In these times of uncertainty, government agencies in the Philippines have provided various laws, rules, and issuances to respond to the emerging pandemic. On 18 August 2020, the Securities and Exchange Commission (SEC) has laid down rules for corporations and other entities to cope with their financial liquidity and standing and to help adapt to the changes in the corporate sector brought about by the pandemic. With the advent of the SEC Memorandum Circular (MC) No. 23, it will provide for the rules and regulations on corporations primarily investing in corporate debts, such as but not limited to bonds, notes, debentures, and other evidence of indebtedness.
This Rule shall apply to a corporate debt vehicle (CDV) classified as a closed-end investment company that offers shares or units of participation with the objective of investing in corporate debt papers of:
- Large corporations and medium sized enterprises operating or deriving income in the Philippines;
- Any company guaranteed by a large or medium – sized domestic corporation or by the Philippine government and/or its agencies or by multilateral agencies involving exempt securities.
Corporate Debt vehicle is a closed-end investment company to be offered to any number of qualified buyers and/or non–qualified buyers not exceeding 19 persons in the Philippines during any 12 months period with the specific objective of investing in the corporate debts of large corporations and medium-sized enterprises. Investment companies must also observe the minimum requirements required to be filed before the SEC for the incorporation and registration of an investment company organized as a CDV. Likewise, a notarized and Simplified Prospectus and Product Highlight Sheet shall include, among others, the objectives, strategies, and limitations of a CDV. The same shall be submitted to and approved by the Commission prior to the commencement of the offer.
Initial Public Offering
CDV is a closed-end fund and subscription done only on initial public offering and redemption at maturity. It may make a periodic distribution of income to investors of the fund on a pro-rata basis; provided that the distribution of income shall be made only from the cash received from interest income earned after deduction of applicable taxes and expenses. Further, it need not be listed or traded in an exchange.
Capitalization requirements
- The value of a CDV’s investments in corporate debt issued by a single enterprise must not exceed 25% of the fund’s Net Asset Value (NAV) and 50% in a single group entities. The investment limit shall be computed based on the total proceeds of securities sold within the initial offering period.
Distribution
- Shares or units of a CDV may be issued in tranches at more than one instances after the securities have been approved or confirmed by the Commission; provided that all requirement in the Rules have been complied and the corresponding filing fee has been paid.
This issuance, will not only ensure the financial and economic stability of large corporations and medium-sized entities but also open its doors for increased corporate investments and opportunities that will lead to a better management system.
