The Securities and Exchange Commission (SEC) is paving the way for the creation of corporate debt funds (CDFs), an entity that will mainly invest in debt papers of large and medium enterprises.
The SEC has opened for public comment the draft rules providing the minimum requirements and guidelines in the creation and operation of such investment companies. It is open for comment through next week.
“With the proposed regulatory framework, we hope to help avert credit and liquidity crises that may arise from the economic downturn caused by the Covid-19 pandemic, and support the recovery of businesses and the overall economy therefrom,” SEC Chairman Emilio B. Aquino said.
“The new investment vehicle will be particularly helpful in providing for the liquidity needs of large- and medium-sized corporations for repayments, emergency spending and investments necessary to sustain their operations and preserve jobs in these challenging times.”
A CDF is a closed-end investment company that offers for sale a fixed number of non-redeemable units of participation or shares and has a limited offer period. Its objective is to invest in the portfolios of corporate debt papers of large corporations and medium-sized enterprises operating or deriving income in the Philippines, or any company guaranteed by a large or medium-sized domestic corporations or by the Philippine government or its agencies.
The CDF may offer different share or unit classes with similar investment objectives but are managed as separate asset pools. Each class shall correspond to a distinct part of the assets and liabilities of the CDF.
Subscription in a CDF is done only on initial public offering and redemption is at maturity although it can make periodic distribution of income to investors on a pro-rata basis. It may also pay out the proceeds of the underlying investments of each share/unit class upon their liquidation until the termination and maturity of its securities.
To incorporate, the CDF shall have a minimum subscribed and paid up capital of P50 million. But as an exception, the subscribed and paid up capital shall not be lower than P1 million, if the CDF forms part of a group of investment companies to be created or already in existence to be managed or under management by the same fund manager with a track record of at least five years.
The CDF shall be exempt from the registration requirements prescribed under Section 8.1 of the Securities Regulation Code. However, such exemption must be confirmed or approved by the SEC and, for such purpose, the CDF shall submit a simplified prospectus and a product highlight sheet.
The CDF may issue its shares or units in tranches. It shall issue the first tranche within six months from the approval of its simplified prospectus and product highlight sheet, and the subsequent tranches within three months from the filing of a current report outlining the material changes in its prospectus and the updated prospectus.
The CDF may offer the securities to qualified buyers, such as banks, pension funds, insurance companies and registered investment houses under private placements, or to not more than 19 non-qualified buyers in the Philippines during a 12-month period.
It shall invest the proceeds from the issuance of securities in corporate debts such as bonds and promissory notes of large corporations and medium-sized enterprises. However, it may also invest in deposits and money market instruments pending the deployment of the proceeds in accordance with its investment objectives.