Equity managers favor extension of SPVA incentives

A leading expert in regional investment and corporate finance has expressed support for the extension of the grant of incentives under the Special Purpose Vehicle Act (SPVA).

Francis G. Estrada, chairman of Equity Managers Asia Inc. and chief executive officer of Philippine SPV Managers Inc., said he favors an extension of the incentives offered by the SPV Law.

"I favor the extension of the SPV Law as a necessary evil, even as the banking industry has not shown a sense of urgency on the matter," he said.

Equity Managers Asia is a Philippine-based investment and corporate finance firm specializing in mergers and acquisition (M&A), corporate finance, corporate restructuring and private equity investment transactions.

The SPVA was enacted into law on Dec. 23, 2002 and became effective on April 9, 2003. It is intended to help banks dispose of their non-performing assets by waiving some of the taxes and reducing fees usually collected in the sale or transfer of assets. The SPV Law waived the documentary stamp tax, capital gains tax and expanded value-added tax (EVAT) and reduced the applicable registration and transfer fees by 50 percent.

Although the SPV Law was aimed at helping banks dispose of P500 billion in bad loans, the Bureau of Internal Revenue (BIR), however, only issued the guidelines for the tax incentives in mid-2003, which has delayed the banks’ decision to avail of the special-purpose vehicle incentives. The tax relief and other benefits under the SPV Law were only made available up to April 8, 2005.

The Bangko Sentral ng Pilipinas (BSP) is likewise supporting the proposed extension of the SPV incentives by another two years, a proposal submitted to the Senate by the Bankers Association of the Philippines (BAP).

Estrada expressed concern that banks will take longer to sell their bad assets without an extension of the law.

"If we do want to resolve what seems to be a P500-billion problem, it really would help to have something like the SPV," Estrada said.

He said the impact of continued burden of the NPAs in the banking system is the increased cost of intermediation.

Socioeconomic Planning Secretary Romulo L. Neri likewise earlier threw his support for an extension of the incentives offered by the SPV Law, reasoning that for as long as the banks are burdened by bad assets, credit will remain tight which, in turn, would slow down government efforts toward economic recovery.

Earlier, the Bangko Sentral ng Pilipinas (BSP) said banks would be compelled to dispose of unproductive assets that weigh down the industry even without the incentive package.

Congress is currently deliberating on the proposed two-year extension of the SPVA incentives but even without these perks, the BSP said banks should sustain efforts to complete the asset clean-up.

The SPVA provided tax incentives for the discounted sale of non-performing assets while also allowing banks to book the attendant losses over a period of up to seven years.