New investment vehicle eyed to spur liquidity of virus-hit firms

To help prevent local financial crunch in this time of the pande­mic, the Securities and Exchange Commission (SEC) is allowing the creation of new investment vehicles called corporate debt funds (CDFs) that will primarily invest in corporate debt papers of large and medium enterprises.

“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 Chair Emilio Aquino said in a press statement on Thursday.

CDF would 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,” Aquino added.

The SEC issued for public comment on July 8 the draft rules on the minimum requirements and guidelines in the creation and operation of such investment companies.

A CDF is a closed-end investment company that offers for sale a fixed number of nonredeemable 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 Philippine government and/or its agencies.

The CDF may offer different share or unit classes with similar investment objectives but are managed as separate asset pools. Each class corresponds to a distinct part of the assets and liabilities of the CDF.

Subscription to a CDF is done only through an initial public offering and redemption is upon 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/ unit class upon their liquidation until the termination and maturity of its securities.