PSE Circular for Brokers No. 621-99

March 29, 1999 PSE CIRCULAR FOR BROKERS NO. 621-99 26 March 1999 Philippine Stock Exchange PSE Center, Exchange Road Ortigas Center, Pasig City Attention: Listing and Disclosure Group RE : Pilipino Telephone Corporation Ladies and Gentlemen : We furnish you an Information Update on Pilipino Telephone Corporation ("Piltel") contained in a filing made with the Securities and Exchange Commission by our principal stockholder, Philippine Long Distance Telephone Company, the contents of which are consistent with all previous disclosures of Piltel. A copy thereof has also been filed with the Securities and Exchange Commission. cdlex Very truly yours, (SGD.) MA. LOURDES C. RAUSA-CHAN Corporate Secretary PILTEL RESTRUCTURING Pilipino Telephone Corporation (Piltel) has experienced significant financial difficulties arising from several factors affecting its business over the past few years. In 1996, Piltel's subscriber base was adversely impacted by increased cloning and subscription fraud, following which Piltel terminated one-third of its subscriber base in 1997. In subsequent years, Piltel was adversely impacted by the increasingly competitive environment in the Philippines telecommunications market and the downturn in the Philippine economy. Piltel's capital structure was weakened by heavy reliance upon U.S. dollar borrowings, with emphasis on short-term financing, to finance expansion and compliance with its local exchange network build-out under Executive Order No. 109. Several factors, including high peso interest rates and the decline in the relative value of the Peso, have left Piltel unable to service all of its outstanding obligations. LexLib As of December 31, 1998, Piltel had three major kinds of obligations: * unsecured bank debt and long-term commercial paper of P12.9 Billion (about US$330 Million); * unsecured convertible bonds (which are not likely to be converted into shares since the conversion price is higher than the current market price of Piltel shares) with principal and put premium of US$268 Million; and * a contractual obligation to Marubeni Corporation (Marubeni) for its build-transfer fixed line network in Mindanao undertaken pursuant to its obligation under Executive Order No. 109 expected to aggregate approximately U.S.$279 Million upon delivery and acceptance of the system. In early 1999, Piltel imposed a moratorium on payment of its outstanding indebtedness. Although it is currently making interest payments, it anticipates that it may not generate sufficient cash flow from operations to cover its interest obligations in 1999. Piltel is currently in default on substantially all of its outstanding debts. Piltel reported a net loss of P621 Million in 1997 and P4.1 Billion (US$104.7 Million) in 1998. It does not expect to return to profitability during the next two years. The board of directors of Piltel has added key advisors to Piltel's management who are evaluating the situation at Piltel to determine the extent of operational and financial difficulties and to determine how to rehabilitate Piltel. As the new management team at Piltel has been in place only for four months, it is too early to determine all of the steps that might be taken or the probability of success of any such steps. Piltel, however, is implementing a business recovery plan focused on its organizational structure, billing and collection procedures, marketing and customer service functions, information technology, and network infrastructure. It intends to take steps that seek to reduce costs, strengthen financial controls and policies and improve internal communications and morale. In marketing, Piltel intends to attempt to rebuild its brand and image and refocus its marketing strategy toward a segmented customer base heavily focused in the near term on prepaid cellular services in which it is one of the market leaders. The fixed line operations for its regional telephone services will focus on increasing operating efficiencies and target new customers. The Mindanao fixed line service under Executive Order No. 109 will need to be addressed as part of the restructuring plan, given the contractual obligations to Marubeni in connection with its line build-out. aisadc In order for the business recovery plan to be successful and to achieve the maximum valuation of Piltel's business as a whole, Piltel will need to achieve concessions from its creditors. Under current assumptions, Piltel believes that such concessions will likely need to extend over at least a five-year to fifteen-year period for principal repayments. To this end, Piltel is currently in discussions with its creditors to agree upon a restructuring plan. The objectives of the restructuring plan are to achieve a debt amortization profile which will allow sufficient time for the business recovery plan to be implemented and for Piltel's financial health to be restored. Whether a restructuring plan can be agreed upon and the terms of any such plan are not definite. Any such plan will require unanimous approval of all bank creditors, holders of convertible bonds and Marubeni. Philippine Long Distance Telephone Company (PLDT), which currently owns approximately 50.1 % of the subscribed capital stock of Piltel, has indicated, preliminarily, that it is prepared, in connection with a mutually acceptable refinancing plan with Piltel's financial creditors to commit to invest in Piltel an additional amount which has yet to be finalized. While PLDT has not guaranteed any Piltel indebtedness and has no contractual obligation to invest additional funds in Piltel, PLDT believes that any rehabilitation plan of Piltel, to be successful, will likely require the participation of and strong management support from PLDT. cdlex Piltel and PLDT are exploring a number of options with respect to the Marubeni payment obligation owing in relation to the Mindanao fixed line operations. The payment obligation arises under the build-transfer contract Marubeni entered into to construct the Mindanao fixed line system for Piltel in connection with Piltel's obligation under Executive Order No. 109. Piltel has accepted delivery of the first phase of the contract. However, while Marubeni has substantially completed network installation under the second phase of the contract and acceptance of this phase is in process, Piltel is required to accept delivery of this phase under the contract only after determining that the network meets technical specifications. As Marubeni has not completed successful testing, Piltel has not yet accepted delivery. Piltel expects the technical specifications to be met in the future. Piltel will not own the assets of the system until it has accepted delivery of all phases, at which time the payment obligation to Marubeni will become firm. In addition to the alternative of extending payment terms for such obligation, Piltel is exploring joint venture, leasing or other arrangements that would allow operation of its fixed line system by Piltel or PLDT and reduce or defer the repayment obligation to Marubeni. There is no certainty that a debt restructuring plan between Piltel and its creditors can be agreed upon or implemented successfully or that, if implemented, a debt restructuring and business recovery plan will improve the financial or operating conditions of Piltel. PLDT has indicated that it will not invest additional funds in Piltel in the absence of an acceptable restructuring plan including acceptable concessions by creditors. LLjur