PSE Circular for Brokers No. 1719-98

July 24, 1998 PSE CIRCULAR FOR BROKERS NO. 1719-98 July 23, 1998 Listing and Disclosure Group Philippine Stock Exchange, Inc. PSE Center, Exchange Road Ortigas Center, Pasig City (Fax No. 636-0809) Gentlemen : This refers to your fax message dated July 22, 1998 which I received after office hours on same date regarding your request for a written clarifications/confirmation of certain items under a news article captioned "PT&T gets temporary relief on P6-B debt" published in the July 22, 1998 issue of the Manila Times. Below is our explanation: 1. One month reprieve from debt servicing: a) The matter of PT&T's financial situation has already been mentioned in PT&T's March quarterly report i.e. that its capital raising program is being affected by a stockholder's dispute of its major shareholder, Retelcom. Although the company has been generating positive cash flows and was able to continue servicing its loan obligations, it has lately experienced difficulty due to the compounded and cumulative effect of the increase in interest rates, the devaluation of the peso and the economic crisis in general. b) The original financial plan, was covered by the capital raising program, requires an equity call so that the proceeds can retire selected debt obligations. However, the equity call has been delayed for more than 6 months already due to the stockholder's dispute, and PT&T's financial tightness became more pronounced last month. In our meeting with the creditors they allowed us an initial 30-day deferral of payments pending a decision by the SEC about the stockholder's dispute. 2. The Retelcom stockholder's dispute which is delaying the PT&T equity call: a) The dispute is at the level of PT&T's majority shareholder, Retelcom, and therefore, any explanation should come from them (and not from PT&T) or more preferably, from the SEC since the hearing of the case is ongoing (in order to make the explanation official, full, fair, accurate and factual). 3. The effect the dispute on PT&T: a) As explained in item (1) above, the stockholder's dispute has delayed the implementation of PT&T's capital raising program particularly the initial step of completing PT&T's equity call from its major shareholder. In the absence of the capital raising program. PT&T is revising its financial plan (in consultation with the creditors), with the objective of ensuring the viability of the company and the repayment of the obligations within a reasonable time. b) One a pre-finance basis, PT&T continues to generate positive cash flows and this situation is projected to continue (with healthy improvements) in the future. PT&T has ongoing discussions with its creditors to develop the said financial plan within 60 days. We trust that the foregoing meets your requirements and should you have further questions, please call us. PHILIPPINE TELEGRAPH & TELEPHONE CORP. (SGD.) LUCIE QUIDATO BANTOLINO Senior Vice President & Asst . Corp . Secretary