Business groups warn SEC on foreign equity rules

Strict interpretation of SC order to cause stock selldown


The country’s biggest business groups, led by the influential Makati Business Club, have urged the Securities and Exchange Commission to change its proposed rules on foreign ownership limits in Filipino firms, warning that the draft regulations in their current form would lead to a massive outflow of capital.

The country’s biggest business groups have urged the Securities and Exchange Commission to change its proposed rules on foreign ownership limits in Filipino firms, warning that the draft regulations in their current form would lead to a massive outflow of capital.

In a position paper, the organizations led by the influential Makati Business Club said that some P383 billion worth of stocks would have to be sold by 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.

“This will drive down stock market prices to the grave prejudice not only of the listed companies, but worse, of the investors,” said the position paper submitted to the SEC last Friday.

The paper comes after the Supreme Court ruled recently that Philippine Long Distance Telephone Co., under its present shareholder structure, exceeded the 40-percent foreign ownership limit as stated in the 1987 Constitution.

In reaction, PLDT decided to issue a new type of “voting preferred shares” to its own employees’ retirement fund to increase its number of Filipino shareholders—a move that would still fall short of the rules under the SEC’s current draft.

Apart from the MBC, other business groups that are trying to convince the SEC to ease its interpretation of the Supreme Court ruling are 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.

The business groups backed the SEC’s assertion that the draft rules were not formulated in response to the Supreme Court’s ruling on the PLDT issue, but were merely meant to implement the Corporation Code, the Securities Regulation Code and the Foreign Investments Act of 1991.

As such, they stressed the powers of the corporate regulator to formulate rules and implement laws “as it may consider appropriate in the public interest.”

“Under the Constitution, the exercise of executive power, such as the promulgation of rules to implement rules of the Constitution, is left to the discretion of the Executive,” the groups pointed out, citing previous jurisprudence to clarify the SEC’s role vis-a-vis the Supreme Court decision on the PLDT issue.

The business groups also urged the SEC to make the new rules applicable only for prospective transactions instead of having it applied retroactively.

“These shareholders [who bought their shares before the effectivity of the circular] purchased their shares in good faith on the strength of the longstanding interpretation of our government on the constitutional provision issue,” the business groups said.

“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,” they added.

The business groups stressed that they believed in finding a balance between making the country open to foreign capital and the need to maintain control of certain areas of economic activity.

“It results in a double win for the Philippines as it gives us capital without giving up control,” they said.

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  • jeffrey_01

    The government should partners with foreign companies that wants to make business in the PHL.  Hire lots of Filipinos on top positions.  This will be a good chance for a hands down knowledge and transfer of technologies to the country.

    PHL should not rely on political dynasties to create jobs.  The government should start some partneship of big corporations like car makers and dont let politicians family on the control.  No political dynasty member should be in top position. They should start at the bottom.

  • tower_of_power

    Utility companies must be government controlled and the rest … bahala na kayo kung ano ang gusto ng nakakarami.!!! However, in this modern world market … GLOBALIZATION is the secret to success. The protectionists have no place but stay in an island all by himself!!!

    The government must educate its citizens … give them the right tools, support and encouragement … walang mangyari kung puro dole outs at protection ang ibigay sa kanila. Walang pinagkaiba yan sa development ng mga bata natin!!!

  • joboni96

    itong makati business club
    ginagamit ng mga foreign capitalists
    para palakasin ang control nila
    sa ekonomiya natin

    para mas malaking kayamanan ng pilipino
    ang makulimbat nila

    pilipino-daw ang mga nasa mbc

  • mark1205

    The 60/40 rule is very antiquated. We are forced to consider laws such as RH bill because we don’t have jobs for the masses–which foreign investors could offer. Such an oligarchic rule that only favors the old rich in the country to continue being richer and the poor more oppressed.

  • Joseph20112012

    Why not the Makati Business Club ask the Congress to scrap the 60/40 idiotic forced equity ownership sharing in favor of a Filipino individuals or corporations through a constitutional amendment?

    It is now the time for our country to grab the opportunity of gaining the FDI inflows from the developed countries in order for our country to have an inclusive economic growth wherein the majority can benefit through more job opportunities and improved infrastructure through FDI.

    Scrap 60/40 equity restrictions from the 1987 constitution and allow 100% FDI at all economic sectors without constitutional impediments! 

  • delpillar

    Vietnam has two Export Processing Zone, each 3 times larger than Camelray Industrial Zone in Canlubang Laguna, 100% owned by Japanese companies.

    The Sumitomo-Vietnam Branch that will construct 8 subway train lines in Hanoi and 5 Subway lines in Hochiminh are 100% Japanese. But the workers are 98% Vietnamese.

    The company who will build the Bullet Train for Vietnam and for the Nuclear Power Plant in Vietnam are more than 50% foreign owned.

    The Russian companies which will repair and deliver 6 Kilo-class submarines for Vietnam is 100% Russian.

    In Japan, Foreigners can own up to 49% of properties and companies.
    Individual foreigner can buy and owned land permanently.

    PERMANENT OWNERSHIP, in LEGAL TERMS in Japan and other countries is limited to 75 years or 100 years. It is NOT yours or your decendant forever. Some laws means refer to permanent as long as the owner or his/her immediate descendant are still alive.

    For short, the Philippine Constitution of 1987 need amendment/revision.

  • randyaltarejos

    It is clear in the Constitution that ownership ratio is 60-40. That means companies in the Philippines must be owned 60% by Pinoys and only 40% for foreigners. Now, the Makati Business Club and its cohorts are asking SEC, a quasi-judicial body, to relax its rules on foreign ownership. I think this is only possible if the SEC will exclude the utilities companies. What I trying to say is that foreign investors must not exceed 40% stakes in the country’s utilities firms.

    • ern

      The big dilemma is that…if we cannot produce the 60 percent, the 40 percent will not come…..means no investment.

      Why not have a moratorium for say 20 years then slowly move back to the 60-40? You do not need to call it ownership….just business equity. The way it is, people are cheating to get around which is worse.

      • randyaltarejos

        I couldn’t believe that the 60% will not be met. Surely, local investors will come, through the IPO, especially for those publicly-listed firms. The hardest part is if after the moratorium, the government will be put in a situation wherein it would be swarmed with lawsuits. As I was saying, free the utilities firms from this proposal and the SEC will only allow non-utilities firms from opening up to 40% limit. We don’t want to put the utilities firms in a situation wherein millions of consumers will be held hostage by their financial antics in the future.

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