FIRST Pacific Co has signed a memorandum of understanding with Nippon Telegraph and Telephone Corp (NTT) to bring NTT as a partner into First Pacific's mobile telephone operation in the Philippines. NTT, the Japanese telephone giant, is injecting US$123 million for a mixture of cash and bonds in the company, named Smart Communications. The deal values Smart at about US$820 million. Fred Bowers, an analyst at Nomura Research Institute Hong Kong, said this figure was about 4.5 times Smart's book value, which measures the amount of money that has been invested in the company. 'The high multiple of 4.5 is an indicator of First Pacific adding substantial value to Smart,' he said, adding that the complex shareholding structure of Smart, and Philippines accounting standards, meant that First Pacific could book a profit of US$10.6 million from the deal in its next accounts. This stems from a Philippine accounting practice known as 'gain on dilution', which can be applied only to the shares First Pacific holds indirectly. Smart's complex shareholding structure is based on the Philippine law that requires a telephone company of this type to be 60 per cent domestically-owned. After the dilution caused by the issue of new shares to NTT, First Pacific will directly hold 28 per cent of Smart and NTT will hold 12. Among the domestic shareholders, First Pacific's Philippine arm Metro Pacific Corp dominates. The company's management also owns shares. The deal was signed yesterday in Tokyo between First Pacific chairman Manuel Pangilinan and NTT president Masashi Kojima and is subject to finalising and approval by the authorities in Japan and the Philippines, expected to be completed in April. NTT will then pay the cash which will be used to further fund Smart's aggressive expansion programme. Mr Pangilanan said he was delighted by the deal, which he described as 'a milestone agreement'. The deal will dilute First Pacific's interest in Smart but First Pacific vice-president for communications Derek Murphy said it did not represent part of a move to pull out of its telecommunications operations, which last year made up 16 per cent of profits. 'Indeed, by about 1996-97, we would expect the contribution from telecoms to exceed 30 per cent,' he said. Although foreshadowed in the Japanese press a few days ago, news of the deal still boosted First Pacific's share price, which rose 25 cents to $4.55, a rise of 5.8 per cent. Smart operates a mobile network with 40,000 customers after less than a year, and will this summer launch a national paging network. In addition, it has been given a licence to run an international gateway which started operating at the beginning of the year. It also has been given a licence to offer domestic telephone services based on land cables in Metro Manila and central Luzon.