New Rules on Registration of Short Term Commercial Papers (as Amended)

December 8, 1981 NEW RULES ON REGISTRATION OF SHORT TERM COMMERCIAL PAPERS (AS AMENDED) Pursuant to the Revised Securities Act * and other existing applicable laws the Commission hereby promulgates the following new rules and regulations governing short-term commercial papers, in the interest of full disclosure and protection of investors and lenders in accordance with the monetary and credit policies of the Central Bank. cdll SECTION 1. Scope . These Rules and Regulations shall apply to short term commercial papers issued by corporations. SECTION 2. Definition . For the purpose of these Rules the following definitions shall apply: (a) Commercial paper is an evidence of indebtedness of any Corporation to any person or entity with a maturity of three hundred sixty-five (365) days or less. (b) Inter bank loan transaction shall refer to borrowings between and among banks and non-bank financial intermediaries duly authorized to perform quasi- banking functions. (c) Issue means creation of a commercial paper and its actual or constructive delivery to the payee. SECTION 3. Registration of Commercial Papers . Any corporation desiring to issue commercial paper shall apply for registration with and submit to the Commission the following: (a) Ordinary Registration . (1) Sworn Registration Statement in the prescribed form; (2) Board Resolution signed by majority of its members: (a) authorizing the issue of commercial papers; (b) indicating the aggregate amount applied for; (c) providing that the registration statement shall be signed by the principal executive officer the principal financial officer, the comptroller or principal accounting officer or persons performing similar functions; and (d) designating at least two (2) senior officer with a rank of vice-president or higher, or their equivalent, to sign the commercial paper instruments. (3) The latest audited financial statements; and should the same be as of a date more than three (3) months prior to the filing of the registration statement, an audited financial statement as of the end of the immediately preceding month: Provided, however, That such unaudited financial statement shall be certified under oath by the accountant and the senior financial officer of the applicant duly authorized for the purpose and substituted with an audited financial statement within one hundred five (105) days after the end of the applicant's fiscal year. (4) Schedules A to L based on sub-section (3) above in the form attached as Annex A; (5) A committed credit line agreement with a bank or any financial institution which may be qualified subsequently by the Central Bank, earmarked specifically for repayment of aggregate outstanding commercial paper issues on a pro-rata basis with the following features; (i) A firm irrevocable commitment to make available funds to cover at least 20% of the aggregate commercial papers outstanding at any time: Provided, That if the commitment is extended by a group there shall be a lead bank or any financial institution which may be qualified subsequently by the Central Bank for the group; (ii) The commitment shall be effective for as long as the issues are outstanding and may be renewed by the bank or any financial institution which may be qualified subsequently by the Central Bank; (iii) The request for drawdown shall be addressed to the bank or any financial institution which may be qualified subsequently by the Central Bank, which request shall be duly signed by the member of the board of directors and a senior financial officer of the commercial paper issuer duly authorized for the purpose by an appropriate board resolution which shall also provide for the designation or the alternate signatories (likewise a member of the board of directors and senior financial officer); (iv) A provision that availments shall be allowed only for repayment of commercial papers which are due and payable in accordance with the terms of the commercial papers; (v) Notwithstanding the foregoing requirements for a committed credit line with the bank, financial institution which may be qualified subsequently by the Central Bank of the Philippines, any corporation desiring to issue commercial papers may be exempted from compliance therewith by the Securities and Exchange Commission should it meet all the following financial ratios based on consolidated audited financial statements for the immediate past three (3) years: (1) Average current ratio shall be at least 1.21.1 computed as follows: Current Ratio = Current Assets Current Liabilities or Average acid-test ratios shall be at least 0 . 5 : 1 computed as follows" Acid Test Ratio = Cash receivable and marketable securities Current Liabilities (2) Average solvency position shall be one whereby total assets must not be less than total liabilities ; (3) Average net profit margin shall be at least 3% computed as follows: Net income after income tax corporate development taxes N P M = and other non-cash charges Net Sales or revenues or Average annual return on equity shall be at least 8% computed as follows: Net income after income tax Corporate development taxes R O E = and other non-cash charges Total Stockholders' Equity (4) Average interest service coverage ratio shall be at least 1 . 21 : 1 computed as follows: Net income before interest expense, income tax, corporate development taxes and other non-cash charges I S C R ratio = Interest Expense (5) Debt to equity ratio shall not exceed 2 . 5 : 1 The Securities and Exchange Commission may, in its discretion, consult with industry organization(s) such as the Investment Houses Association of the Philippines (IHAP) and Bankers Association of the Philippines (BAP) and/or the Credit Information Bureau, Inc. (CIBI). (6) A selling agreement for the commercial paper issues with an expanded commercial bank or any financial institution which may be qualified subsequently by the Central Bank, with minimum conditions that the selling agent, among others, shall be responsible for ensuring that the issuers observes the provisions of these rules pertaining to the use of proceeds of the committed credit line and, with the issuer, shall be jointly responsible for complying with all reportorial requirements of the Commission and the Central Bank in connection with the commercial paper issue, it being understood that the primary responsibility for the submission of the report to said regulatory agencies is upon the selling agent: Provided, however, That if the commercial paper issuer is unable to provide the information necessary to meet such reportorial requirements, the selling agent, shall, not later than (2) working days prior to the date when the report is due, notify the Commission of such inability on the part of the issuer: Provided, finally, That if the selling agreement is with the group, composed of or any financial institutions which may be qualified subsequently by the Central Bank, there shall be a syndicate manager acting and responsible for the group. (7) Income statements for the immediate past three (3) fiscal years audited by an independent certified public accountant provided that, if the applicant has been in operation for less than three (3) years, it shall submit income statements for such number of years that it has been in operation. (8) A printed copy of the preliminary prospectus approved by the applicant's Board of Directors, which among others, shall contain the following: (i) A statement printed in red on the left hand margin of the front page of the following tenor: "A registration statement relating to these short term commercial papers has been filed with, but has not yet been approved by the Securities and Exchange Commission. Information contained herein is subject to completion or amendment. These short term commercial papers may not be sold nor may offer to buy be accepted prior to the time the registration statement is approved. This preliminary prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these commercial papers in the Philippines as such offer, solicitation or sale is prohibited prior to registration under the Revised Securities Act." (ii) Aggregate maximum amount applied for, stated on the front page of the prospectus; (iii) Description and nature of the applicant's business; (iv) Intended use of proceeds; (v) The nature of the firm, irrevocable and committed credit line, the amount of the line which shall be at least 20% of the aggregate outstanding commercial paper issues, (proceeds of which shall be allocated on a pro rata basis to the aggregate outstanding commercial paper issue regardless of the order of their maturities), and the manner of availments as stipulated in the credit line agreement between the bank and the issuer; (vi) The provision in the selling agreement naming the selling agent and responsibilities of the selling agent in connection with, among others, the use by issuer of the proceeds of the bank committed credit line and the reportorial requirements under these rules; (vii) Other obligations of the commercial paper issuer classified by maturities (maturing within six (6) months; from six (6) months to one (1) year, over one (1) year, and past due amounts); (viii) Encumbered assets; (ix) Directors, officers and stockholders owning 2% or more of the total subscribed stock of the corporation, indicating any advance to said directors, officers and stockholders; (x) List of entities where it owns more than 33-1/3% of the total equity; as well borrowings from and advances to said entities; cdll (xi) Financial statements for the immediate past three (3) fiscal years audited by an independent certified public accountant provided, that, if the applicant has been in operation for less than three (3) years, it shall submit financial statements for such number of years that it has been in operation. (b) Special Registration In the case of special registration provided under Section 10 hereof, the following shall, in addition to the immediately preceding requirements, be prepared and submitted by the selling agent on behalf of the applicant; 1. Projected annual cash flow statement as of the date of filing presented on a quarterly basis, supported by schedules on actual maturity patterns of existing receivables and liabilities (under six (6)-month; six (6) months to one (1) year; over one (1) year and past due amounts ) and inventory turnover as of the end of the month prior to the filing of the registration statement; and 2. Complementary financial ratios for each of the immediate past three (3) fiscal years: (i) Ratio of (a) the total of cash on hand marketable securities, current receivables to (b) the total of current liabilities; (ii) Debt to equity ratio, with debt referring to all kinds of indebtedness including guarantees; (iii) Ratio of (a) net income after taxes to (b) net worth; (iv) Net profits to sales ratio; and (v) Such other financial indicators as may be prescribed by the Commission. These additional data shall likewise be incorporated in the prospectus. (c) The Commission may, wherever it deems necessary, impose other requirements in addition to those enumerated in subsections (a) and/or (b) above. SECTION 4. Commercial Papers Exempt Per Se . The following specific debt instruments are exempt per se from the provision of these Rules: (a) Evidence of indebtedness arising from interbank loan transactions; (b) Evidence of indebtedness issued by the national and local governments; (c) Evidence of indebtedness issued to the Central Bank under its open market and/or rediscounting operations; (d) Evidence of indebtedness issued by the Central Bank of the Philippines, Philippine National Bank, Development Bank of the Philippines, Land Bank of the Philippines, Government Service Insurance System and the Social Security System; (e) Evidence of indebtedness issued to the following primary institutional lenders banks, including their trust accounts, trust companies , non-bank financial intermediaries authorized to engage in quasi-banking functions, investment houses including their trust accounts, financing companies, investment companies, non-stock savings and loan associations, building and loan associations venture capital corporations, special purpose corporations referred to in Central Bank Monetary Board Resolution No. 1051 dated June 9, 1981, insurance companies, government financial institutions, pawnshops; pension and retirement funds approved by the Bureau of Internal Revenue, educational assistance funds established by the national government ; and other entities that may be classified as primary institutional lenders by the Central Bank, in consultation with the Securities and Exchange Commission, provided all such evidence of indebtedness shall be held on to maturity and shall neither be negotiated nor assigned to any one other than the Central Bank, and the Development Bank of the Philippines with respect to private development banks in connection with their rediscounting privileges, and financial intermediaries with quasi banking function ." (f) Evidence of indebtedness the total amount of which does not exceed Five Million Pesos (P5,000,000.00) and issued to not more than ten (10) primary lenders other that those mentioned in subsection (e) above, which evidence of indebtedness shall be payable to a specific person and not to bearer and neither be negotiated nor assigned but held on to maturity; Provided, however that issuers under subsection (f) shall: * Amended Rules dated August 13, 1982 a. File in the prescribed formats (1) Disclosure Statement prior to the issuance of any evidence of indebtedness and a (2) Quarterly Report while such borrowings remain outstanding and; b. Indicate in bold letters on the face of the debt instruments the words: "NON-NEGOTIABLE/NON-ASSIGNABLE" (g) Evidence of indebtedness denominated in foreign currencies; and (h) Evidence of indebtedness arising from bona fide sale of goods or property. SECTION 5. Other Commercial Papers Exempt from Registration . Commercial Papers issued by any financial intermediary authorized by the Central Bank to engage in quasi-banking functions shall be exempt from registration under Section 3, but shall be subject to payment of the exemption fee as provided under Section 15 and to the reportorial requirements under Section 17, all under these Rules SECTION 6. Prohibition . No commercial paper except of a class exempt under Sections 4 and 5 hereof shall be issued unless such commercial paper shall have been registered under these Rules; Provided, That no registered commercial paper issuer may issue commercial paper exempt per se under Section 4(f) hereof. SECTION 7. Compliance with Central Bank Quasi-Banking Requirements . Nothing in these Rules shall be construed as an exemption from or a waiver of the applicable Central Bank rules/regulations or circulars governing the performance of quasi-banking functions or financial intermediaries duly authorized to engage in quasi-banking activities. Any violation of said Central Bank rules/regulations or circulars shall be considered a violation of these rules and regulations. SECTION 8. Action on Application for Registration . (a) Within sixty (60) days after receipt of the complete application for registration the Commission shall act upon the application and shall in the appropriate case grant the applicant a Certificate of Registration and Authority to Issue Commercial Papers. (b) The Commission shall return any application for registration, in cases where the requirement of applicable laws and regulations governing the issuance of commercial papers have not been complied with or for reasons which shall be so stated. SECTION 9. Ordinary Registration . If the value of commercial papers applied for, when added to the total outstanding liabilities of the applicant, does not exceed three hundred per cent (300%) of networth based on the financial statements referred to under Section 3(a)(3), the commercial papers shall be registered upon compliance with the requirements specified in Section 3(a) hereof. The same principle shall apply in the case of renewal of the Authority to Issue Commercial Papers. SECTION 10. Special Registration . If the value of commercial paper applied for exceeds three hundred per cent (300%) of networth as contemplated in the preceding section, it shall be subject to compliance with the requirement under Section 3(b) hereof. SECTION 11. Validity Period of the Authority to Issue Commercial Paper . The authority to issue commercial paper shall be valid for a period of three hundred sixty-five (365) days which shall be indicated in the Authority, to Issue Commercial Paper, provided that renewal thereof upon the application filed at least forty five (45) days prior to its expiry date, may be for a period shorter than three hundred sixty-five (365) days. SECTION 12. Conditions of the Authority to Issue Commercial Paper . (a) In the event that the commercial paper issuer fails to pay in full any commercial paper upon demand at stated maturity date, the Authority to Issue Commercial Paper is automatically suspended. The selling agent, shall within the next working day, notify the Commission thereof and the Commission shall forthwith issue a formal Cease and Desist Order enjoining both the issuer and the selling agent from further issuing or selling commercial papers. (b) Whenever necessary to implement the monetary and credit policies promulgated from time to time by the Monetary Board of the Central Bank, the Commission may suspend the Authority to Issue Commercial Paper or reduce the authorized amount thereunder, or schedule the maturities of the registered commercial paper to be issued. SECTION 13. Basic Features of Registered Commercial Papers . (a) All registered commercial paper instruments shall have a standard format, serially pre-numbered and denominated. The instrument shall state, among others the debt ceiling of the registrants and a notice that information about the registrant submitted in connection with the registration and other reportorial requirements from the issuer is available at the Commission and open to public inspection and that the issuer is not authorized by the Central Bank to perform quasi-banking functions. (b) A specimen of the proposed commercial paper instrument shall be submitted to the Commission for approval of the text hereof. (c) The approved instrument shall be printed by the Central Bank Security Printing Plant pursuant to a prior authorization from the Commission and shall be released by the Commission to the issuer. SECTION 14. Minimum Maturity Value . The maturity value of each registered commercial paper instrument shall not be lower than Three Hundred Thousand Pesos (P300,000.00). SECTION 15. Fees . Every registrant shall pay the following fees: (a) Upon application for registration and for renewals thereof, a filing fee of not more than 1/50th of 1% based on the total commercial paper proposed to be issued. (b) For issuers of commercial paper exempt under Section 5 hereof, an annual exemption fee of P10,000 . 00 . SECTION 16. Notice of Availment . Whenever the credit line is drawn upon, the selling agent and/or issuer shall within two (2) working days immediately following the date of drawdown notify the Commission of such event indicating the amount availed of and the total availments as of that given time. SECTION 17. Periodic Reports . (a) Issuers of registered commercial papers and those exempt under Section 5 hereof shall submit to the Commission and the Central Bank the following reports in the prescribed form: (1) Monthly reports on commercial papers outstanding as at the end of each month, to be submitted within ten (10) working days following the end of the reference month; (2) Quarterly reports on commercial paper transactions accompanied by an interim quarterly financial statement to be submitted within thirty (30) calendar days following the end of the reference quarter; and (3) For issuers whose application for registration was under Section 10, hereof, the projected quarterly cash flow statements with corresponding quarter's actual figure to be submitted within ten (10) working days following the end of the reference quarter; LexLib (b) These periodic reports shall be signed under oath by the corporate officers authorized pursuant to a board resolution previously filed with the Commission. (c) Issuers whose offices are located in the provinces may submit their reports to the nearest extension offices of the Commission. SECTION 18. Administrative Sanctions . If the Commission finds that there is a violation of any of these Rules and Regulations and implementing circulars or that any issuer, in a registration statement and its supporting papers as well as in the periodic reports required to be filed with the Commission and the Central Bank, has made any untrue statement or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or refuses to permit any lawful examination into its corporate affairs, the Commission shall, in its discretion, impose any or all of the following sanctions: (a) Suspension, or revocation, after proper notice and hearing of the Certificate of Registration and Authority to Issue Commercial Paper; (b) A fine in accordance with the guidelines that the Commission shall issue from time to time: Provided, however, that such fine shall in no case be less than P200 nor more than P50,000.00 for each violation plus not more than P500 for each day of continuing violation . Annex "B" hereof shall initially be the guideline on the scale of fines. (c) Other penalties within the power of the Commission under existing laws; and (d) The filing of criminal charges against the individuals responsible for the violation. SECTION 19. Cease and Desist Order . The Commission may, on its own motion or upon verified complaint by any aggrieved party, issue a Cease and Desist Order ex-parte, if the violation(s) mentioned in Section 18 may cause great or irreparable injury to the investing public or may amount to palpable fraud or violation of the disclosure requirements of the Securities Act and of these Rules and Regulations. The issuance of such Cease and Desist Order automatically suspends the Authority to Issue Commercial Paper. Such Cease and Desist Order shall be confidential in nature until after the imposition of the sanctions mentioned in Section 18 shall have become final and executory. Immediately upon the issuance of an ex-parte Cease and Desist Order, the Commission shall notify the parties involved and schedule a hearing on whether to lift such order or to impose the administrative sanctions provided for in Section 18 not later than fifteen (15) days after receipt of notice. SECTION 20. Repealing Clause . These Rules and Regulations supersede the Rules on Registration of Commercial Papers dated December 10, 1975, and all the amendments to said Rules. All other rules, regulations, orders, memoranda circular of the Commission which are inconsistent herewith are likewise hereby repealed or modified accordingly. SECTION 21. Transitory Provision . Any authority to issue commercial paper valid and subsisting as of the date of the effectivity of these Rules and Regulations, shall remain valid and upon its expiration may, at the discretion of the Commission and subject to such conditions as it may impose, be renewed on the basis of the Rules of Registration of Commercial Papers dated December 10, 1975 for an aggregated period not exceeding fifteen (15) months from its expiry date. SECTION 22. Effectivity . These Rules and Regulations shall take effect on December 11, 1981. (SGD.) MANUEL G. ABELLO Chairman Securities and Exchange Commission APPROVED: (SGD.) ALFREDO PIO DE RODA, JR. Acting Minister Ministry of Finance (SGD.) Chairman Monetary Board of the Central Bank of the Philippines ANNEX A SHORT TERM Schedules A to L Schedule A Marketable Securities: (1) To be classified according to the entity issuing the securities. (2) Total No. of shares held by registrant. (3) Total acquisition cost of securities held by registrant. (4) Reasonable market value of securities held by registrant. Schedule B Amount receivable from Directors, Officers, Stockholders and Other Related Interests. (1) Name of Debtor (2) Capacity in the firm (3) As shown in the balance Sheet (4) Portion collectible within one year (5) Portion collectible after one year (6) Date of collectibility (7) Description of debt (8) Estimated Amount to be written off. Schedule C Investments in Securities (1) To be classified according to the entity issuing the securities. (2) Total number of shares held by registrant. (3) Total acquisition cost of securities held by registrant. (4) Reasonable market value of securities held by registrant. Schedule D Advance to Subsidiaries and Affiliates (1) Name of Firm (2) Amounts as shown in the Balance sheet (3) Collectible within one year (4) Collectible after one year (5) Maturity date of advances (6) Description of debt (7) Estimated amount not intended for collection (8) Conversion to equity investment; some other purpose which should be stated/disclosed. (9) Include column for collateral Schedule E Property, Plant, Equipment and Related Accumulated Depreciation (1) Properly grouped according to appropriate classifications (2) Acquisition cost (3) Purchase date or other similar reckoning date (4) Total write-offs against acquisition cost (5) Total of this column should be equal to amount shown in Balance Sheet Schedule F Intangible Assets and Related Amortization/Depletion (1) Properly grouped according to appropriate classifications (2) Total capitalized amount (3) Origination of asset (4) Total write-offs against capitalized value. (5) Total of this column should equal the amount shown in the financial statement. Schedule G Long Term Debts (1) Name of person or entity to whom debt is due, if a traditional loan from financial institution; if as bonds make mention of registry book which shall be opened for inspection but not necessary for long term commercial papers. (2) Amount reflected in the financial statement. (3) Date the loan was contracted. (4) Date the loan is due. (5) Current portion of long-term debt. (6) Portion of long-term debt due beyond one year from date of financial statement. (7) Pertinent information regarding loan. (8) Any debt instrument executed to evidence the loan. (9) Other Information: Any collaterals, to be described/explained; Any guarantees, to be described/explained Schedule H Indebtedness to Affiliates (1) Person or entity to whom debt is due. (2) Amounts shown in B/S. (3) Amount collectible within 1 year. (4) Collectible beyond one year. (5) Date due and deductible. (6) Description of debt (7) Estimated Amount not intended for Collection (8) Conversion to equity investment: sole some other purpose which should be stated/disclosed. (9) Include column for collateral. Schedule I Liability Reserves and Surplus Reserves (1) Explanation of account. (2) Reason for setting up of account. (3) Value of account on the date of financial statement. (4) To be disclosed if account is intended to be closed as a certain date. (5) Other relevant facts to be disclosed to investors. a. Concepts/journal entries/other accounts involved b. Nature of account contingent, real liabilities, etc. c. Reasons for setting up the account. Schedule J Capital Stock Schedule K List of Top 20 Stockholders of Record and Stockholding of Board of Directors Schedule L Appraisal Increment ANNEX B SHORT TERM SCALE OF FINES Nature of Violation 1 Issuance of registrable commercial paper without prior registration in .001 of the amount issued but violation of Section 6 in no case less than P1,000.00 2 Negotiation or assign- ment of commercial paper exempt per se .001 of the amount negotiated under Sec. 4(e) and (4) in or assigned but in no case less violation of Sec. 6 than P1,000.00 3 Failure to notify the SEC within the prescribed period of the issuer's in- ability to pay in full any commercial paper upon demand at stated maturity date in violation of Sec. 12(a) P1,000.00 4 Failure to provide selling agent/syndicate manager information necessary to meet the reportorial re- quirements in violation of Sec. 3(6) P1,000.00 5 Failure to notify the SEC within the prescribed period of inability of issuer to provide information on reportorial require- ments in violation of Sec. 3(6) P1,000.00 6 Failure to ensure observ- ance by issuer of the use of proceeds stated in the issuer's prospectus and Registration Statement in violation of Sec. 3(6) P1,000.00 7 Failure to notify the SEC of the amount of draw- down on the credit line, and the total availment as of that given time, within .001 of the amount of draw- 2 days following the date down on the credit line and of drawdown, in violation .0001 on the total availment of Sec. 16 as of that given date. 8 Issuance of registered commercial paper with a maturity value of less than P300,000.00 in violation of Sec. 14. P500.00 per paper 9 Issuance of registered commercial paper form printed in violation of Sec. 13. P500.00 per paper 10 Issuance of commercial .002 of the amount issued in papers in excess of debt excess of the debt ceiling but ceiling in no case less than P1,000.00 11 Late or non-filing of audited financial state- ment in violation of Sec. 3(a)(3) P1,000.00 12 Late or non-submission of monthly and quarterly reports in violation of Sec. 17 P1,000.00 13 Inadequate or inaccurate disclosure of material in- formation in registration statement and periodic reports P5,000.00 14 Late filing of renewal application in violation of Sec. 11 P500.00 The foregoing schedule of principal fines shall be imposed on first violations and the second and third or subsequent violations shall be fined double and triple the amount of the above-mentioned fines, respectively. For continuing violations, an additional daily fine of not more than P500.00 for each day the violation persists shall be imposed. It shall be understood that the Commission may impose fines on other areas of violations that may be further detected as it implements The Revised Securities Act and its implementing rules and regulations and circulars, provided that such fine shall in no case be less than P200 or more than P50,000.00 for each violation plus not more than P500 for each day of continuing violation. In addition, the imposition of the foregoing Scale of Fines shall be without prejudice to the application of other administrative sanctions provided for under the Rules and/or the filing of criminal charges against the individuals responsible for the violation. cdll