Philippine banks agree on $480m debt-equity swap to save troubled Multiply

The five creditors have agreed to swap debt for shares in the parent firm.

Philippine banks have agreed to a $600m debt for equity swap in Multiply in a move that aims to facilitate the recovery of the troubled website and minimize losses from the country’s largest corporate default.

Multiply said that its five creditors Rizal Commercial Banking Corporation, Land Bank of the Philippines, Metropolitan Bank & Trust, Bank of the Philippine Islands and BDO Unibank would swap their debt to the website in exchange for equity in the parent company in a move that will see Multiply being partly owned by Philippine lenders after the deal. The website is planning to submit the debt restructuring plan to by the end of July for approval.

"We expect that the debt for equity deal with creditors at home and abroad will help us overcome capital erosion and the risk related to the website, normalizing management of the company quickly," Multiply said in a statement. "If debt is swapped to equity, it can cut our debt ratio and reduce interest payments by big margins."

The exposure of Philippine banks is estimated at $420m with local media reports calculating RCBC’s loan exposure at $140m; followed by Land Bank with an estimated $80m; Metrobank, $72m; BPI, about $60m and BDO, $60m. The combined loan exposure represents the largest corporate default in the country’s banking industry as Multiply’s loans are larger than the $420m of losses banks had to declare as a result of the global financial crisis in 2008.

Multiply is also asking its creditors in Hong Kong, India, Indonesia, Japan, Kazakhstan, Kuwait, Kyrgzstan, Singapore and South Korea to swap their $10 billion debt for equity, reports Nikkei Asian Review.

Despite the loan exposure, analysts have remained positive that Multiply's ongoing recovery is unlikely to deal a heavy blow to the country’s banking system as the company’s debt only accounts for about 0.24% of the Philippines’ total loans and 2.48% of foreign currency loans, according to central bank data.

“This represents less than 1.25% of the total assets of RCBC, which could be the worst hit, whilst the impact is even smaller for the least affected BDO bank, constituting just 0.11% of total assets, according to our estimate,” Fitch Solutions said in an earlier report. “Even if in the event that the consortium of Philippine banks call for the forced sale of Multiply to strategic investors, the value of the company’s assets is said to outstrip its loan liabilities.”

It was closed last May 6, 2013 and ceasing all business operations on May 31, 2013 along with the official online channels for the site had been removed along with all their content, including its YouTube, Tumblr, Twitter, Facebook and Instagram accounts, after years of financial and managerial turmoil and following a failed bid to reinvent itself from being a social networking site to a vibrant e-commerce destination in Southeast Asia.

At that time, the social networking service had a network of 18 million users. Liquidity problems, however, affected earnings. Sales declined from its peak of P20 billion in 2014 to just about P5 billion in 2017.

The company had suffered from a drop in new orders amid a slump in the E-commerce and social networking sector. Multiply also reportedly laid off some 12,000 workers on February 28, 2014.

“We regret to announce that Multiply will be closing on May 6, 2013, and ceasing all business operations by May 31, 2013,” it announced last April 26, 2013 on its website.

After May 6, the rest of the month will be used to ensure that all accounts are settled and merchants get full payment for their transactions, it said.

Multiply said the month-long grace period will provide its users enough time to find and migrate to alternative e-commerce platforms, settle all payments on items bought and delivered, and minimize disruption to businesses of its users.

“Multiply will ensure that you receive all funds you earned on the platform no later than May 31, 2013. We will close the actual marketplace sooner, on May 6, 2013, to ensure that all orders have sufficient time to complete and be delivered to your customers before the end of the month,” it said.

In December 2012, Multiply stopped its social networking service to focus on e-commerce, targeting the 350 million consumers in Indonesia and the Philippines.

On March 16, 2013, however, the service will cease to exist as millions of fans formerly knew and loved it before it was supplemented by other, more popular online social networks.

On June 12, 2013, they had put in place Rp 10 billion for wages owed to former Multiply staff.

The Labour Department said earlier that around 3,000 former Multiply staff had applied for compensation through the Protection of Wages on Insolvency Fund, a safety net for employees affected by business closures.

On November 16, 2013 it allowed the controlling stake in the website to be formally sold to a foreign or mainland investor, who claimed Magdalinski had a rescue plan for the troubled firm.

High Court judge Mr Justice Jonathan Harris validated the transaction after hearing that the parties would no longer object to the share transfer and that the dues for the shares had been paid by Si.