of these loans were non-performing.
It also cited other lending abuses, according to analysts.

At Ps68, PNBÆs share price broadly accounts for most of its bad debts. But analysts say Tan has always made the argument that the bank is worth intrinsically more because the new owners will get majority control. That ignores the bankÆs best assets, some say. For one, PNB remains PhilippinesÆ government depository bank. This privilege was recently extended from October 3 2000 to October 3, 2003. As the government depository bank, all government agencies are required to bank their deposits at PNB.