SEC drafts rules on corporate debt funds
The Securities and Exchange Commission (SEC) is drafting new rules for the investment in corporate debt as part of efforts to cushion the economic fallout of the COVID-19 pandemic.
In a statement, the SEC said it is working on a new regulatory framework for the development of a capital market where closed-end investment companies primarily invest in corporate debt papers of large and medium enterprises.
The Commission said it has issued for public comment the draft rules providing the minimum requirements and guidelines in the creation and operation of such investment companies called Corporate Debt Funds (CDFs).
“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 Chairperson Emilio B. Aquino said.
He added that, “The new investment vehicle called Corporate Debt Fund 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 mediumsized 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 and/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.