MANILA, Philippines—The Philippine Stock Exchange (PSE) said the implementation of the new and strict definition of the term “capital” given by the Supreme Court could lead to a loss of about P630 billion allowable foreign investments in PSE-listed shares.
In a 20-page motion for reconsideration of the high court’s ruling, the PSE said the decision could result in a “massive decrease in foreign trading transactions brought about by the huge reduction in the PSE-listed shares allowable to foreigners.”
A massive reduction in both allowable foreign investments and level of foreign trading transactions would result in a lower PSE Composite Index, which could be construed negatively by the International market, the PSE said.
In its June 29 decision, the high court issued a stricter definition of the term “capital,” which will be used as guide by the SEC in determining if it violated the constitutional cap on foreign ownership of companies. The ruling was issued in connection with the issue of foreign ownership of the Philippine Long Distance Telephone Co. (PLDT).
PSE said the PLDT alone represents 12 percent of the total foreign trading activity of the Philippine stock market and the PSE Composite Index is heavily determined by the volume of trading transactions in PLDT shares since PLDT shares are given the biggest weight in determining the movements in the PSE composite index.
The PSE Composite Index is tracked by both local and international funds and is considered as a good indicator of the state of the Philippine economy.
PSE added that the strict definition of the term “capital” would also have a negative effect on the perception of foreign investors.
PSE said that the term “capital” under Section 11 Article 12 of the 1987 Constitution has been recognized in a long line of Supreme Court decisions as the one with universal acceptance to refer to “money, property or means contributed by stockholders as the form or basis for the business or enterprise for which the corporation was formed and generally implies that such money or property or means have been contributed in payment for stock issued to the contributors.”
Having been recognized in a long line of Supreme Court decisions, PSE said such universal interpretation of the term “capital” has become part of the Philippines legal system and can only be changed by Congress through the passage of a law and “not by this Honorable Court for want of jurisdiction or power to legislate.”
The high court in its June 29 decision said that “capital” refers to shares of stock entitled to vote in the election of directors and thus refers only to common shares and not to the total outstanding capital stock.
Such definition, the high court said, should be used in determining the extent of allowable foreign ownership in respondent PLDT and if there is a violation of Section 11 Article 12 of the 1987 Constitution.
PSE said in its appeal that its operation is based and guided by the universal definition of the term “capital.”
“The newly legislated definition of “capital” will aggravate further the adverse perceptions by foreign investors that our country is a marketplace of unstable and high-risk transactions because these laws, rules and regulations are easily susceptible to change and amendments,” PSE said.
“Likewise, the confidence and trust of foreign investors on the stability of Philippine businesses will be placed in jeopardy,” it added.