- Published on Monday, 05 November 2012 20:45
- Written by Miguel R. Camus / Reporter
THE Securities and
Exchange Commission (SEC) is giving companies that may be in violation
of the 40-percent foreign-ownership limit up to five years to comply,
based on the new draft rules for covered Philippine corporations
released on Monday.
The SEC posted on its
web site the circular for the much-awaited proposed guidelines for the
registration, monitoring, investigation and compliance of companies
under a broad range of sectors including telecommunications, mining,
property development and public utilities.
The proposed rules
effectively implement the October 9 Supreme Court ruling on the foreign
ownership of Philippine Long Distance Telephone Co. (PLDT)—a decision
which also had wider implications for Philippine businesses as the High
Court laid out specific definitions on how the 60-40 percent ownership
rule in favor of Filipinos should be calculated.
The SEC’s guidelines
also pointed out reportorial requirements for covered companies as well
as prohibited acts and their respective penalties, which run from
millions of pesos, to the cancellation of the firm’s certificate of
registration. The SEC is holding a public hearing at its headquarters in
Mandaluyong City on November 9.
Analysts said the release of the rules provides some measure of relief for investors for now.
“The SEC IRR
[implementing rules and regulations] will allow companies to know how to
comply,” Jose Lacson, head of research at stock-brokerage firm Campos
Lanuza and Co., said in a phone interview on Monday. Lacson was
referring to recent moves by PLDT and Ayala Land Inc. to comply with the
foreign ownership requirement by issuing voting preferred shares.
As mentioned, the SEC
is giving companies in breach of the foreign ownership cap “not more
than five years” from and after the effectivity of the SEC’s rules,
which take effect 15 days following its publication.
Lacson said the five-year transition period “is more than enough time.”
A second source with
knowledge of the discussions said the SEC was mulling over a transition
period of between one year and five years, before settling on the
present number.
Moreover, the SEC said
non-complaint firms “shall no longer allow any transfer of shares that
would result in increasing its present foreign ownership.”
A second source,
citing data from a confidential research report, said there are four
companies that would breach the maximum foreign-ownership limit,
assuming voting preferred shares are not included in the computation.
These are PLDT
(58.3-percent foreign ownership) and three Ayala-led firms, namely,
Globe Telecom (65.2 percent), Manila Water Co. (53.3 percent) and Ayala
Land (40.3 percent).
Based on its
guidelines, the SEC said “all covered corporations shall observe the
constitutional and statutory ownership restriction for each class of
shares.”
In case any class is
divided into a series of shares, which may have different rights,
privileges and limitations, “the covered corporation must observe the
same ownership restriction for said series of shares.”
The SEC also detailed prohibited acts and their respective penalties.
Non-compliance with
the 60-40 foreign-ownership rule or issuing depositary receipts without
prior approval from the SEC, for instance, will merit a fine of up to
P2.5 million (as well as up to P100,000 each for the president, chief
executive officer and other top executives) on the first violation. The
SEC said revocation of the certificate of registration is the penalty
for the third offense.
The High Court’s
October 9 decision stemmed from an earlier case filed by the late
human-rights lawyer Wilson Gamboa, who sought to annul the sale of the
government’s stake in PLDT to Hong Kong-based First Pacific Co. Ltd. in
2007.
PLDT is currently a
major unit of First Pacific, which is led by its managing director and
chief executive officer, Manuel V. Pangilinan, and controlled by the
Salim family of Indonesia.
At the heart of the
issue was how the term “capital” was defined for the first time by the
High Court in a way that is very different from the definition used by
the SEC over the past decades.
Based on its ruling,
the Supreme Court said capital should only refer to “shares of stock
entitled to vote in the election of directors,” instead of the previous
standard of defining capital as being the total outstanding capital
stock (which combines common and preferred shares whether voting or
non-voting).
The October 9 decision also extended the interpretation to include not only voting control but beneficial ownership as well.
“Mere legal title is
insufficient to meet the 60-percent Filipino-owned capital required in
the Constitution. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights,
is required,” the decision said.
In its decision, the
Supreme Court also added that “the 60-40 ownership requirement in favor
of Filipino citizens must apply separately to each class of shares,
whether common, preferred non-voting, preferred voting or any other
class of shares.”
