A Securities and Exchange Commission’s decision to relax the 20 percent investment cap on the single business group (SBG) by an investment fund will benefit conglomerates with subsidiaries that are also listed on the stock market, such as SM Group and Ayala Group of Companies, Abacus Securities Corp. said.
In an investors’ note released on Thursday, Abacus said the SEC move will likewise be a tailwind for Globe Fintech Innovations Inc.’s planned initial public offering. Globe Fintech is also known as Mynt, which owns GCash.
“This development should help smooth Mynt’s IPO path. Without the (SEC) memorandum, many funds may have had to reduce exposure to other Ayala companies and/or minimize any planned subscription to the listing,” Abacus Securities said.
“The revised rule might also help listed stocks of the SM group. Many funds may already be at the SBG limit with regard to Sy family entities since SM (SM Investments Corp.), SMPH (SM Prime Holdings Inc.), and BDO (BDO Unibank) account for nearly 30 percent of the index,” it added.
Juan Paolo Colet, Chinabank Capital Corp. managing director, said that easing rules on the SBG limit is expected to facilitate mutual fund flow into equity securities, listed conglomerates, and their listed subsidiaries.
‘“Among those who will benefit are San Miguel, Ayala, SM, Gokongwei and Alliance Global business groups,” he said.
This came after the SEC on Wednesday issued SEC Memorandum Circular No. 2 Series of 2025 (MC2), which provides for the rules on single business group investment limitation, following several requests from various fund managers on behalf of their respective managed funds, to be exempted from the application of the SBG Limit. The rules took effect on March 28.
According to the SEC, the MC also provides exemptions to the SBG limit imposed by MC No. 15, Series of 2020, which defines an SBG as a company, its subsidiaries, fellow subsidiaries, parent company and ultimate parent company.
The limit applies to equity funds, balanced funds and multi-asset funds that have actual exposure to equity securities.
Under the prevailing SBG limit, an investment company is prohibited from investing, in aggregate, more than 20 percent of its net assets in transferable securities, money market instruments, deposits, and over-the-counter financial derivatives issued by any SBG.
Instead of the SGB limit, these investment companies will be subject to the single entity or issuer investment limitation under Rule 6.8(b) of the implementing rules and regulations (IRR) of the Investment Company Act (ICA or RA2629). This means that an investment company must not invest more than 20 percent of its net assets in transferrable securities, money market securities, deposits and financial derivatives issued by a single entity or issuer.
“All investment companies, including the covered funds, shall continue to be subject to all other investment limits and restrictions under existing Commission rules and regulations, as may be applicable. This applies to investment companies with or without actual investments in financial derivatives,” the SEC said.
The SEC said it will not impose fines and penalties for any breach of the SBG Limit from the effectivity date of SEC MC No. 15, Series of 2020, until March 27, 2025, or the day before the effectivity date of MC 2.
“Any breach of the single entity/issuer limit in Rule 6.8(b) by the covered Funds will result in the imposition of corresponding fines and penalties under the ICA-IRR and other applicable laws, rules, and regulations,” the SEC said.
“Meanwhile, investment companies, including equity, balanced funds and multi-asset funds with actual exposure to equity securities, whether or not such funds have actual investments in financial derivatives, seeking to engage in the cross-border offering of their funds to other Asean member jurisdictions as Qualifying Collective Investment Schemes, are required to comply with the 20 percent SBG limit in the Asean Standards of Qualifying Collective Investment Schemes,” it added.
