‘Safety valve’ eyed on foreign equity rule

THE PHILIPPINE Stock Exchange is proposing some “safety valve” mechanism to ensure compliance with foreign equity restrictions without discouraging capital flows within the regulatory framework being drawn up by the Securities and Exchange Commission.

The mechanism could be a depository receipt structure or some sort of quasi-debt/quasi-equity structure wherein voting shares could be minimal, PSE president Hans Sicat told reporters Thursday night.

“I think with the help of the SEC, we’ll end up with a logical solution,” Sicat said. “There’s a good discussion with the SEC on what to do and I think, hopefully, we’ll end up with a safety valve mechanism.”

The SEC has vowed to come up within the next six months with a “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. would set back local capital markets.

The draft circular earlier issued by the SEC on foreign equity limit compliance was seen affecting at least 13 percent of publicly listed companies.

“In any case, I think the SEC is responsive to the comments not just of the PSE but of the issuers and global investors. They realize that defining capital is not only very important but will be quite in line with the global trend of easing global flow (restrictions) and minimizing transactions costs,” Sicat said.

Acting on a petition filed by the late human rights lawyer Wilson Gamboa, the Supreme Court has ruled with finality that nonvoting shares do not count as equity when computing a company’s Filipino ownership level in compliance with the 40-percent foreign equity limit on key industries like properties and utilities.

The bone of contention was the legal interpretation of the 60-40 local-foreign ownership breakdown cited in the Oct. 9, 2012, ruling of the Supreme Court. The SEC’s first draft closely followed the provision in the latest SC issuance calling for the uniform application of the 60-40 requirement in favor of Filipino citizens to each class of shares, regardless of differences in voting rights, privileges and restrictions.