SPEs for project finance given 25% SBL leeway

Special Purpose Entities (SPEs), either a corporation or a trust, created for project finance undertakings will have its own single borrower’s limit (SBL) equivalent to 25 percent of its net worth, according to the central bank.

The Bangko Sentral ng Pilipinas (BSP) yesterday said the Monetary Board has approved the separate SBL to release more funds for the government’s infrastructure program, which are currently restricted by the lending rules.

“Such SPEs were given their own separate SBL in consideration of the independence they usually enjoy under project finance schemes,” said the BSP. “Under these schemes, SPEs are ringfenced by appropriate legal structures, operational set up, and controls so that assets and cash flows of SPEs remain separate from those of their sponsors, shareholders, and other related parties.”

In amending its SBL rules anew, central bank officials assume that banks and quasi-banks are aware of the risks of “such exposures.”

“Lending to such dedicated SPEs shall be subject to certain conditions to ensure effective risk monitoring and management,” said the BSP. “It is also required that purposes of project finance loans be in line with the government’s priority programs and projects.”

The BSP stressed that banks and quasi-banks should have in place “standard prudential controls” such as pledges of borrowers’ shares, assignments of borrowers’ assets, revenues, cash waterfall accounts and project documents.

“To curb excessive credit risk-taking, banks/quasi-banks must also take into account, their total project finance exposures in managing large exposures and credit risk concentrations,” the BSP added. “These prudential controls shall likewise apply to credit extended by banks/quasi-banks to their SPE subsidiaries and affiliates involved in project finance activities.”

Last year, to carefully monitor and check banks’ exposures to project finance undertakings, it has approved a regulation that will require lending institutions to submit a project finance report which must include all material information on the infrastructure project and the project phase.

The expanded reporting on real estate and project finance exposures will start on June 30 this year. The BSP said this report will give them a better assessment on the extent and quality of banks’ exposures to project finance.