May 27th, 2023
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) says that the House of Representatives is studying the Senate’s version of the Maharlika Investment Fund and that “we are talking to stakeholders and experts to see whether we need a bicam or the Senate version is acceptable, as it stands.”
“Well, I don’t want to preclude their processes. I think they’re in the period of interpellation right now, and will probably take up amendments and approval next week, at the earliest,” Salceda said.
“There’s still enough time to approve it before SONA, for sure. But whether there is bicam or not, whether the House ratifies the Senate version, as SP Zubiri suggested, really depends on the final output,” Salceda added.
“Right now, my comment is I see that they removed all special exemptions to civil service rules, and to audit. Now, that’s well and good, but from a corporate operations point of view, that also presents certain challenges.”
“That’s why when we sought to redesign it with the help of experts last December, the solution we came up with is to just incorporate it basically like any other corporation. In Singapore, with Temasek – the famous sovereign wealth fund – they have a term for that. Government-linked corporations. It’s not government-owned or controlled. So, the fiscal exposure of the government is limited, but it is accountable to the public.”
“Right now, it appears that MIF will be a GOCC in every sense. That has operational pros and cons,” Salceda, who headed the working group designated by the House to write its version, added.
“Of course, the House version was a ‘first draft,’ and we expected the conversation to continue, and we are ready to go to bicam, if need be,” Salceda said.
Public listing, strategic partners
If there is a bicameral conference called for the bill, Salceda says, and if he is made part of it, the House tax chair says he will propose provisions on public listing and the inclusion of multilateral banks and institutions as strategic partners.
“Multilateral banks would be very good strategic partners. I believe that and that is also what the experts I talk to suggest. I think there has to be provisions allowing them to be equity investors from the start, or at least before public listing,” Salceda said.
“Their expertise and credibility — you want that from the get-go. So, it’s wise to provide for their early entry.”
Salceda adds that “government-linked companies also tend to attract a certain valuation premium when listed in the stock market, so I think it’s wise to offer it up for public ownership.”
“If you list it, and it’s a GLC, generally, it attracts a valuation premium of around 20 percent. Typically, the price-to-asset ratio for most companies is around 1.3. With 500 billion in MIF assets under the current design, you could easily attract valuations of 780 billion. Easily. I think more,” Salceda added.
“What would boost the capitalization and valuation further is a consistent stream of capital. That’s why I was hoping to securitize some government dividends, but ensure that the equivalent amount is invested by the MIF in infrastructure projects. That way, it’s GAA-neutral, and it also attracts more capitalization for the fund. But anyway, this will be a collegial process.”
“Listing also subjects the MIF to certain transparency and corporate governance standards. Being listed in the stock market places you under shareholder scrutiny, and that would help ensure good governance and performance,” Salceda adds.
Salceda says he also appreciates “removing the special tax privileges on MIF. Taxes are a good way to recover investments into the Fund.”
“That also addresses certain “neutrality” rules in other countries. Some developed countries like Australia tend to avoid dealing with corporations with special state privileges because of what’s called ‘government neutrality’ requirements. So, we’ll have a freer hand making or receiving investments from such countries,” Salceda said.
“Anyway, we’re studying. So, for a definitive position, ask me again once the Senate is done. But we’re ready for what the House leadership decides to do, whether bicam or adoption,” Salceda said.