PHILIPPINE: SEC Issues Framework for Corporate Debt Vehicles to Support Firms Liquidity

Tuesday August 25 2020

On 25^th August 2020, the Securities and Exchange Commission (SEC) announced that it has approved regulatory framework for the creation and operation of new investment companies that will primarily invest in corporate debt papers.

The Commission on August 18 issued SEC Memorandum Circular No. 23, Series of 2020, which provides the Rules on Corporate Debt Vehicle (CDV), to support the liquidity needs of large corporations and medium-sized enterprises in the middle and aftermath of the COVID-19 pandemic.

A CDV is a closed-end investment company that issues or offers for sale its securities consisting of either shares of stock or units of participation in such CDV to any number of qualified buyers and/or non-qualified buyers not exceeding 19 persons in the Philippines during any 12-month period with the specific objective of investing in the corporate debts of large corporations and medium-sized enterprises.

It may offer different share or unit classes with similar investment objective but managed as separate asset pools, with each class corresponding to a distinct part of its assets and liabilities.

Subscription in a CDV is done only on initial public offering and redemption is at maturity. However, a CDV offering units of participation can make periodic distribution of income to investors on a pro-rata basis from cash received by such CDV from its interest income after deduction of applicable taxes and expenses. It may also pay out the value of the underlying investments of each share/ unit in a class upon maturity of the said underlying investments.

The unitholders of a CDV shall have no voting rights but they are entitled to be notified of any material change to the Prospectus, Product Highlight Sheet and Subscription Agreement.

Click on the link for further information.