Metro Pacific Investments Corporation (MPIC) is borrowing P12 billion to fund the soft loan it is extending to First Philippine Holdings Corporation as part of the P22.4 billion deal to purchase an additional 6.7 percent in Manila Electric Company in five months.

MPIC said it will also be paying FPHC a yet undetermined amount for the call option which will allow MPIC to buy more time to raise funds by securing the purchase of the Meralco stake in escrow until March 31, 2010.

In a disclosure to the Philippine Stock Exchange (PSE), MPIC said its board has authorized the issuance by of up to P12 Billion 9-Year Fixed Rate Corporate Notes, in one or more tranches, to primary institutional lenders.

The notes will be secured by a pledge over a total of 163.6 million Meralco shares owned by MPIC.

MPIC is appointing First Metro Investment Corporation and PNB Capital & Investment Corporation as joint issue managers and joint lead underwriters, Metropolitan Bank & Trust Company – Trust as facility agent, paying agent, and debt service account agent and Philippine National Bank – Trust Banking Group as collateral trustee.

“As MPIC intended, the 6.7 percent purchase agreement with First Holdings reflects our goal to be a significant shareholder of Meralco” said MPIC president Jose Ma. K. Lim. The 6.7 percent should be enough to get the group another seat in the Meralco board in addition to the three seats it already shares with affiliate PLDT.

He said that, “as a strategic shareholder with appropriate board and management participation, this agreement will enable the realization of synergies within the whole group.”

“Taking into consideration Meralco’s strong financial prospects, we are confident that this transaction secures our objective in adding another valuable core business to MPIC’s portfolio and in strengthening our position as a dominant player in the country’s infrastructure industry,” said MPIC chairman Manuel V. Pangilinan.

MPIC said “it is anticipated that such strategic interest will complement MPIC's existing investment in the toll road and water sectors represented by controlling interests in Manila North Tollways Corporation and Maynilad Water Services, Inc., respectively.”

During the FPHC board meeting held last Thursday, the offers of TriRatna Holdings Corporation (TriRatna) and the counter offer of MPIC for the company’s shares in Meralco were taken up.

FPHC said MPIC exercised its right of first refusal and matched the TriRatna offer for a Meralco valuation of P300 per share as against the P150 per share MPIC was reported to have initially offered.

Meralco shares closed at P218 per share at the Philippine Stock Exchange Friday.

Initially, there will be a short-term loan by MPIC to First Holdings (or its wholly-owned subsidiaries) in the amount of approximately P11.20 billion or half of the purchase price for half or 6.7 percent of the 13.4 percent Meralco stake of FPHC.

The Loan will be evidenced by a promissory note which will mature on March 31, 2010 and will have an interest of 5 percent per annum. The loan will be secured by 30.09 million Meralco and 138.36 million First Gen Corporation shares. FPHC will then grant MPIC a Call Option by January 15, 2010 until March 31, 2010 on 74.7 million common shares of Meralco or approximately 6.7 percent of the outstanding common shares of Meralco.

It is expressly stated in the Term Sheet that the rights of MPIC under the Call Option shall be independent of any rights that MPIC may have as lender under the Loan and may be exercised by MPIC at its sole option and discretion without regard to the existence or absence of any default under the Loan.

However, the Loan may be assigned by MPIC to FPHC as payment for part of the purchase price of the Meralco shares in the event the Call Option is exercised by MPIC while the Loan is still outstanding.