Finance chief wants DBP not to lend to projects worth less than P100M

Finance Secretary Carlos Dominguez III urged state-owned Development Bank of the Philippines (DBP) to focus on financing big-ticket infrastructure projects and to refrain from lending to projects worth less than P100 million.

This as the Real Estate Investment Trust (REIT) law has already taken effect with the release of the revised Implementing Rules and Regulations (IRR).

In a statement, the Department of Finance (DOF) quoted Dominguez as advising DBP officials to take advantage of the REIT law by either providing bridge financing for REIT-funded projects or for the bank itself to venture into a REIT as it owns several real estate assets.

The Finance chief added that he does not expect the DBP, as an infrastructure bank providing bridge financing for large projects, “to be lending to anything that’s worth less than P100 million in capital.”

“I want you to be big experts in dealing with big construction companies, in dealing with large road toll projects, that should be your expertise,” Dominguez told DBP president-CEO Emmanuel Herbosa and Edgar Richard Trono, the head of the Bank’s Strategic Planning Group, during a recent meeting.

“With the REIT Law in place, we have expanded your market. More capital is coming in to people who know how to use it,” he added.

Dominguez said that while he does not expect the REIT to fully take off this year because investors are still learning the ropes on how to formulate this new asset class, he projects that there would be a capital boom next year with the formation of several REITs, which promise to be a potential market for the DBP.

Republic Act (RA) No. 9856 or the REIT Law was designed to enable real estate firms to place their assets in stock corporations the public can invest in by purchasing shares in these businesses.

The shares of the company can also be traded on the Philippine Stock Exchange (PSE).

The law's main purpose is to allow both small and large investors to own real estate assets, thereby presenting an alternative and secure investment instrument for middle-income families and overseas Filipino workers (OFWs) while providing real estate companies a cheaper source of capital as they help develop the Philippine capital market.

The new set of regulations, including the PSE's listing rules for REITs, is expected to encourage small investors like OFWs to buy into REITs and ensure that whatever fresh capital that the sponsors of these ventures raise will be reinvested exclusively in the country.

Dominguez explained that under the law, the capital that the sponsor of a REIT could raise by selling shares to investors should be reinvested here, but the REIT itself could reinvest up to 40 percent of its assets overseas.

He said the government has put in place this reinvestment requirement because REITs get tax breaks by being able to, among others, deduct their dividends from their income.

REITs are also mandated to distribute 90% of their net profits to their shareholders. — BM, GMA News