SEC working on new regulatory framework

THE SECURITIES and Exchange Commission or 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, as part of government efforts to cushion the economic fallout of the Covid-19 pandemic.

SEC has released the draft rules providing the minimum requirements and guidelines in the creation and operation of such investment companies called Corporate Debt Funds (CDFS).

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 government or its agencies.

“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 Aquino said.

He said the CDFS 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.

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, according to Aquino.

He said 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 or 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, Aquino said, 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.

He said the CDF shall be exempt from the registration requirements prescribed under Section 8.1 of Republic Act No. 8799, or 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.