SECURITIES issued by public-private partnerships (PPPs) will make a good proxy to real estate investment trusts (REITs) long restrained by stringent taxation and ownership rules, according to an official from the local bourse.
Prospective investors in REITs may subscribe to proponents of PPP infrastructure projects while the government revisits regulations that have prevented the former from taking off, Philippine Stock Exchange (PSE) Chief Executive Officer Roel A. Refran said.
“PPP infrastructure projects have steady income stream just like REITs, and my view is that a listed PPP project would provide investors similar income stream,” Mr. Refran said in a mobile phone message on Monday.
“However, difference is that a REIT should distribute 90% of its net income every year to its stockholders, while there is no such requirement for PPPs.”
Republic Act No. 9856, which lapsed into law in December 2009, allows for the establishment of REITs or stock corporations using a pool of investor funds to purchase and manage income-generating real estates. Listing rules for such trusts became effective on Oct. 8, 2010.
No major property developer, however, pursued such listing because of the stringent tax treatment and public ownership requirement.
The Bureau of Internal Revenue had imposed a 12% value-added tax on initial transfers of assets to REITs. The Securities and Exchange Commission (SEC), meanwhile, had required public ownership over 67% of outstanding shares in such trusts within three years.
The change in government leadership ushered in hopes for a more conducive regulatory environment for REITs, with the Department of Finance initiating a review of contested regulations to possibly relax them.
In the meantime, the PSE seeks approval from the SEC for listing rules applicable to companies undertaking infrastructure projects under the government’s PPP framework.
“We’re working on the PPP rules already submitted to the Securities and Exchange Commission. What this will do is this will be a very good complement to the PPP program, infrastructure program of the government,” Mr. Refran said during an Aug. 26 interview.
The PSE released the proposed supplemental listing and disclosure rules for the private sector proponents of PPP infrastructure projects on May 31 for public comment.
According to the draft rules, the local bourse would only entertain listing applications from companies or consortiums undertaking infrastructure projects through PPP contracts each amounting to P5 billion and above.
The applicants must have started commercial operations or completed construction or a phase of the project at the time of listing. Their PPP contracts must have a remaining life of at least 15 years from the date of application.
In addition, the PSE relaxed the requirement for companies to have a three-year track record of being profitable and with operating history before going public, considering that most PPP proponents are consortiums or joint ventures formed for a specific projects.
“Even as we don’t yet have the real estate investment trust vehicle, we feel that this is already a good proxy for the REITs [because it] allows the PPP participants also to consider tapping the capital markets,” Mr. Refran said.
REITs nevertheless remain superior over PPP securities in terms of delivering shareholder value, Shareholders Association of the Philippines President Francisco Ed. Lim noted during a Sept. 2 interview.
“REITs have tax incentives so, for them to continue enjoying their tax incentives, they should declare at least 90% of their income for the year. From an investor’s or shareholder’s point of view, REITs make a better investment product because of the mandatory dividend declaration,” Mr. Lim said.
source: Businessworld
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