Special Purpose Vehicle in the Philippines: A Mode for Capital Formation
The first time I encountered the term "Special Purpose Vehicle" (SPV) was four years ago, when I began delving into private investments. I noticed that the majority of investment syndicates and group investments used SPVs to facilitate funding for specific startup teams. Initially, I assumed this structure was unique to the U.S., but I later discovered that the Philippines has its own SPV law, which, surprisingly, is not typically taught in law school.
What is an SPV in the Philippines?
Special Purpose Vehicle is a legal entity created by a person or entity for a narrow and specific purpose. In the Philippines, SPVs are stock corporations primarily established to acquire or invest in non-performing assets (NPAs) from financial institutions. These NPAs are strictly limited to: (1) non-performing loans (NPLs) and receivables, where the principal or interest has remained unpaid for at least 180 days after becoming due, or where a default event has occurred under the loan agreement; (2) real properties (and other chattels) that previously served as collateral for secured loans and were acquired by financial institutions through dation in payment, judicial or extrajudicial foreclosure, or execution of judgment.
Why Do SPVs Matter in Capital Formation and Fundraising?
While the Philippine SPV Act restricts their use to NPAs like distressed loans, receivables, and certain real properties, it does not explicitly permit SPVs for funding companies or startups. Even examining the Central Bank Guidelines on SPVs, there lacks a provision about capital formation. This limitation misses an opportunity to promote broader capital formation. By expanding the law to include other assets, such as equity investments in startups, SPVs could stimulate economic growth in the Philippines, allowing more participants to engage in higher-risk ventures like technology and innovation projects. Although government authorities rightly prioritize protecting unsophisticated investors, well-crafted guidelines could mitigate risks while fostering long-term market benefits.
In a broader sense, SPVs excel at pooling investments from multiple accredited participants to form a single entity. This entity then makes a unified investment into a target project or startup, avoiding the complexity of dozens of individual investors negotiating directly with founders—which can otherwise stifle innovation and growth. SPVs are particularly effective because they are restricted to specific actions and formed solely for a defined purpose, safeguarding pooled funds from unauthorized or extraneous uses. They also lower entry barriers, enabling participants with limited capital to join forces and invest in promising ventures. Ultimately, this could have a profound impact on invigorating the technology and startup ecosystem in the Philippines.
