Philippines Proposes Regulatory Framework for Corporate Debt Funds

Source: Regulation Asia Editors, Regulation Asia 2020-07-13

The new closed-end investment vehicle will enable investment in debt paper issued by large and medium-sized corporations, to help avert credit and liquidity crises.

The Philippine SEC (Securities and Exchange Commission) is planning to launch a new regulatory framework allowing for the creation of investment funds to invest in corporate debt paper of large and medium enterprises.

The SEC says the new investment vehicle – called a Corporate Debt Fund (CDF) – is targeted at providing liquidity to large and medium-sized corporations for repayments, emergency spending and investments required to sustain their operations and preserve jobs.

“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,” said SEC chairperson Emilio Aquino.

In a consultation paper, the SEC has set out the minimum requirements for establishing a CDF, including a minimum subscribed and paid-up capital of PHP 50 million (USD 1 million).

An exception is provided for CDFs that will form part of a group of investment companies and will be managed by the same fund manager (which has at least a five-year track record). In this case the minimum subscribed and paid-up capital should be at least PHP 1 million.

Once formed, the CDF will be closed-end fund, where subscription of non-redeemable units of participation or shares is done only on IPO and redemption on maturity. However, a CDF can make periodic distribution of income to investors on a pro-rata basis, and pay out the proceeds of the underlying investments upon liquidation prior to maturity of all securities in the fund.

Additionally, a CDF may offer different share or unit classes managed as separate asset pools with the same investment objectives.

CDFs can invest in corporate debt paper issued by large corporations and medium-sized enterprises operating or deriving income in the Philippines, or any company guaranteed by a large or medium-sized domestic corporation or by the Philippine government or its agencies.

The SEC will provide exemptions from standard registration requirements if the CDF is only sold to qualified buyers, or if the number of non-qualified buyers is under 20 persons during a 12 month period.

The proposed regulatory framework, available here, is open for consultation until 17 July 2020.

The Philippine SEC

Corporate Debt Fund

Philippines Proposes Regulatory Framework for Corporate Debt Funds

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