Business groups warn SEC on foreign equity rules
Strict interpretation of SC order to cause stock selldownBy Daxim L. Lucas
Philippine Daily Inquirer
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.