Finance Secretary Carlos Dominguez III wants the Development Bank of the Philippines (DBP) to focus on improving its wholesale banking services and help finance big-ticket infrastructure projects, especially with the full implementation of the Real Estate Investment Trust (REIT) Law set to unleash more capital into the market once it takes off starting next year.
Dominguez advised 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.
As an infrastructure bank providing bridge financing for large projects, Dominguez said he does not expect the DBP “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 where the public can invest in by purchasing shares in these businesses. The shares of the company can also be traded at 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.
A new set of amended rules and regulations signed by Dominguez and other government officials last Jan. 20 brought the REIT law to life.
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 can 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 percent of their net profits to their shareholders.
“This will create for the REIT sponsor another set of capital, which I’m sure they will start reinvesting. Those are your clients now, we have expanded your market,” Dominguez told the DBP officials at the meeting.
During the meeting, Dominguez also agreed to Herbosa’s request that the DBP be exempted anew from remitting 50 percent of its net earnings as dividends to the national government.
The Finance chief suggested that DBP purchase the properties required by the Department of Foreign Affairs (DFA) for its embassies and other overseas offices in major countries and rent them out to further raise income for the Bank.
He also advised DBP to invest in financial technology (fintech) rather than put up more physical branches, given that the institution is not engaged in retail banking but in wholesale banking, which caters to other institutional investors, financial institutions, government units and corporations.