SEC vows to be fair on foreign capital

MANILA, Philippines–The Securities and Exchange Commission vowed on Friday to come up in the next six months with “proactive, fair, reasonable and clear-cut” compliance framework on foreign capital computation amid concerns that an overly strict interpretation of a recent Supreme Court ruling on Philippine Long Distance Telephone Co. could trigger an exodus of foreign investors.

This developed as the Philippine Stock Exchange warned that the SEC’s draft circular on foreign equity limit compliance–the subject of a public hearing conducted by the SEC on Friday–would affect at least 13 percent of publicly listed companies and likewise stifle privately held companies. “It will have a stifling effect on capital formation,” said PSE president Hans Sicat.

During the public hearing, many stakeholders appealed against Section 4 of the SEC draft circular on corporations that are nationalized or partly nationalized industries. This covers utilities like PLDT as well as restricted industries like real estate and renewable energy where foreign equity ownership is capped at 40 percent.

The SEC draft says: “All covered corporations shall at all times observe the constitutional or statutory ownership restrictions for each class of shares, provided that if any class of shares is divided into series of shares and a particular series of shares has different rights, privileges and limitations, the covered corporation must observe the same ownership restrictions for said series of shares.”

PLDT’s legal experts argued, for instance, that the SEC was not bound to adopt the 60-40 percent ownership breakdown cited in the October 9, 2012 ruling of the Supreme Court on a petition by the late human rights lawyer Wilson Gamboa. They said the provision in the October ruling referring to ownership of different classes of shares was in the nature of “obiter dictum” and does not represent a legal precedent. They said that SEC was only compelled to follow the definition of capital in the original June 28, 2011 ruling which prescribed that 60-percent of voting rights in PLDT must be Filipino-controlled.

Herbosa said: “We definitely have to look again into the definition Sec. 4 (of the SEC’s proposed circular) which is the meat of the matter. We have to try and align the circular with what we have under FIA (Foreign Investment Act), its implementing rules and other laws. We also have to make sure that whatever rules we’ll have will be proactive and will not set back our capital markets many years behind.”

The SEC chief told reporters in a press briefing after the hearing that the Commission heard “very good suggestions” and that the dialogue was a “means of moving forward.” “I think people there overdid themselves in presenting their case, but it’s very understandable,” she said.

“We’re not looking only at the Gamboa case as the impetus for this but overall, how to make things more settled, clearer and less doubts in the minds of people who will try to comply on rules of foreign ownership,” Herbosa said.

“We particularly like the suggestion to consult with other government agencies whether to see if we have to carve out other exceptions also with the suggestion that if there will be forced divestment there will be corresponding action or no imposition of financial burdens.”

There was a suggestion during the hearing to seek the opinion of the Department of Justice, Department of Finance and the Bureau of Internal Revenue.