Revisit the Special Purpose Vehicle law

A fairly recent development led a number of observers to ponder how the Special Purpose Vehicle (SPV) Law is being implemented to help the country’s banking system rid itself of bad or non-performing loans (NPLs).

Take into consideration the Philippine Investment Two (SPV-AMC) Inc.’s [PITwo] acquisition of Vic Vic Villavicencio’s Mandaluyong prime property via the SPV.

The property was mortgaged to and foreclosed by the former Equitable Bank after the businessman failed to pay for the loan he drew from the bank. The property, strictly following the provisions of the SPV Law, was later sold by the bank to PITwo. It could have been a perfect transaction, except that Villavicencio now wants to reclaim his former property. He had made an unsuccessful effort to buy it back from PITwo and it is widely believed that his low price offer for the property was the main reason he failed. Miffed, the businessman sued PITwo and some of its officers for anti-dummy law.

People can only presume that the sale went through various processes and screenings including due diligence and it wouldn’t have been consummated if something was amiss.

Did Villavicencio find something that SPV implementers missed? Anti-dummy law? PITwo is a joint venture controlled by Argoman, a reputable Philippine company controlled by A. B. Colayco. He heads the company as its president while Atty. Leonardo Siguion Reyna, owner of one of the more reputable law firms in the country is its chairman.

Villavicencio could have all the opportunity to prove his allegations in courts. So let’s leave it to the courts to decide on the case merits.

There is however a need to point out that there should be a mechanism in the SPV Law which would shield legitimate investors from acquiring NPLs from the country’s various banks if something akin to Villavicencio’s case arises. Investors (both local and foreign) are already taking a huge risk in buying something that may later prove to be unprofitable. Also, banks must ensure that there shouldn’t be any legal impediments on the NPLs they wish to transfer to SPV.

What  is an SPV? The SPV Law or Republic Act no. 9182 was signed into law in January 2003 to encourage financial institutions to get rid of non-performing assets to create liquidity that can be used to generate economic growth and rehabilitate distressed businesses. It was created to address the worrisome NPL problem of the financial system which has gone from bad to worse.

From a mere four-percent NPL ratio in 1997, the Philippines now has the highest NPL ratio in Asia. The amount of foreclosed but undisposed assets has continued its increase and is now about half of the total nonperforming assets (NPAs).

The government’s response was to provide a legal structure through which banks can transfer these NPAs to a separate entity called SPV which is a privately-owned asset management company (AMCs). 

In this, the Philippines differs from other Asian countries which sought to restructure its banks through centralized AMCs like Danaharta in Malaysia, Indonesia Bank Restructuring Agency (IBRA), KAMCO in Korea, and Thailand Asset Management Co. (TAMC). In many other countries that have experienced financial crisis, the transfer of banks bad assets to a private or public AMC has become the norm.

Buyers of NPLs actually help the country detoxify from bad loans, which if allowed to linger in the financial system, could prove disastrous to the country as a whole. Either the law should be revisited to include some provisions which would protect investors from claims or seller banks should be mandated to be extra cautious in transferring NPLs to SPV.

Not so hidden agenda

The ASEAN Law Association of the Philippines, led by its National Committee chairman Supreme Court Chief Justice Reynato Puno, is celebrating its 30th anniversary with a classical musical benefit concert on Sept. 26 starting at 5:30 p.m. at the Ayala Museum, featuring piano virtuosos Nena del Rosario Villanueva and Carminda de Leon Regala, the UP Singing Ambassadors, soprano Rachelle Gerodias, and a string ensemble. Court of Appeals Justice Magdangal de Leon is musical director for the concert. And according to ALA Philippines president and ACCRA co-managing director Atty. Avelino Cruz, a number of foreign dignitaries are gracing the occasion, including ALA Thailand national committee chairman Justice Pornpetch Wichitcholchai; Malaysia Court of Appeals Justice Dato James Foong Cheng Yuen, ALA Singapore National Committee chair and SC Justice Lee Seiu Kin, Parliamentary Counsel and former ALA Secretary General Charles Lim Aeng Cheng, and ALA Malaysia National Committee’s Krishnan Puspalingam.

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