Solons want SC decision on PLDT’s exceeding the foreign ownership limit rule reviewed

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LAWMAKERS have asked for a congressional review of the recent ruling of the Supreme Court (SC) that the Philippine Long Distance Telephone Company (PLDT) has violated the constitutional limit on foreign ownership of corporations.

In House Resolution 2990, Reps. Rufus Rodriguez (2nd District, Cagayan de Oro City) and Maximo Rodriguez, Jr. (Party-list, Abante Mindanao) also wanted the House Committee on Trade and Industry to determine if there is a need to enact legislation to find the right balance between making the country open to foreign capital and the need to maintain control of certain areas of economic activity without hurting the Philippine economy.

Rodriguez said the Supreme Court ruled that the PLDT under its present shareholder structure exceeded the 40 percent foreign ownership limit mandated by the 1987 Constitution on corporations in the country.

The 1987 Constitution particularly Sections 10 and 11 in Article XII requires that at least 60% of the ownership of corporations and public utilities such as PLDT should be held by Filipino citizens. Foreigners may only own up to 40% of the total capital stock.

According to the 51-page resolution penned by Senior Justice Antonio T. Carpio, 64.27% of the common shares of PLDT, the classes of shares, which have the sole right to vote in company elections, are owned by foreigners. Filipinos own only 35.73% of the common shares and thus are a minority. Filipinos own 99.44% of preferred shares, but owners of preferred shares do not have voting rights and earn only 1/170 of the dividends that common shares earn.

In seeking a probe, Rodriguez cited a position paper submitted by the Makati Business Club (MBC), the Management Association of the Philippines (MAP), the Financial Executives of the Philippines (Finex), the Foundation for Economic Freedom, the local chapter of the Asia-Pacific Real Estate Association, the Shareholders’ Association of the Philippines, the Trust Officers Association of the Philippines and the Investment House Association of the Philippines trying to convince the Securities Exchange Commission (SEC) to ease the interpretation of the Supreme Court ruling.

“The Organizations said that some P383 billion worth of stocks would have to be sold to overseas investors if the corporate regulator implemented the 60-40 foreign ownership limit on each class of company shares instead of tallying compliance cumulatively per firm, regardless of share type,” Rodriguez said.

As a reaction to the SC’s ruling, PLDT decided to issue a new type of “voting preferred shares” to its own employees’ retirement fund to increase its number of Filipino shareholders.

However, Rodriguez said, it would appear that such a move would still fall short of the rules under the SEC’s current draft rules to implement the Supreme Court decision.

“As a result of the SC decision, the country’s biggest business groups have urged the SEC to change its proposed rules on foreign ownership limits in Filipino firms, warning that the draft rules in their current form would lead to a massive outflow of capital,” Rodriguez underscored.

Rodriguez said these organizations fear that the proposed SEC rules on foreign ownership limits would drive down stock market prices to the grave prejudice not only of the listed companies, but worse, of the investors.

Rodriguez added that these business groups also urged the SEC to make the new rules applicable only for prospective transactions instead of having it applied retroactively because the affect shareholders bought their shares before the effectivity of the SC decision and they bought their shares in good faith.

“They further said that applying the proposed circular to the prejudice of the investors will not only be constitutionally unacceptable, but will constitute a change of rules midstream to the prejudice of the investing public,” Rodriguez said.

The justices who concurred with Carpio’s ruling were Chief Justice Maria Lourdes Sereno, Associate Justices Arturo Brion, Diosdado Peralta, Lucas Bersamin, Mariano Del Castillo, Martin Villarama, and Jose Mendoza.

Associate Justices Presbiterio Velasco, Roberto Abad, and Bienvenido Reyes dissented, while Associate Justice Estela Perlas-Bernabe abstained from the voting.

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