THE Securities and Exchange Commission (SEC) approved new rules for the creation of investment firms that will buy corporate debt papers of large and medium enterprises.
SEC Memorandum Circular No. 23 sets the guidelines on corporate debt vehicles (CDV), which the regulator says will help companies maintain liquidity amid the coronavirus disease 2019 (COVID-19) pandemic.
A CDV is defined as a closed-end investment company that offers securities in the form of shares or units of participation. It will use the proceeds to invest in bonds, notes, or any other debt papers of corporations and medium-sized enterprises operating in the Philippines.
It may also invest in any corporate debt guaranteed by a domestic corporation or by the Philippine government and/or its agencies, or by multilateral agencies that involve SEC-exempt securities.
“CDVs can play a significant role in the survival and recovery of our economy from the impact of the COVID-19 pandemic by providing large corporations and medium-sized enterprises the necessary funding to meet their obligations, sustain their operations and preserve jobs,” SEC Chairperson Emilio B. Aquino said in a statement.
To be qualified as CDV, it must have a minimum subscribed and paid-up capital of P50 million. If it is part of a group of investment companies with at least a five-year track record, its minimum subscribed and paid-up capital may be P1 million.
A CDV may invest in up to 25% of the net asset value of a corporate debt issued by a single enterprise. In the case of single group entities, a CDV’s investments may reach up to 50%. It will be computed based on the total proceeds of the securities sold within the initial offering period.
Large corporations will be considered as those with total assets above P350 million or total liabilities above P250 million. Medium-sized enterprises will be companies with total assets more than P100 million to P350 million or total liabilities more than P100 million to P250 million.
A CDV is prohibited from investing in securities that it will be issuing, and investing in corporate debt of corporations where any of its directors or officers are members.
Buyers can include banks, registered investment houses, insurance cowmpanies, individuals with an annual gross income of at least P10 million, or individuals that have gross assets of P100 million.
Subscription to CDV securities may be done through an initial public offering with redemption at maturity. A CDV may offer several securities managed as separate asset pools but have the same investment objectives.
The securities may be issued in tranches, with the first tranche issued within six months from the SEC approval. The subsequent tranches must be issued within three months from the submission of the CDV’s current report and updated simplified prospectus to the SEC.
The distribution will be done by a registered mutual fund distributor and certified investment solicitor.
The CDV will not be required to list or trade at an exchange, but it will be required to submit a monthly report to the SEC detailing information such as its net assets, corporate debts acquired and outstanding balance of investments. — Denise A. Valdez