MANILA, Philippines – The country’s biggest telecommunications firm, Philippine Long Distance Telephone Co. (PLDT), lost in its appeal at the Supreme Court regarding a breach of the 40% foreign ownership limit.
Court insiders said the Court, voting 10-3 with one abstention, stood by its June 2011 ruling defining “capital” as shares of stocks with voting powers — a decision expected to have an impact on several foreign investors already doing business or planning to invest in the Philippines.
PLDT has yet to comment on the decision, which is scheduled to be released Friday, October 12.
“PLDT cannot comment until it has read an official copy of the decision, has determined its importance, and has received advice from its lawyer,” company lawyer Ray Espinosa said in a text message.
Supreme Court Justice Estela Perlas-Bernabe abstained from the vote since she had handled a related case at the Makati Regional Trial Court, the court insiders said. Justice Antonio Carpio is the ponente (writer) of the resolution.
The 1987 Constitution bars foreigners from controlling over 40% of a utility firm due to security reasons. The late PLDT stockholder Wilson Gamboa, who filed the petition, had said foreigners had up to over 81% stake in PLDT.
Defining ‘capital’
The High Court said SEC should define “capital” as ‘”shares of stock entitled to vote in the election of directors” or common shares, and not as total outstanding capital stock, which covers both common and non-voting preferred shares.
The Securities and Exchange Commission (SEC) earlier told the SC that PLDT did not breach the foreign limit because “the sum total of the shares subscribed irrespective of…whether they are voting or non-voting.”
Gamboa, who had sought to nullify the sale of the government’s stake in the PLDT to Hong Kong-based First Pacific group, alleged that when Hong Kong-based First Pacific Ltd increased its stake in PLDT to 37% from 30.7%, the total stake of foreigners in the company also increased to 81.47%.
Gamboa said this put the selection of PLDT’s board of directors in the hands of foreigners.
In 2007, First Pacific, through affiliate Metro Pacific Assets Holdings Inc., acquired 111,415 shares owned by government in Philippine Telecommunications Investment Corp. (PTIC), which in turn owned PLDT. The acquisition was equivalent to a 6.4% indirect stake in PLDT.
Businessman Manuel Pangilinan, who represents the First Pacific group in the Philippines and chairs PLDT, as well as the Philippine Stock Exchange (PSE) filed separate motions for reconsideration of the SC ruling on Gamboa’s petition.
Pangilinan had said the ruling, if affirmed, would be “economic suicide” because it would scare investors away.
PLDT had cited the case of rival Globe Telecom, which includes Singapore Telecom among its foreign owners.
Earlier, the Philippine Stock Exchange (PSE) warned that the new definition of capital could lead to a loss of over P600 billion worth of allowable foreign investments in PSE-listed companies.
Back-up plan
Nonetheless, PLDT has prepared a back-up plan in case the SC rules against it with finality.
In June, the SEC approved PLDT’s move to issue preferred shares with voting rights that reduces the stake of its foreign owners to 35%, making the issue moot.
PLDT secured in March its shareholders’ approval to issue 150 million preferred shares with voting rights to PLDT’s beneficial trust fund to lower the company’s total foreign equity to 35% from the current 64%.
The voting rights attached to the 150 million preferred shares spare the SEC from probing whether the stakes of PLDT’s foreign owners — Hong Kong-based First Pacific Co, as well as JPMorgan Asset Holdings and Japanese firms NTT Docomo Inc. and NTT Communications — breached that 40% cap.
The voting preferred shares will be issued to the Beneficial Trust Fund of PLDT and other Philippine nationals.
The new ownership ratio will be 65:35 in favor of Filipino investors.
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Source: Rappler. (11 October 2012)
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