SEC seeks public’s views on SPV rules

The Securities and Exchange Commission (SEC), soliciting the comments of the public on the final draft of its implementing rules and regulations for the Special Purpose Vehicle Law.

SEC Chairman Lilia R. Bautista said the IRR will be endorsed to the private sector (including the Bankers Association of the Philippines and consultancy firms) and other government agencies for their comments.

The SPV law, signed last Jan. 10 by President Arroyo, would help the financial sector dispose of billions of pesos in non-performing assets (NPA) through special asset management companies or firms that would buy NPAs at substantial discounts and then put them on the auction block once the market has recovered.

The banking industry has around P600 billion in non-performing assets, the bulk of which is in the form of non-performing loans.

Bautista said the IRRs are intended to encourage private sector investments in NPAs and develop a sound financial sector for the country.

Under the proposed rules, all SPVs shall be registered as a stock corporation with the SEC. They should have a minimum authorized capital of P500 million, P125 million of which must be subscribed and P31.25-million paid up.

As a prerequisite to the offer for sale of investment unit instruments (IUIs) to the public, a registration statement and a SPV plan must be filed with the SEC, detailing the SPV’s investment policies; features of the debt instruments, including specific amounts to be issued; rights of the holders; timetable of issuance; and use of proceeds.

Any person may acquire or hold IUIs in an SPV in the minimum amount of P10 million. An SPV shall not be authorized to acquire the IUIs of another SPV.

The SEC said a financial institution that intends to transfer its NPAs to an SPV shall file an application for eligibility of said NPAs in the prescribed format, with the appropriate regulatory authority having jurisdiction over its operations.

The application shall also be accompanied by a certification from an independent auditor acceptable to the appropriate regulatory authority or from the Commission on Audit in the case of government financial institutions and government-owned or controlled corporations.

The SEC said the transfer by an FI of its NPA shall not be considered true sale if the FI acquires directly or indirectly the IUIs issued by the SPV or extends any credit facility, guaranty or any similar financial transaction to the transferee SPV.

An SPV is also required to make and keep books, records and accounts which detail, accurately and fairly reflect the transactions and dispositions of its assets, its minutes of meetings and other business transactions. It is likewise covered by the SEC’s reportorial requirements.

Asset management companies are firms which specialize in the rehabilitation of distressed assets. Their huge capital allows them to absorb risks for a longer period, and they specialize in turning around financially-strapped firms.

The SPV law provides tax exemptions and fee privileges to be granted SPVs. Banks would also be given two years to enjoy tax privileges as they transfer their NPAs to SPVs, which will have the same privileges for five years.

To address the potential abuse of tax privileges, the bill provides a penalty clause under Sec. 25 of the bill, which requires offenders to refund to the government double the amount of tax exemptions and privileges availed under the Act, plus an interest of 12 percent per annum from the date prescribed for its payment until its full payment. – Zinnia dela Peña