Opinion No. 24-24 Re: Applicability of the 19-Lender Rule

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Commission Securities ana Exchange

BACONG PILIPINAS

OFFICE OF THE GENERAL COUNSEL

11 September 2024

SEC OGC Opinion No.+ -24 Re: Applicability of the 19-Lender Rule

TOYOTA Financial Services Philippines Corporation 32F GT Tower International,Ayala Ave.cor.HV Dela Costa St. Salcedo VillageMakati City 1226

ATTENTION Mr.Atsushi Murakami

Dear Mr.Ocampo

9.1.2.4 [now Rule 9.1.2.5] of the Implementing Rules and Regulations (IRR) of the Republic Act (R.A.) No. 8799 or the Securities Regulation Code(SRC) [SRC-IRR] This refers to your company's letter,1 requesting for an opinion on the interpretation of Rule

also known as the nineteen (19-lender rule,viz. The letter mentions the company's interpretation of Rule 9.1.2.4 of the SRC-IRR [now Rule 9.1.2.5]

institution without banking or quasi-banking license can issue evidence of indebtedness to more than 19 primary institutional lenders without violating the rule on lender count. It can be deduced from the above provision that the lender count will apply only to non-institutionallenders.Iflenders are considered as primary institutional lenders, the19 lender (sic) rulewill not apply.Such being the case,a financial

You are now asking for a confirmation of whether or not the foregoing interpretation is correct. b) Whether or not the 19-lender rule will apply to off-shore borrowings or issuance of evidence Additionally, it is our understanding that the mentioned rule will not apply to off-shore borrowings or issuance of At the outset, we note that there are two queries included in your letter: a)Whether or not a finarrcial institution without a banking or quasi-banking license can issue evidence of indebtedness to an off-shore entity. evidence of indebtedness to more than 19 primary institutional lenders without violating the of indebtedness to an off-shore entity. 19-lender rule;and

Primary Institutional Lenders

the registration requirement under Rule 8.1.1.1 of the SRC-IRR,2 to wit: Your letter cites Rule 9.1.2.4 [now Rule 9.1.2.5] of the SRC-IRR, which provides an exemption to The registration requirements shall not likewise apply to evidence ofindebtedness,e.g. commercial papers, that meet the following conditions:

Rule 8.1.1.1, Implementing Rules and Regulations of Republic Act (R.A) No.8799 or the Securities Regulation Code(SRC(SRC-IRR. 1Letter was dated 07 April2017 04 August 2015. The SEC Headquarters,7907 Makati Avenue www.sec.gov.ph | imessagemo@sec.gov.ph +63 25322 7696 Salcedo Village, Be-ar,Makati City INPEOPLE INVESTORS No inves 1DeODl A ERTIFIED baBa. A B

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9.1.2.5.1. Issued to not more than nineteen (19) non-institutional lenders:

9.1.5.4.In an amount not exceeding One HundredFifty Million Pesos(PhP150,000,000.00) orsuch higher amount 9.1.2.5.2.Payable to a specific person 9.1.2.5.3. Neither negotiable nor assignable and held on to maturity; and as the Commission may prescribe.3 (Emphasis supplied)

evidence of indebtedness will be issued is a primary institutional lender, the term "primary institutional lender" must then be defined. Rule 10.1.4 of the SRC-IRR provides the following rule: However, considering that, under the facts you gave, the identity of the person/s to whom the by the national government, and other entities that may be classified as primary institutional lenders by the BSP, Sections 8 and 12 shall not likewise apply to issuance of evidence of indebtedness to the following primary institutional lenders: banks, including their trust accounts wherein the bank-trustee is granted discretionary powers investment house-trustee is granted discretionary powers in the investment disposition of the trust funds, trust institutions,pawnshops, pension and retirement funds approved by the BIReducationalassistance funds established in the investment disposition of the trust funds, investment houses including their trust accounts wherein the companies, financing companies, investment companies, pre-need companies, non-stock savings and loan in consultation with the SEC; provided all such evidence of indebtedness shall only be negotiated or assigned to any of the aforementioned primary institutional lenders or the Development Bank of the Philippines with respect banks without underwriting licenses, such negotiation or assignment shall be through banks or non-banks associations,building and loan associations,venture capital corporations,insurance companies,government financial to private development banks in relation with their rediscounting privileges; provided further that in case of non- licensed to be an underwriter or a securities dealer provided finally, that in no case shall said instrument be negotiated or assigned to non-qualified investors.* (Emphasis supplied)

of the SRC provided that the following conditions are present: lenders, regardless of their number, are exempt from the registration requirement under Section 8 and 12 Under Rule 10.1.4 of the SRC-IRR,5 issuances of evidence of indebtedness to primary institutional

a b C All such evidence of indebtedness shall only be negotiated or assigned to any of the In case of non-banks without underwriting licenses, such negotiation or assignment shall be through banks or non-banks licensed to be an underwriter or a securities In no case shall said instrument be negotiated or assigned to non-qualified investors. aforementioned primary institutional lenders or the Development Bank of the Philippines with respect to private development banks in relation with their rediscounting privileges; dealer; and

lenders is exempt from the requirement of registration, not under Rule 9.1.2.4, but rather under Section IRR are exempt from registration because the investors involved are considered as highly sophisticated or specialized, and as such, have a greater risk tolerance and/or do not need strict protection from the 10.1(1) of the SRC and Rule 10.1.4 of the SRC-IRR. The transactions covered by the aforementioned law and Commission. It is clear from the foregoing that the issuance of evidence of indebtedness to primary institutional

institutional lenders and does not apply to primary institutional lenders because the latter is covered by particularly, on the 19-lender rule and the registration requirement, would apply to off-shore borrowings Rule 10.4.1 of the SRC-IRR. Rule for off-shore borrowings or off-shore issuance of or issuance of evidence of indebtedness to an off-shore entity As such, as to the first query, the answer is affirmative. The 19-lender rule pertains to non- No securities shall be sold or offeredfor sale,or distributed by any person or entity within the Philippines unless such The crux of your second question pertains to whether or not the provisions of the SRC and its IRR, Rule 8.1.1.1 of the SRC-IRR provides the general rule on registration of securities, to wit: declared effective by the Commission except of a class exempt under Section 9 of the Code or unless sold in any transaction exempt under Section 10 thereof and these Rules, No information relating to an offering of securities securities are duly registered with the Commission through Form 12-1, and the registration statement has been

Rule 9.1.2.4, SRC-IRR, supra Note 2. + Rule 10.1.4., ibid. $ Rule 10.1.4, ibid.

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shall be disseminated unless a registration statement has been filed with the Commission and the written communication proposed to be released contains the required information under SRC Rule 83. (Emphasis and underscoring supplied)

an instance where the evidence of indebtedness is issued to not more than 19 non-institutional lenders. This means that the exemption is anchored on not breaching the threshold number. It follows then that if the evidence of indebtedness is issued to more than 19 non-institutional lenders, then the registration requirement would apply. One of the exemptions from the registration requirement is the 19-lender rule which contemplates

would be sold or offered for sale or distribution is also material, viz.: However, in SEC-0GC Opinion No. 24-04,7 it was emphasized that the place where the securities

Thus, for the registration requirement to bind the issuer, the following elements must be present:

b a C the subject matter must be securities the securities must either be sold or offered for sale or distribution; and the sale or offer to sell/distribute securities must be within the Philippines.

distribution outside of the Philippines, then the registration requirement would not apply As such, as to the second question, if the securities would be sold/issued or offered for sale or

an exemption under Rule 10.3.1 of the SRC-IRR which provides the following: The above discussions notwithstanding, the company may file an application for confirmation of

circumstances and documents disclosed/submitted and relevant solely to the particular issue raised therein. It shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon the courts whether of similar or dissimilar circumstances. If, upon further inquiry or investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered void. (1%) of the maximum aggregate price or issued value of the securities.s It shall be understood that the foregoing opinion is rendered based solely on the facts, may prescribe and with such notice shall pay to the Commission a fee equivalent to one-tenth (1/10) of one percent Any person applying or seeking for confirmation of an exemption under Section 10 of the Code shall file with the Commission a notice identifying the exemption relied upon on such form and at such time as the Commission by rule

Please be guided accordingly

Very truly yours.

CAt NR

General Counsel

6 Rule 8.1.1.1, SRC-IRR, supra Note 2 7SEC-OGC Opinion No.24-04 addressed to Marriott Ownership Resorts Inc. dated 26 March 2024 Rule 10.3.1, SRC-IRR, supra Note 2. 9 Section 7, SEC Memorandum Circular No. 15, Series of 2003.16 December 2003.