(General information only – not legal advice)

I. Overview

Bond issuance in the Philippines is governed by a web of laws, regulations, and market rules aimed at:

Protecting investors
Ensuring fair, transparent capital markets
Maintaining financial system stability
Allowing government and corporations to raise long-term funding

Key players include:

Securities and Exchange Commission (SEC) – primary regulator of securities offerings
Bangko Sentral ng Pilipinas (BSP) – regulator of banks and certain financial institutions
Bureau of the Treasury (BTr) – issues government securities
Bureau of Internal Revenue (BIR) – tax and documentary stamp considerations
Exchanges and market infrastructure – e.g., Philippine Dealing & Exchange Corp. (PDEx), Philippine Stock Exchange (PSE), Philippine Depository & Trust Corp. (PDTC)

“Bonds” in this context usually means debt securities (notes, debentures, fixed-income instruments) issued by:

The national government (sovereign bonds)
Government-owned or -controlled corporations (GOCCs)
Corporations (corporate bonds)
Banks and quasi-banks (bank-issued bonds, notes, LTNCDs, etc.)
In limited cases, local government units (LGUs)

II. Core Legal and Regulatory Framework

1. Securities Regulation Code (SRC)

The Securities Regulation Code (SRC) is the backbone of securities regulation. It governs:

What counts as a security (bonds are clearly included)
When an offering is considered a public offering
When registration with the SEC is required
Ongoing disclosure and reportorial obligations
Liability for false or misleading statements

In general, public offers of bonds require prior registration with the SEC, unless the security or the transaction falls under an exemption.

2. Revised Corporation Code (RCC)

The Revised Corporation Code governs the issuer as a juridical entity:

Authority of the corporation to incur indebtedness and issue bonds
Requirement of board approval and, for bonded indebtedness, stockholders’ approval (typically at least 2/3 of outstanding capital stock)
Power to create mortgages or liens on corporate properties to secure bonds
Requirements relating to corporate governance, directors’ fiduciary duties, and conflict-of-interest rules for transactions involving bonds

3. Bangko Sentral ng Pilipinas Regulations

When the issuer is a bank or a quasi-bank, BSP regulations layer on top of the SRC and RCC, such as:

Capital treatment of the bonds (e.g., subordinated debt counting as Tier 2 capital, senior unsecured liabilities, etc.)
Approval/notification requirements for particular types of issuances
Foreign currency bond issuance rules, if applicable
Prudential and liquidity risk considerations

4. Tax Laws and BIR Regulations

The National Internal Revenue Code (NIRC) and BIR issuances deal with:

Final withholding tax on interest and other earnings from bonds
Documentary Stamp Tax (DST) on debt instruments
Tax exemptions or incentives for certain instruments (e.g., possibly long-term bonds meeting specific conditions, certain government or tax-incentivized securities)
Tax treaty relief for non-resident investors, where applicable

5. Market and Self-Regulatory Rules

If bonds are to be listed or traded on organized markets:

PDEx Listing Rules and Trading Rules apply to tradable corporate and government debt
PDTC rules apply for depository and settlement arrangements
PSE rules apply if bonds are in any way related to listed companies or hybrid products

III. Public Offering vs. Private Placement

1. Public Offerings

Under the SRC and its implementing regulations, an offer is generally “public” if it is made to the investing public, often characterized by:

Broad solicitation and advertisement
Offers to a significant number of investors

Public offerings must be registered with the SEC unless exempt. This involves:

Preparing and filing a registration statement
Preparing a prospectus with full and fair disclosure
SEC review and possible comments, revisions, and conditions
Issuance of an SEC order of registration and permit to sell

2. Exempt Securities

Certain securities are exempt from registration because the issuer or the nature of the instrument is presumed to be lower-risk or already heavily regulated, for example:

Government securities issued or guaranteed by the Republic of the Philippines
Some securities issued by certain regulated entities or international organizations

Even if exempt from registration, other laws (e.g., RCC, BSP rules, tax laws) still apply.

3. Exempt Transactions (Private Placements)

Even if the security itself is not exempt, the transaction can be exempt. Common exempt transactions include, among others:

Private placements – e.g., limited offerings to a small number of sophisticated investors
Offers to Qualified Buyers (QBs) or Qualified Institutional Buyers (QIBs), subject to SEC definitions
Sale to fewer than a certain number of persons within a specified period, under the SRC rules

In a properly structured exempt (private) offering:

SEC registration and prospectus may not be required
However, anti-fraud provisions of the SRC still fully apply
Certain notice filings, if required, must still be made
The issuer must strictly comply with conditions of the exemption (e.g., no general advertising, limits on offerees, resale restrictions)

IV. Corporate Bond Issuance: Internal Corporate Requirements

Before any regulatory filing, the issuing corporation must satisfy internal corporate law requirements.

1. Authority to Issue Bonds

The corporation must have:

Corporate purpose and powers in its Articles of Incorporation broad enough to include borrowing and issuing debt securities
No prohibition in its Articles or By-Laws against issuing bonds

2. Board Approval

The Board of Directors must approve the bond issuance, typically via a Board Resolution specifying:

The principal amount of the bonds
Key terms: interest rate, maturity, amortization, security, subordination, and other features
Appointment of a bond trustee (if applicable)
Authorization of specific officers to negotiate, finalize, sign, and deliver the relevant documents and to file with regulatory agencies

3. Stockholders’ Approval for Bonded Indebtedness

Under the RCC, bonded indebtedness (typically debt secured by a mortgage or other encumbrance, or bonds issued in series) usually requires approval of stockholders representing at least two-thirds (2/3) of the outstanding capital stock at a meeting duly called for that purpose.

This stockholders’ approval can:

Authorize the creation or increase of bonded indebtedness
Sometimes delegate to the Board the power to determine specific terms within approved limits

4. Amendments to Corporate Documents (if needed)

If the bond issuance requires changes such as:

Increasing the authorized capital stock (if convertible bonds are issued)
Amending corporate purposes or limits on indebtedness

Then corresponding amendments to the Articles of Incorporation must be approved by stockholders (generally 2/3) and filed with the SEC.

V. SEC Registration of Bonds (Public Offerings)

Where registration is required, the process involves several components.

1. Registration Statement

The issuer must file a registration statement with the SEC containing comprehensive information, typically including:

General corporate information, ownership structure, and history
Audited financial statements (and often interim financials)
Description of the bond issue: amount, denomination, interest rate, maturity, use of proceeds, risk factors, covenants
Risk factors relating to the issuer, the industry, and the securities
Management’s discussion and analysis (MD&A) of financial condition and results of operations
Material contracts, litigation, and related-party transactions
For debt, details of security or collateral (if any) and ranking (senior, subordinated)

2. Prospectus

The prospectus is the disclosure document that investors actually see. It must:

Summarize all material information in a clear, fair, and non-misleading manner
Highlight risk factors prominently
Describe rights of bondholders, events of default, and remedies
Detail the use of proceeds and capital structure before and after the offering

No sale or offer to sell should be made in violation of the SRC timing rules, which typically restrict when and how marketing materials may be used before the registration and permit to sell are granted.

3. Credit Rating

For public offerings of corporate bonds, Philippine practice usually requires obtaining a credit rating from a SEC-recognized credit rating agency.

The rating and rationale must be disclosed in the prospectus
Any changes in rating may trigger ongoing disclosure obligations

4. Trust Indenture and Bond Trustee

For bonds offered to the public, the issuer must generally:

Enter into a trust indenture with a duly licensed trust entity (usually a bank’s trust department or a trust corporation)
The trustee acts as a representative of bondholders, monitoring compliance and enforcing rights on their behalf

Key contents of the trust indenture include:

Description of the bonds and their terms
Covenants (affirmative and negative)
Events of default and remedies
Duties and powers of the trustee
Procedures for bondholders’ meetings and voting

5. SEC Review and Approval

The SEC reviews the registration statement and may:

Issue comments and questions
Require amendments and additional disclosures
Impose certain conditions before the issuance of the Order of Registration and Permit to Sell

Only after issuance of the permit to sell can the issuer and its underwriters publicly offer the bonds under the registered terms.

VI. Distribution, Listing, and Settlement

1. Underwriting and Selling Agents

Public bond offerings are usually conducted with:

Underwriters (firm commitment or best efforts)
Issue managers, bookrunners, or lead arrangers
Selling agents, especially for offerings to the retail market

Contracts like Underwriting Agreements and Selling Agency Agreements set out:

Commissions and fees
Conditions precedent to closing
Representations and warranties
Indemnities for misstatements or omissions

2. Listing on PDEx

For bonds to be traded in secondary markets, a listing on PDEx is typically sought. Requirements include:

Compliance with PDEx listing standards (e.g., minimum issue size, rating requirements, corporate governance standards)
Submission of an Information Memorandum or Offering Supplement aligned with PDEx and SEC requirements
Acceptance of continuing listing obligations, including timely disclosure of material events

3. Depository and Settlement

Bonds are generally issued in scripless (book-entry) form, with:

PDTC (or another approved depository) maintaining ownership records
Settlement through payment and delivery via accredited settlement banks

Investors therefore hold beneficial ownership through their custodians or brokers, instead of physical certificates.

VII. Ongoing Obligations After Bond Issuance

Once bonds are issued and outstanding, the issuer and trustee must comply with ongoing obligations.

1. SEC Reportorial Requirements

Issuers with registered securities typically must file:

Annual Reports (often SEC Form 17-A) with audited financial statements
Quarterly Reports (SEC Form 17-Q)
Current Reports (SEC Form 17-C) for material events (e.g., defaults, major transactions, rating downgrades)
Beneficial Ownership Reports (Forms 23-A/B) in certain cases

2. Exchange / PDEx Continuing Obligations

If listed, the issuer must comply with:

Immediate disclosure of material information
Timely disclosure of dividends, changes in control, rating actions, major asset sales, etc.
Possible corporate governance and public float or liquidity-related requirements

3. Compliance with Trust Indenture

The issuer must:

Observe all financial and non-financial covenants (e.g., leverage ratios, limitations on liens, restrictions on additional debt)
Submit periodic compliance certificates and reports to the trustee
Notify the trustee of any defaults or potential defaults

The trustee, in turn, must:

Monitor compliance
Act in the best interests of bondholders
Convene bondholders’ meetings when necessary
Enforce remedies if a default occurs (subject to thresholds and approval of bondholders, as specified in the indenture)

VIII. Tax and Documentary Stamp Considerations

1. Interest Income

Interest on bonds is generally subject to final withholding tax at rates specified by the NIRC, which can vary depending on:

The type of investor (individual, corporation, resident, non-resident)
The tenor and nature of the instrument
Any applicable tax incentives
Any tax treaty relief that has been duly secured

Issuers and paying agents have responsibilities for withholding and remittance.

2. Documentary Stamp Tax (DST)

The issuance of debt instruments usually triggers DST, computed based on the issue price/face value and the prevailing rates per unit amount.

The issuer (or sometimes the borrower in a loan-type structure) is generally the party liable to pay DST
Proper DST payment and documentation are crucial to avoid penalties

3. Tax-Advantaged or Incentivized Bonds

Certain bonds (e.g., those supporting priority sectors, infrastructure projects, or issued under special laws) may enjoy preferential tax treatment or exemptions, subject to compliance with the applicable special statutes and regulations.

IX. Special Types of Issuers and Bonds

1. Government Securities

Sovereign bonds and treasury bills/notes are generally issued under:

Special statutes authorizing the Bureau of the Treasury and the Secretary of Finance to incur public debt
Applicable budget, debt ceiling, and fiscal responsibility rules

Government securities are usually exempt securities under the SRC, though trading and distribution are still subject to market and prudential regulations.

2. Bank-Issued Bonds and Notes

When banks issue bonds (e.g., senior notes, subordinated notes, or Long-Term Negotiable Certificates of Time Deposit (LTNCDs)), additional requirements apply:

BSP approval or prescribed notification procedures
Compliance with capital adequacy and liquidity rules
Specific investor protection and documentation standards

3. Local Government Unit (LGU) Bonds

LGUs may issue bonds under local government finance laws, subject to:

Limits on indebtedness and debt service ratios
Approval from relevant oversight bodies (e.g., Department of Finance, Monetary Board, possibly others)
Compliance with SEC rules if offered to the public

4. Project, Green, and Sustainable Bonds

For project bonds and green/sustainability bonds, issuers typically align with:

National regulations and guidelines on sustainable finance
ASEAN or international standards (e.g., green bond principles), often to attract institutional and ESG-focused investors
Additional reporting on use of proceeds and impact metrics

X. Cross-Border and Foreign Currency Bond Issuances

Philippine issuers may also tap offshore capital markets, issuing bonds:

In foreign currencies (e.g., USD bonds listed in foreign exchanges)
In Philippine peso but sold abroad (e.g., “Global Peso” instruments)

Key considerations include:

Compliance with foreign securities laws (e.g., the laws of the listing jurisdiction and offering jurisdictions)
BSP rules on foreign borrowings, particularly for banks and certain corporates
Foreign exchange regulations and registration, for example to ensure the ability to service and repatriate payments
Possible double regulation (Philippine rules + foreign rules), or reliance on certain exemptions

XI. Liability and Enforcement

1. SRC Civil and Criminal Liability

Failure to comply with the SRC can result in:

Civil liability for misstatements or omissions in the registration statement, prospectus, or sales materials
Administrative sanctions (fines, suspension or revocation of registrations, disqualification of officers and directors)
Criminal liability for willful violations, including fraud and market manipulation

Liable parties may include the issuer, directors, officers, underwriters, and other persons who signed or were responsible for the registration statement.

2. Contractual and Trust-Indenture-Based Remedies

In addition to statutory liability, the trust indenture and bond documentation provide:

Events of default – e.g., non-payment of interest or principal, breach of covenants, insolvency, cross-default to other debt
Remedies – acceleration of the bonds, enforcement against collateral, appointment of receivers, or initiating insolvency or rehabilitation proceedings
Collective decision-making mechanisms for bondholders (quorum, majority thresholds, and binding decisions)

3. Insolvency and Rehabilitation Context

If an issuer suffers financial distress, bondholders’ rights will be shaped by:

The Insolvency or Financial Rehabilitation laws and court-supervised proceedings
The status of bonds as secured or unsecured, subordinated or senior
Any standstill or restructuring agreed upon in court-approved rehabilitation plans

XII. Practical Issues and Best Practices

Beyond the strict black-letter law, prudent issuers usually:

Engage early with legal counsel, underwriters, and tax advisers to structure the bonds correctly.
Conduct thorough due diligence to support disclosures and reduce liability risk.
Ensure robust internal controls and governance to maintain covenant compliance and timely reporting.
Align the bond structure with the issuer’s cash flow profile, risk appetite, and capital structure.
Maintain clear communication with bondholders and the trustee, especially in times of stress or material change.

XIII. Closing Note

Philippine bond issuance sits at the intersection of securities regulation, corporate law, banking regulation, tax law, and market practice. While the broad principles are relatively stable, specific requirements, thresholds, and procedures can and do change through new laws, regulations, and SEC/BSP/BIR issuances.

For any actual or contemplated bond issuance—or investment in bonds—parties should obtain tailored legal, tax, and financial advice based on the most current rules and the specific facts of the transaction.