MANILA, Philippines—The Securities and Exchange Commission (SEC) has been asked to stay true to the spirit of the Supreme Court ruling on foreign ownership, applying restrictions separately on each class of shares in utility companies.
In a position paper submitted to the corporate regulator, lawyer Jose Roy III said the new draft guidelines on foreign ownership of the SEC went against the high tribunal’s clear definition of how foreign interests in restricted industries should be treated.
“I am deeply concerned that it may be beyond the regulatory or interpretative power of the Commission to alter the basis of a distinction already delineated and defined by the Supreme Court,” Roy said in a three-page paper.
His position bucks the general trend in the business community that favors more relaxed rules on foreign ownership in utility firms.
Among the business groups backing easier rules on foreign ownership include the Makati Business Club, the Management Association of the Philippines and the Financial Executives Institute of the Philippines (Finex).
Roy—one of the defense lawyers during the impeachment trial of former Chief Justice Renato Corona—said that under the Constitution, foreigners are not allowed to own more than 40 percent of companies engaged in public utilities such as telecommunications and water distribution firms. Foreign entities are also banned from owning any stake in media companies.
Roy pointed out that the Supreme Court’s decision in the recent Gamboa case looked into intent of the framers of the Constitution.
The lawyer said that these provisions have been included to ensure that vital industries are never controlled by “aliens.”
The so-called Gamboa case refers to the 2007 suit filed by the late Wilson Gamboa, a shareholder in Philippine Long Distance Telephone Co. (PLDT), which tried to block the Manuel V. Pangilinan group’s additional purchase of shares in the country’s largest telco.
The SC ruled that the rule capping foreign ownership in firms to 40 percent should be applied separately to all classes of shares.
This went against the local practice of local companies issuing low-yield preferred shares to local shareholders to offset the amount of common shares held by foreign principals.
“The SC categorically said that ‘to construe broadly the term capital as the total outstanding capital stock including both common and non-voting preferred shares grossly contravenes the intent and letter of the Constitution,’” Roy said, citing the Gamboa case.
“Regrettably, the current provision in the guidelines lumps together the common and preferred voting shares as one class, not limiting the distinction to voting rights,” Roy said.
Roy is part of the Roy & Syquia law firm, which specializes in corporate consulting and litigation.