Securitizing the Economy
After almost two long years of waiting at the Senate, the Securitization Act of 2004 was signed by President Gloria Macapagal-Arroyo on 19 March 2004. The economy is expected to gain from this law’s implementation, which provides a legal and regulatory framework for the sale of loans, mortgages, receivables, debt instruments, and other asset-backed securities.
Securitization refers to the sale of assets without recourse basis by the seller to a special purpose corporation, or special purpose trust when the seller is a bank, which shall issue securities supported by a pool of assets. The implementation of the law is seen to boost the capital markets of the country as businessmen are given the opportunity to convert their idle assets into tradable instruments and utilize it for future investments.
Special purpose entities are created solely for the purpose of securitization and are not considered as banks, quasi-banks, or financial intermediaries. As such, they are exempt from the five percent gross receipt tax. The transfer of assets made under securitization shall be exempt from the obligation to pay value-added taxes and documentary stamp tax. Asset-backed securities under a special purpose entity shall not be accepted as substitute for deposits and the yield from asset-backed securities shall be subject to 20 percent final withholding tax.
The law also facilitates the creation of secondary mortgage institutions that are responsible in providing liquidity mechanism to primary mortgage lenders and holders as well as in developing a secondary market for mortgage and housing-related asset-backed securities. In order to promote the securitization of mortgage and housing related receivables of the government as determined by the Housing and Urban Development Coordinating Council and the Department of Finance, the income yields of an investor from any low-cost housing or socialized housing project shall be exempt from income tax.
Because the law was signed during the heat of an election period, concerned agencies cannot assure the public and the investors of its full implementation. To begin with, the implementing rules and regulations (IRR) have not been completed yet. Secondly, since sessions in Congress have been adjourned, its approval will most likely have to wait until the new Congress opens in July 2004. The Securities and Exchange Commission, the Bangko Sentral ng Pilipinas, and the Department of Finance are the government agencies tasked to draft the law’s IRR.
Benpres Bails Out of Maynilad Water
The Department of Justice said the Lopez family, whose holding company Benpres Holdings controls 60 percent of the financially distressed Maynilad Water Company, has agreed to give up ownership of the utility company to settle the row on the 25-year concession agreement it signed with the government in 1997.
Once approved by the Securities and Exchange Commission and the Quezon City Regional Trial Court, the reorganization plan will allow Benpres to totally divest of its interest in Maynilad and free it from its obligations to creditors. Maynilad owes the Metropolitan Waterworks and Sewerage System (MWSS) some P8 billion in unpaid concession fees, and its creditors another P8 billion. The new ownership structure will give government-owned MWSS a controlling stake of 39 percent in Maynilad. French firm Ondeo, which currently owns 40 percent, will get 19 percent while Metropolitan Bank and Trust Co. will get two percent, and employees, four percent. The balance will be accounted for by creditors and other parties.
Benpres’ stock closed higher as investors reacted positively to the company’s pending withdrawal from Maynilad. The Lopezes, according to analysts, want to divest their non-core assets to concentrate on power and media. Benpres also controls the Manila Electric Company - also in financial distress due to the court-ordered refund, and the ABS-CBN network.
Page 1 | 2 |
