Program for the Conversion of Philippine External Debt into Equity Investments

October 20, 1987 CBP REVISED CIRCULAR NO. 1111-86 PROGRAM FOR THE CONVERSION OF PHILIPPINE EXTERNAL DEBT INTO EQUITY INVESTMENTS In accordance with Monetary Board Resolution No. 1024 dated October 19, 1987, this Circular contains the revised guidelines relating to the Philippine Government's program for the conversion of external debt into equity investments in Philippine enterprises (the " Program "). cdlex Capitalized terms used in this Circular have the meanings given to such terms in Section 39 hereof. Inquiries and other communications regarding this Circular or the Program should be directed to the Debt Restructuring Office, Central Bank of the Philippines, Room No. 309, Five-Storey Building, Roxas Boulevard, Malate, Manila. It is anticipated that the Central Bank will from time to time issue revised version of the Schedules attached hereto, and copies of the most recent revisions of these Schedules will be available upon request from the Debt Restructuring Office. Parties who contemplate entering into a Conversion Transaction under this Program are advised to obtain from the Debt Restructuring Office copies of the most recent revisions of the Schedules appropriate to the proposed transaction before finalizing any negotiations with respect to the transaction. CHAPTER I Policy Objectives ; Background SECTION 1. Objectives . The Program is designed to achieve principally the following policy objectives (1) to stimulate long-term equity investments in Philippine enterprises by both foreign investors and Filipinos; (2) to encourage the repatriation to the Philippines of foreign currency holdings of Philippine residents held abroad for the purpose of capitalizing equity investments in this country; (3) to provide additional incentives for investment in designated sectors of the Philippine economy that require prompt revitalization; and (4) to reduce the external debt burden of the Philippines. SECTION 2. Background to the Program . It has come to the attention of the Philippine Government that Philippine external debt obligations owed to commercial banks or financial institutions are being traded in the secondary market. If an investor purchases an interest in such an obligation and the obligor is able to redeem the debt for the Peso equivalent of the face amount of the obligation, this permits the investor to obtain Pesos. It is the intention of the Government to utilize the opportunity presented by this type of transaction in order to encourage investors (both Philippine and non-Philippine) to make long-term equity investments in Philippine enterprises. An important ancillary benefit for the Philippines resulting from the discharge of foreign currency denominated debt through the payment of Pesos, is a reduction in the aggregate external debt stock of the country. Such reductions alleviate the demands placed on the country's foreign exchange reserves by the need to make current debt service payments on existing foreign currency indebtedness. Section 5.11 of each Restructuring Agreement signed by a Philippine Public Sector Borrower, Section 2.04 of the Trade Facility and Section 5.11 of the New Money Agreement permit (with the consent of the Central Bank and the Republic of the Philippines) through the payment of an equivalent amount of Pesos. External debt obligations of a Philippine Private Sector Borrower may be redeemed for Pesos for conversion into equity investments if such borrower is permitted by the relevant loan agreement to discharge its external debt obligations in Pesos, or the creditor otherwise consents to this arrangement. SECTION 3. Periodic Revisions . The program outlined in this Circular is designed to permit transactions of the kind described above in order to capitalize investments in a wide range of Philippine enterprises. Special incentives are incorporated into the program, however, for investments in areas of the Philippine economy that the Government believes require an immediate revitalization, or in which an increased level of investment is generally desirable. It is the intention of the Government that this Program be administered in a flexible manner in order to achieve the goals summarized above. The guidelines contained in this Circular may be revised and updated from time to time through revisions or supplements to this Circular, or through revisions of the Schedules attached hereto. Any such supplement or revision shall become effective only with respect to completed applications for Conversion Transactions received after the date on which the supplement or revision is made public. CHAPTER II Convertible Debt SECTION 4. Debt Eligible for Conversion . The categories of Philippine external debt that may be redeemed in connection with a Conversion Transaction are set out in Schedule 1 to this Circular. CHAPTER III Eligible Investors SECTION 5. Investors . Any person (natural or juridical) may act as an investor in connection with a Conversion Transaction without regard to the place in which such person is resident, domiciled or has its principal place of business or, in the case of a juridical person, the jurisdiction in which such person is incorporated or organized. Groups of investors may act through a nominee or agent in filing applications for approval of a Conversion Transaction, but the investor in whose name the investment is registered at the time of closing will be subject to the restrictions set out in Section 22 of this Circular. CHAPTER IV Permissible Investments SECTION 6. Permissible Investments . Subject to receipt of the approval referred in Section 28 of this Circular, the Peso proceeds of Convertible Debt redeemed in connection with a Conversion Transaction may be invested in a Schedule 2 Investment or a Schedule 3 Investment. SECTION 7. Equity Investments . The Peso proceeds of a Conversion Transaction may be invested in a Philippine Enterprise only in the form of an equity investment. In the context of a Philippine Enterprise that is a stock company such investment may be made either in common shares or (subject to the restrictions on guaranteed dividends referred to in Sections 13 and 15 below) in preferred shares. In the context of a Philippine Enterprise that is not a stock company, such an investment should be evidenced by an ownership interest in the Philippine Enterprise concerned. In cases involving non-Philippine investors, however, such transactions will be subject to any generally applicable restrictions on foreign ownership in enterprises located in the Philippines. SECTION 8. Restrictive Legend . Each share certificate or other document evidencing the ownership interest in an investment made under the Program should be prominently marked with the following legend: "This instrument was issued in connection with a [Schedule 2 Investment [Schedule 3 Investment] made in accordance with Central Bank Circular No. 1111, dated August 4, 1986, as revised (the "Circular").The repayment and repatriation of the capital portion of the investment evidenced by this instrument, and the payment and remittance of dividends or current income in respect of such investment, are subject to certain restrictions as set out in the Circular, and the owner of this instrument is subject to certain reporting and certification requirements as set out in the Circular." SECTION 9. Use of Peso Proceeds . In considering an application for a Conversion Transaction under this Circular, the Monetary Board shall inquire into the proposed use of the Peso proceeds of such transaction by the Philippine Enterprise concerned. Where the use of the Peso proceeds of such transaction is likely to make a direct and discernible contribution toward the revitalization of the Philippine economy, this will be a factor weighing in favor of approval of the application. Such uses would include the purchase by the Philippine Enterprise of new capital equipment or tangible goods necessary to expand production or increase the efficiency or existing operations; the construction of new or expanded plant capacity; or other uses designed to increase the supply of goods or services produced or offered by the Philippine Enterprise. In cases where the proposed use of the Peso proceeds of a Conversion Transaction cannot be shown to have such a direct and discernible effect on revitalizing the economy, however, this will be a factor weighing against approval of the application. Among the uses of Peso proceeds that would, in the normal case, not be regarded by the Monetary Board as likely to have a direct beneficial effect on the economy are the purchase of existing assets or shares of a Philippine Enterprise (without an infusion of new capital or expansion of productive capacity),portfolio investments, increases in working capital, and the repayment of Peso indebtedness of the Philippine Enterprise (other than such payments to the Government, the Central Bank or a government-controlled entity). SECTION 10. Other Factors Relevant to Monetary Board Consideration of an Application . Apart from the proposed use of Peso proceeds, certain other factors may be regarded by the Monetary Board as relevant to its consideration of a proposed application. Among the factors that will be viewed by the Monetary Board as weighing in favor of approving an application will be the extent of funding of the proposed investment through the redemption of Convertible Debt of a Philippine Public Sector Borrower (other than the Central Bank),where that borrower has the Pesos necessary to effect such redemption without resort to credit or release of funds from the Central Bank. SECTION 11. Excluded Investments . Prepayment in Pesos of Convertible Debt of a Philippine Private Sector Borrower, which prepayment would not require an extension of credit or release of funds from the Central Bank, and the investment of the proceeds thereof shall not be covered by this Circular; provided that the investor undertakes in writing to the Central Bank that no capital portion of the investment and no dividends or income in respect thereof shall be repatriated or remitted outside of the Philippines. CHAPTER V Repayment Restrictions on Schedule 2 Investments SECTION 12. Capital . Subject to the provisions of Section 21 below, the capital portion of a Schedule 2 Investment may not be repaid by the Philippine Enterprise within the first 3 years after the investment is made. In each of the 4th through the 8th years after the investment is made, not more than 20% of the capital portion of the investment may be repaid in any year; provided that any unused portion of the amount permitted to be repaid in any such year may be repaid in subsequent years. SECTION 13. Dividends . Dividends or current income in respect of a Schedule 2 Investment may be paid out of profits of the Philippine Enterprise in which the investment is made; provided that no guarantee dividends or similar arrangement that is not linked to profits may be implemented in connection with a Schedule 2 Investment. CHAPTER VI Repayment Restrictions on Schedule 3 Investment SECTION 14. Capital . Subject to the provisions of Section 21 below, the capital portion of a Schedule 3 Investment may not be repaid by the Philippine Enterprise within the first 5 years after the investment is made. For each of the 6th through the 10th years after the investment is made, not more than 20% of the capital portion of the investment may be repaid in any year; provided that any unused portion of the amount permitted to be repaid in any such year may in be repaid in subsequent years. SECTION 15. Dividends . Dividends or current income in respect of a Schedule 3 Investment may not be paid by the Philippine Enterprise within the first 4 years after the investment is made. Thereafter, dividends and current income in respect of a Schedule 3 Investment may be paid out of profits of the Philippine Enterprise in which the investment is made; provided that no guaranteed dividends or similar arrangement not linked to profits may be implemented in connection with a Schedule 3 Investment. LLphil CHAPTER VII Repatriation and Remittance SECTION 16. Investments of Resident Investors . Repayment of the capital portion of an investment registered under this Circular and payment of profits in respect thereof received by a Philippine resident investor pursuant to Sections 12, 13, 14 and 15 of this Circular shall not be eligible for repatriation or remittance. SECTION 17. Investments of Non-Resident Investors . Repayment of the capital portion of an investment registered under this Circular and payment of profits in respect thereof received by a non-resident investor Pursuant to Sections 12, 13, 14 and 15 of this Circular shall be eligible for repatriation or remittance based on the prevailing exchange rate on the date of repatriation or remittance, subject to Sections 18 and 22 of this Circular and to the applicable withholding taxes, if any. SECTION 18. Right of Repatriation of Non-Resident Investors . If the investor which is a non-resident sells its investment registered under this Circular to a non-resident for Pesos derived from the sale of foreign exchange to the Central Bank or a Philippine commercial bank at prevailing exchange rates or to a Philippine resident, the seller retains the right to repatriate the proceeds of the sale within the period prescribed under Section 12 or 14 of this Circular, as the case may be, reckoned from the date of investment in the Philippine Enterprise. For the purpose of this Section, any capital gains from the sale of the investments shall be deemed included in the capital portion of the investment. SECTION 19. Right of Repatriation of Non-Resident Buyers . If a non-resident investor sells its investment registered under this Circular to a non-resident and the purchaser pays the seller with Pesos derived from the sale of foreign exchange to the Central Bank or a Philippine commercial bank at prevailing exchange rates, the non-resident purchaser, when it subsequently sells its investment to a third party, may repatriate the proceeds of such subsequent sale in accordance with Circular No. 1028, as such Circular may be amended from time to time. If the purchaser pays the seller with Pesos not so derived from the sale of foreign exchange to the Central Bank or a Philippine commercial bank, the repayment of the capital portion of the investment and payment of profits in respect thereof received by the non-resident purchaser shall not be eligible for repatriation. SECTION 20. Prior Central Bank Approval . The repatriation or remittance of the capital portion of an investment and the profits thereon in accordance with this Circular shall require the prior approval of the Debt Restructuring Office. CHAPTER VIII Liquidation SECTION 21. Liquidation . In the event that any portion of the capital of a Schedule 2 Investment or a Schedule 3 Investment is repaid as a result of a liquidation, dissolution or winding-up of the Philippine Enterprise concerned, and all or any part of the amount so repaid is in excess of the amount permitted to be repaid under the terms of Section 12 or Section 14 (as the case may be) of this Circular in the year in which the investor receives such a repayment of capital in connection with such liquidation, dissolution or winding-up, the owner of the investment shall have the option of either: (i) reinvesting such excess amount in an approved equity investment under this Program: provided that if the original investment constituted a Schedule 2 Investment, any investment of the excess amount under this Section must also be in a Schedule 2 Investment; and provided further ,that for the purpose of applying the provisions of Section 12 or Section 14 in connection with any such reinvestment, the date of the original investment shall be deemed to be the date of the investment any excess amount; or (ii) reinvesting such excess amount in non-transferrable Peso-denominated Central Bank debt instruments until the owner of the investment can reinvest such excess amount in an approved equity investment under this Program; provided that the payment of principal of, or interest on, any such reinvestment shall not be made earlier than the permitted schedule for repayment of capital, or dividends or current income, in respect of the original investment had the liquidation, dissolution or winding-up not occurred. SECTION 22. Voluntary Sale . At any time following the second anniversary of the closing date of a Conversion Transaction, the investor (the "Seller") may sell its interest in the investment, and transfer the share certificates or other documents evidencing the ownership of the investment, to another person (the " Purchaser "); provided that at the time of such sale the Purchaser submits to the Debt Restructuring Office a certificate in such form as may be prescribed by that Office confirming (i) that the Purchaser understands that repayment and repatriation of the capital of, payment and remittance of dividends or current income on, the investment is subject to certain restrictions as set out in this Circular, and (ii) the Purchaser agrees to assume all the obligations (including the periodic reporting and certification obligations) of the original investor set out in this Circular in respect of the investment. Following the completion of any such sale and transfer, the Purchaser shall for the purposes of this Circular be deemed to be the investor in respect of the investment concerned. Where the Seller is a non-resident and the Purchaser is a Philippine resident or the Purchaser pays with Pesos derived from the sale of foreign exchange to the Central Bank or a Philippine commercial bank at prevailing exchange rates, the Seller shall have the option of either: (i) reinvesting the proceeds of the sale in an approved equity investment under this Program: provided that if the original investment constituted a Schedule 2 Investment, any investment of such proceeds under this Section must also be in a Schedule 2 Investment; and provided further, that for the purpose of applying the provisions of Section 12 or Section 14 in connection with any such reinvestment, the date of the original investment shall be deemed to be the date of the investment of any excess amount; or (ii) reinvesting such proceeds in non-transferrable Peso-denominated Central Bank debt instruments until the owner of the investment can reinvest such proceeds in an approved equity investment under this Program; provided that the payment of principal of, or interest on, any such reinvestment shall not be made earlier than the permitted schedule for repayment of capital, or dividends or current income, in respect of the original investment had the sale not occurred. CHAPTER IX Fees SECTION 23. Application Fee . At the time of submitting an application for approval of a Conversion Transaction, the investor shall be required to pay to the Central Bank a non-refundable application fee equal to P10,000 until the Monetary Board shall otherwise provide. SECTION 24. Schedule 2 Fees . At the time of closing of any Conversion Transaction involving a Schedule 2 Investment, the investor shall pay to the Central Bank a Peso fee calculated in the manner described in Schedule 4 to this Circular. Schedule 4 is subject to revision from time to time, and the terms of Schedule 4 as in effect on the date on which a completed application for the relevant Conversion Transaction is received by the Debt Restructuring Office shall govern the fee payable in respect thereof and the fresh money funding described in Section 26 below. The fee shall not be funded from the Peso proceeds of the redemption of Convertible Debt. SECTION 25. Schedule 3 Fees . At the time of closing of any Conversion Transaction involving a Schedule 3 Investment, the investor shall pay to the Central Bank a Peso fee calculated in the manner described in Schedule 5 hereto. Schedule 5 is subject to revision from time to time, and that the terms of Schedule 5 as in effect on the date on which a completed application for the relevant Conversion Transaction is received by the Debt Restructuring Office shall govern the fee payable in respect thereof and the fresh money funding described in Section 26 below. The fee shall not be funded from the Peso proceeds of the redemption of Convertible Debt. CHAPTER X Fresh Money Funding SECTION 26. Fresh Money Funding . The investor may elect to fund a portion of the investment through the purchase of Pesos with foreign exchange from the Central Bank at prevailing rates of exchange. The minimum percentage of fresh money funding is shown in Schedules 5 and 6 to this Circular. CHAPTER XI Applications ; Approvals SECTION 27. Relationship to Other Foreign Investment Laws . Nothing in this Circular shall be deemed to supersede or alter any other requirement of Philippine law or regulation relating to foreign investment approvals. Accordingly, to the extent required by the Omnibus Investments Code, other foreign investments laws or applicable Central Bank regulations, investors should separately seek necessary approvals from the Board of Investments or other agencies of the Government in connection with any investment involving a Conversion Transaction. SECTION 28. Applications ; Approvals . Each investor wishing to engage in a Conversion Transaction shall submit (in triplicate) an application in the form attached to this Circular as Exhibit A, together with any appropriate supporting materials, to the Debt Restructuring Office at the address shown on the first page of this Circular. The Debt Restructuring Office shall have the authority to seek from the investor any clarification or additional supporting materials as that Office may find useful in assessing a proposed Conversion Transaction. Unless the investor consents to a longer period, the Monetary Board will make the decision (to be made in the sole discretion of the Monetary Board after consultation with such other Government agencies and offices, including the Board of Investments, as it may feel appropriate) to approve or to disapprove a proposed Conversion Transaction within 45 days of the date on which the investor's application is complete. A negative decision in respect of an application is without prejudice to the investor's ability to resubmit the application or a modified version thereof at a subsequent time. CHAPTER XII Conversion Transaction Mechanics SECTION 29. Closing Period . If the Monetary Board approves a proposed Conversion Transaction, the investor shall have 60 days from the date of such approval to close the transaction, unless the Central Bank grants an extension of this period. If the investor fails to close the Conversion Transaction within such period, the approval relating to that transaction shall automatically lapse. SECTION 30. Arrangements for Obtaining Convertible Debt . During the 60-day period referred to in Section 29 above, the investor will make arrangements satisfactory to itself with the holder or holders of one or more items of Convertible Debt that would permit the presentation of such debt to an Obligor in return for an equivalent amount of Pesos (to be determined at the exchange rate prevailing at the time of redemption).The Obligor's consent shall be required to any such Peso redemption of Convertible Debt. The approval given by the Monetary Board in connection with the relevant Conversion Transaction will be deemed to be the approval not only of the Central Bank but also of the Republic of the Philippines to the redemption of any item of Convertible Debt in a manner consistent with such approval and this Circular. In the event that the holder of the item of Convertible Debt requests that the redemption take place on a date that would give rise to a claim for broken-funding or deposit redeployment indemnities from the Obligor, such holder will be expected to waive any such claim. SECTION 31. Closing . On the closing date for a Conversion Transaction, the Convertible Debt in question shall be deemed to be renominated into its Peso equivalent (determined as of the closing date) using the Central Bank Buying Rate and the Obligor shall pay to the investor such Peso equivalent. The investor shall on the closing date pay to the Central Bank the fee called for by Section 24 or Section 25 of this Circular (except in cases where the investor has elected the Fresh Money Alternative described in Section 26 above),and shall have 5 days within which to make the investment. SECTION 32. Interim Investment . In any case in which the Monetary Board determines that the full amount of the Peso proceeds of a Conversion Transaction will not be required by the Philippine Enterprise at the time of closing of the Conversion Transaction for the approved purpose, the Monetary Board may require that the amount of such excess Peso proceeds be invested in non-transferable Peso-denominated Central Bank debt instruments with maturities corresponding to the anticipated schedule of Peso requirements by the Philippine Enterprise. SECTION 33. Central Bank Peso Credit . In cases in which an Obligor which is a government-owned or controlled corporation does not have sufficient Pesos from its own resources in order to redeem an item of its Convertible Debt that is proposed to be discharged in Pesos in connection with a Conversion Transaction, such Obligor may request an extension of Peso credit for this purpose from the Central Bank to be advanced through a Philippine commercial bank. The Central Bank may, in its sole discretion, approve or disapprove any such request. If such a loan is extended through a Philippine commercial bank, the Central Bank may limit any fee that may be charged by such commercial bank in connection with any such transaction. CHAPTER XIII Compliance SECTION 34. Registration and Post-Closing Notification . All equity investments made pursuant to this Circular shall be registered with the Central Bank through the Debt Restructuring Office. Within 10 days after the closing of any Conversion Transaction, the investor shall submit to the Debt Restructuring Office a notification in the form attached to this Circular as Exhibit B. SECTION 35. Annual Compliance Certificates . Within 10 days following each anniversary of the closing date of a Conversion Transaction occurring during any period in which restrictions on the repayment of capital under Chapter V or Chapter VI of this Circular are applicable to such investment, the investor shall submit to the Debt Restructuring Office a report (in the form of Exhibit C to this Circular) indicating the amount of capital and dividends paid in respect of such investment during the preceding 12 months. SECTION 36. Verification of Use of Peso Proceeds . The investor shall cause the Philippine Enterprise to submit such reports (and supporting materials) regarding the use of the proceeds of a Conversion Transaction as may be requested from time to time by the Debt Restructuring Office, and to permit the inspection of the premises of the Philippine Enterprise or its records for the purpose of verifying such use of proceeds. CHAPTER XIV Miscellaneous SECTION 37. Effective Date of Revisions . Revisions to this Circular and revised versions of any Schedule attached to this Circular shall a apply to all Conversion Transactions for which the Debt Restructuring Office receives a completed application in accordance with Section 28 above during the period in which such revision is in effect, regardless of any subsequent revision of such Circular or Schedule issued between the date of application and the date of closing of the Conversion Transaction. Revised versions of Schedule 1 to this Circular shall apply to the closing of all Conversion Transactions during the period in which said revision is in effect. SECTION 38. Administrative Discretion . The Monetary Board may allow a deviation on a case to case basis from any provision of this Circular as it applies to a specific Conversion Transaction, if it determines that such deviation is warranted in light of special circumstances surrounding the transaction and is in furtherance of the objectives of the Program. CHAPTER XV Definitions SECTION 39. Definitions . When used in this Circular, the following terms shall have the meanings indicated below: "Board of Investments" means the Board of Investments of the Philippines. "Central Bank" means the Central Bank of the Philippines. "Central Bank Buying Rate",for the purpose of determining the Peso equivalent of a foreign currency amount as of the closing date of a Conversion Transaction, means the buying rate quoted by the Central Bank for the purchase of such foreign currency with Pesos at approximately 11:00 a.m. (Manila time) of the banking day (in Manila and Makati) next preceding such closing date. "Convertible Debt" means any item of external debt of a Philippine Public Sector Borrower or a Philippine Private Sector Borrower falling within a category described in Schedule 1 hereto. "Conversion Transaction" means any transaction involving an investment in a Philippine Enterprise that is made, in whole or in part, with the proceeds of the redemption of an item of Convertible Debt. "Debt Restructuring Office" means the Debt Restructuring Office of the Central Bank. "Investment Priorities Plan" means, for any year, the Investment Priorities Plan prepared by the Board of Investments and approved by the President of the Philippines. "New Money Agreement" means that certain $925 million Credit Agreement dated as of May 20, 1985 among the Central Bank as Borrower, the Republic of the Philippines as Guarantor and the banks and financial institutions parties thereto, as such New Money Agreement may be amended from time to time. "Obligor" means the obligor in respect of an item of Convertible Debt. "Omnibus Investments Code" means the Omnibus Investments Code of 1987 of the Philippines (Executive Order No. 226 dated July 16, 1987), as such Code may be amended from time to time, and any successor statute thereto. "Philippine Enterprise" means any partnership, joint venture, cooperative, corporation or other form of business association incorporated or organized under the laws of the Philippines. "Philippine Private Sector Borrower" means any Philippine debtor in respect of an item of external debt other than any Philippine Public Sector Obligor. "Philippine Public Sector Borrower" has the meaning ascribed to the term "Philippine Public Sector Obligor" in the Restructuring Principles. "Program" means the program for the conversion of public sector external debt into equity investments in Philippine Enterprises set forth in this Circular. "Restructuring Agreement" means a Restructuring Agreement signed by a Philippine Public Sector Borrower (dated as of January 10, 1986 or April 16, 1986) implementing the Restructuring Principles, as any such Restructuring Agreement may be amended from time to time. "Restructuring Principles" means the Restructuring Principles that accompanied the communication to the international banking community dated November 2, 1984 from the Secretary of Finance and the Governor of the Central Bank of the Philippines, as amended and supplemented by the Term Sheet captioned "1987-92 Restructuring of Philippine External Debt Owed to Commercial Banks" which accompanied a communication from the Secretary of Finance and the Governor of the Central Bank of the Philippines to the international banking community dated March 27, 1987. 'Trade Facility" means that certain Revolving Short Term Trade Facility Agreement dated as of May 20, 1985 among the Central Bank of the Philippines, the Republic of the Philippines as Guarantor, Chemical Bank as Coordinating Bank, and the banks and financial institutions parties thereto, as such Trade Facility may be amended from time to time. "Schedule 2 Investment" means, in the context of a Conversion Transaction, any investment in a Philippine Enterprise that is engaged (or proposes to engage) principally in an economic activity or project listed in Schedule 2 to this Circular. "Schedule 3 Investment" means, in the context of a Conversion Transaction, any investment in a Philippine Enterprise that is engaged (or proposes to engage) principally in an economic activity or project listed in Schedule 3 to this Circular). The Program set out in this Circular took effect on August 4, 1986 and this Circular, as revised, shall take effect on October 20, 1987. For The Monetary Board: (SGD.) JOSE B. FERNANDEZ, JR. Governor Schedule 1 Categories of Convertible Debt The following categories of external debt of Philippine Public Sector Borrowers and Philippine Private Sector Borrowers shall be eligible for redemption in connection with a Conversion Transaction: Category Description (A) All principal maturities of external debt covered by a Restructuring Agreement. (B) All principal maturities of external debt owed by Philippine Private Sector Borrowers; provided that the existing credit instrument relating to any such debt permits the prepayment or repayment of such obligation through the delivery of an equivalent amount of Pesos, or appropriate creditor consents thereunder to such prepayment or repayment have been obtained. (C) Credits (including deposits maintained with the Central Bank) covered by the Trade Facility. (D) Advances outstanding under the New Money Agreement. (E) Other debt obligations on such terms and subject to such conditions as may be approved in each case by the Monetary Board. Schedule 2 Schedule 2 Investments For purposes of this Circular, a Schedule 2 Investment means any approved equity investment in a Philippine Enterprise that is engaged (or proposes to engage) principally in one or more of the following areas of economic activity: 1. The production, manufacturing or processing of export products from the Philippines; provided that the Philippine Enterprise would qualify as an Export-Oriented Firm within meaning of Central Bank Memorandum to Authorized Agent Banks (Amendment to MAAB dated April 16, 1969) dated February 21, 1970, or is certified as export-oriented by another agency of the Philippine Government and the Monetary Board determines to recognize such certification for this purpose. 2. The rendering of technical, professional or other services outside of the Philippines which are paid for in foreign currency. 3. Banking. 4. Acquisition and operation of non-performing assets being disposed of by the Asset Privatization Trust and other assets determined by the Office of the President as non-performing and being disposed of under the Government's privatization program. 5. The production of agricultural goods and the provision of related services, regardless of whether the agricultural produce is intended for export from the Philippines. 6. The provision of health care services in the Philippines or the construction of health care facilities in the Philippines. 7. The construction or maintenance of low and middle-income housing projects in the Philippines. 8. The construction or maintenance of educational facilities in the Philippines. 9. To the extent not otherwise covered by one of the items listed above, an investment in a Philippine Enterprise that is engaged (or proposes to engage) principally in an activity or project listed on the Investment Priorities Plan as in effect at the time such investment is made or, in consultation with the Board of Investments, such other investments as may be considered preferred by the Monetary Board for the purposes of the Program. Note : In determining whether a Philippine Enterprise is engaged (or proposes to engage) principally in one of the areas of economic activity referred to above, the Debt Restructuring Office may consult with the staff of the Export Department of the Central Bank, the Board of Investments or other appropriate Government agencies. Schedule 3 Schedule 3 Investments For purposes of this Circular, a Schedule 3 Investment means any approved equity investment in a Philippine Enterprise that is engaged (or proposes to engage) principally in an economic activity or project not covered by one or more of the items listed in Schedule 2 of this Circular. cdlex Schedule 4 Fee Payable And Fresh Money Funding In Connection With Schedule 2 Investments Until the Monetary Board, in consultation with the Secretary of Finance, shall otherwise provide, the fee payable pursuant to Section 24 of this Circular in connection with a Conversion Transaction involving a Schedule 2 Investment shall equal the percentage indicated below of the total amount of the Peso proceeds received by the investor as a result of the redemption of the Convertible Debt involved in that transaction. The investor must fund at least the portion of the investment with Pesos obtained through the sale of foreign exchange to the Central Bank at prevailing exchange rates. Minimum Percentage of Fresh Money Funding Fee 50% 0 40% 6.7% 30% 11.5% 20% 15.1% 10% 18.0% 0 20% The fee payable pursuant to Section 24 of this Circular is hereby waived in respect of that portion of a Conversion Transaction that is funded through the redemption of Convertible Debt of which the investor is the original creditor and involving the acquisition by the original creditor of the shares of stock of a domestic bank being disposed of under the Government's privatization program, which shares of stock are owned by the Government or a Government-owned or controlled corporation: provided that such Convertible Debt shall not be replaced with Convertible Debt to be acquired by the investor in the secondary market. Schedule 5 Fee Payable And Fresh Money Funding In Connection With Schedule 3 Investments Until the Monetary Board, in consultation with the Secretary of Finance, shall otherwise provide, the fee payable pursuant to Section 25 of this Circular in connection with a Conversion Transaction involving a Schedule 3 Investment shall equal the percentage indicated below of the total amount of the Peso proceeds received by the investor as a result of the redemption of the Convertible Debt involved in that transaction. The investor must fund at least the portion of the investment with Pesos obtained through the sale of foreign exchange to the Central Bank at prevailing exchange rates. Minimum Percentage of Fresh Money Funding Fee 60% 0 50% 8.0% 40% 13.5% 30% 17.5% 20% 20.0% 10% 22.5% 0 24% Exhibit A Form of Application For Conversion Transaction ____________ (Date) Debt Restructuring Office Central Bank of the Philippines Room 309, Five-Storey Building Roxas Boulevard, Malate Manila Re: Central Bank Circular No. 1111; Application for Conversion Transaction; [Schedule 2 Investment] [Schedule 3 Investment] Dear Sirs: We refer to Central Bank Circular No. 1111, as revised (the "Circular") and we hereby apply for approval of the Conversion Transaction referred to below. Capitalized terms used in this letter have the meanings given to them in the Circular. I. Details of the Investor 1. Name: Address: Telephone: Telex: Contact Person: II. Details of the Philippine Enterprise 1. Name: Address: Telephone: Telex: Contact Person: 2. Describe briefly the principal areas of economic activity or projects in which the Philippine Enterprise engages or proposes to engage. III. Details of Conversion Transaction 1. Amount of Convertible Debt that will be redeemed in connection with the Conversion Transaction (expressed in U.S. Dollars):$ _____ 2. Estimated closing date of the Conversion Transaction: ___________, 198___ IV. Details of Investment 1. The investor believes that this investment will qualify as a [Schedule 2 Investment] [Schedule 3 Investment]. 2. The investment will be evidenced by [share certificates] [other (please explain)]. 3. The Peso proceeds of the investment will be used for the following purpose: [insert description]. 4. The full amount of the Peso proceeds of the conversion [will] [will not] be required by the Philippine Enterprise at the time of closing for the purpose described in (3) above. [If the full amount of the proceeds will not be required at the time of closing, indicate the anticipated schedule of required Peso disbursements to the Philippine Enterprise.] 5. If the application relates to a Schedule 2 Investment, indicate which Schedule 2 category covers the investment and provide a brief explanation of the bases on which this conclusion was reached. [Indicate whether material supporting this conclusion is being attached to the application and identify these supporting materials.] The application fee required by Section 23 of the Circular is being submitted together with this application. We understand that you will notify us within 14 days if you require further clarification or supporting information in order to complete this application. We further understand that the Monetary Board will decide within 45 days * of the date on which this application is complete to approve or disapprove this application. Very truly yours, s/ By: ________________ Title: _______________ If the investor does not require a decision from the Monetary Board within 45 days, this may be indicated by specifying the date (to be not less than 45 nor more than 120 days after date of the application) by which a decision on the application is required. Exhibit B Form Of Post-Closing Notification ______________ * (Date) Debt Restructuring Office Central Bank of the Philippines Room 309, Five-Storey Building Roxas Boulevard, Malate Manila Re: Conversion Transaction for Investment in [insert name of Philippine Enterprise] Dear Sirs: We refer to Central Bank Circular No. 1111, as revised (the "Circular") and to our application dated ________ 198____ (the "Application") for approval of a Conversion Transaction involving a [Schedule 2 Investment] [Schedule 3 Investment] in [insert name of Philippine Enterprise],which application was approved by you on ________ 198___. We hereby certify the following details relating to this Conversion Transaction: 1) The date on which the transaction was closed [ i . e .the date on which the Convertible Debt was redeemed for Pesos] was __________. 2) The total amount of Convertible Debt redeemed was: ______________. The total amount of fresh money used to fund the investment was: __________. 3) The name of the Obligor in respect of each item of Convertible Debt involved in this transaction was: _________. 4) The Convertible Debt had been outstanding under [give details of original credit instrument relating to the Convertible Debt]:________. 5) The total Peso proceeds of the redemption of the Convertible Debt on the closing date equalled P ________. (Attach a certification by a responsible official of the borrower/obligor as to the total Peso proceeds it has paid on a particular date/s with respect to the Convertible Debt.) 6) The fee payable in connection with Chapter IX of the Circular in respect of this transaction equalled P _____ and this amount was paid to the Central Bank on __________, 198____. We further certify that the full Peso proceeds of the redemption of the Convertible Debt have been invested in the Philippine Enterprise identified above in an equity investment consistent with the Application and the Circular. We understand that we are required to submit to you annual compliance certificates in the form set out as Exhibit C to the Circular not later than the tenth day following each anniversary of the closing date specified above during such period as capital repayment restrictions are applicable to the investment as prescribed by the Circular. We hereby undertake to request the Philippine Enterprise in which the equity investment was made to submit to your Office the following documents as prerequisite to effecting the registration of the equity investment as required under Section 34 of the Circular: 1. Letter-advice from the Board of Investments approving the equity investment involved, if required under the Omnibus Investments Code; 2. Certification under oath by the corporate secretary of the Philippine Enterprise, as to the number of shares, par value, class and serial number/s of the covering stock certificate/s issued (or other documentary evidence of the investor's ownership interest),a xerox copy of which should be attached; 3. Capital structure of the Philippine Enterprise, before and after infusion of the equity investment, indicating the total amounts and percentages of equity ownership by nationality. 4. Such other information/documents as may reasonably be requested by your Office. Very truly yours, s/ ________________ By: ________________ Title: ________________ Exhibit C Form Of Annual Compliance Certificate ____________ * (Date) Debt Restructuring Office Central Bank of the Philippines Room 309, Five-Storey Building Roxas Boulevard, Malate Manila Re: Conversion Transaction for Investment in [insert name of Philippine Enterprise] Dear Sirs: We refer to Central Bank Circular No. 1111, as revised (the "Circular") and the Conversion Transaction in which we acted as investor involving an approved equity investment (the "Investment") in [insert name of Philippine Enterprise].Capitalized terms used in this letter have the meanings given to them in the Circular. The total Peso amount of the original Investment was P _______. In connection with the Investment we hereby certify that during the 12-month period immediately preceding the last anniversary date of the closing date of the Conversion Transaction: 1) The total amount of the capital portion of the investment that was repaid by the Philippine Enterprise was __________, which represents ____% of the total original amount of the Investment. 2) The total amount of dividends or current income paid by the Philippine Enterprise in respect of the Investment was __________. Such dividends or current income were paid out of the profits of the Philippine Enterprise. Very truly yours, s/ By: ______________ Title: _____________ Footnotes * To be submitted within 10 days following the closing date. * To be submitted within 10 days following each anniversary of the closing date of the Conversion Transaction during any period which capital repayment restrictions apply to the investment.