The Philippines'
Securities and Exchange Commission (SEC) has drafted a new set of guidelines on
foreign ownership in partly nationalised industries—a more liberal framework
wherein the 40-per cent foreign equity limit is prescribed on both the voting
shares and total outstanding shares.
The draft guidelines, which the SEC is releasing for
further public feedback, make the recent capital restructuring of telecom giant
Philippine Long Distance Telephone Co. (PLDT) involving the issuance of voting
preferred shares acceptable.
“Per the Supreme Court decision, our CFD (corporate
finance department) inquired into PLDT ownership structure and based on its
report, PLDT is compliant,” SEC chair Teresita Herbosa said in a text message,
when asked whether the telecom firm’s issuance of voting preferred shares was
suitable as compliance under the new draft of guidelines.
Based on the new guidelines, all covered corporations
must, at all times, observe the constitutional or statutory ownership
requirement, referring to the 60-40 per cent local-foreign ownership
requirement.
“For purposes of determining compliance therewith, the
required percentage of Filipino ownership shall be applied to both a) the total
number of outstanding shares of stock entitled to vote in the election of
directors; and b) the total number of outstanding shares of stock, whether or
not entitled to vote in the election of directors,” the new draft said.
“In case the law requiring a certain percentage of
ownership to belong to Filipinos specifically refers to voting stock, the
requirements set forth therein shall be complied with,” the draft said.
All covered corporations were also required to adopt a
system of internal controls that will enable them to monitor and observe
compliance with the provisions on ownership requirements provided in the
Constitution.
The new draft guidelines issued by the SEC were seen
as more liberal compared to the first draft, which required that all classes of
shares follow the 60-40 per cent limit.
A landmark Supreme Court ruling earlier stated that
PLDT had exceeded the maximum allowable 40-per cent foreign equity cap
prescribed by the 1987 Constitution. The ruling essentially redefined foreign
capital, stating that non-voting shares did not count as equity when computing
a company’s Filipino ownership level for purposes of compliance with the 40-per
cent foreign equity limit on key industries like property and utilities.
To cure the situation, PLDT adopted a solution wherein
it issued 150 million new voting preferred shares to BTF Holdings Inc., a
subsidiary of its employees’ beneficial trust fund.
This brought down the voting rights of foreign
shareholders in PLDT to 34.5 per cent from the previous 58.4 per cent.
The SEC previously drafted a more stringent rule that
would have made PLDT’s voting preferred share issuance non-eligible but the
corporate regulator eased its draft after the entry of judgement issued by the
Supreme Court made it clear that the 60-40 per cent ownership limit favouring
local shareholders would apply only to voting shares.
Meanwhile, the two-tier formula is meant to address
concerns on the use of dummies in corporate structure. Aside from prescribing
the 60-40 per cent local-foreign ownership limit on voting shares, another tier
of 60-40 per cent cap was prescribed for the rest of the shares.
After the issuance of the second draft, the SEC is
expected to conduct a new dialogue with stakeholders before finalising the
guidelines.
Doris C. Dumlao
Philippine Daily Inquirer
Business & Investment Opportunities
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