Philippine Long Distance's Smart to go ahead with Piltel debt exchange

New York, June 8 - Philippine Long Distance Telephone Co.'s Smart Communications Inc. will go ahead with its previously announced tender for the outstanding debt of cellular phone company Piltel despite not achieving the required participation level.

Some Piltel creditors who did not tender in the exchange have indicated that they will consent to amendments to Piltel's restructured debt, Smart Communications said. As a result the company will be able to achieve its overall commercial objectives.

As a result, the board of Philippine Long Distance Telephone has authorized Smart to complete the exchange, according to a 6-K filing with the Securities and Exchange Commission.

Smart Communications previously said it received tenders of 68.4% of the outstanding debt of cellular phone company Piltel. However, the 75% threshold for the total of all series of debt was not met and as a result the boards of both Philippine Long Distance and Smart met to decide whether to complete the transaction.

Based on the tenders received, Smart will issue under the exchange $278 million of debt and $1.5 million in cash. Piltel creditors chose as follow:

* Holders of $271.5 million chose new debt due 2014;

* Holders of $6.9 million chose new debt due 2007;

* Holders of $5.0 million chose new debt due 2008; and

* Holders of $3.8 million chose cash.

Creditors who chose the bond guaranteed by the Republic of the Philippines will be allocated their chosen alternative as Smart was unable to arrange the facility in time. In all cases, creditors in this group chose the 2014 debt.

Smart says it now plans to commence acquiring Philippine Long Distance's equity interests in Piltel and expects to complete this part of the transaction later in the second half of 2004.

The exchange offer ended on May 31 after being extended several times.

As announced on March 22, Smart Communications is offering either cash in dollars or pesos, dollar-denominated loans or Philippines sovereign-guaranteed bonds.

Options on offer to Piltel creditors are:

* Cash at the rate of $0.40 per $1 of Piltel debt up to a maximum of $20 million;

* Dollar-denominated Smart debt at the rate of $0.525 per $1 of existing Piltel debt. The new debt will mature in December 2007 and pay interest at Libor plus 100 basis points;

* Dollar-denominated Smart debt at the rate of $0.575 per $1 of existing Piltel debt. The new debt will mature in December 2008 and pay interest at Libor plus 100 basis points;

* Dollar-denominated Smart debt at the rate of $1 per $1 equivalent of existing Piltel debt. The new debt will mature in June 2014 and pay interest at 2.25%;

* For yen trade creditors, dollar-denominated Smart debt at the rate of $1 per $1 equivalent of existing Piltel debt. The new debt will mature in June 2014 and pay interest at 2.25% and will include a put option exercisable with 15 months' notice at 52.5% in December 2007 and 57.5% in December 2008;

* Dollar-denominated debt guaranteed by the Republic of the Philippines at the rate of $1 per $1. The new debt will have a 12-year maturity and a 2% coupon. Bondholders will not qualify for this option.

Smart, a cellular telephone company, said the proposed transaction will allow Philippine Long Distance Telephone to rationalize its wireless business segment. Smart will gain full access to Talk 'N Text's expanding subscriber base and improving revenue streams. Philippine Long Distance's wireless group is expected to benefit from the closer operational alignment of Smart and Piltel, an increase in the share in Piltel's revenue streams and certain other cash and tax savings.

Negatives will be increased interest expense and foreign exchange exposure from the issuance of new Smart debt.

Smart said it is in the process of obtaining the necessary consent and waivers from its financial creditors and guarantors of its debt to enable it to complete the offer.

Subject to a successful debt offer, Smart also intends to request consents from its financial creditors and guarantors of its debts to allow it to acquire Philippine Long Distance's interests in Piltel consisting of 767 million common shares or 45.3% of Piltel's outstanding shares and 59 million series K convertible preferred shares, convertible into Piltel common shares at a ratio of 170:1.

The offer is subject to at least 75% of Piltel's existing debt being tendered including all of the yen trade facility, 67% of the peso and U.S. dollar facility agreements, $65 million face value of Piltel's conversion note bonds, 67% U.S. dollar trade facilities and 50.01% principal amount of the term notes facility agreement.

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