Philippines needs foreign investors in utilities

MANILA, Philippines—Business executive Manuel V. Pangilinan said blocking foreigners from participating in certain local industries such as telecommunications and other public utilities would greatly stunt the country’s development, eventually leading to “economic death.”

Speaking again on the recent Supreme Court decision that said Philippine Long Distance Telephone Co. violated restrictions against foreign ownership, Pangilinan said the government needed to accept the fact that there were certain capital-intensive industries that locals simply could not handle on their own.

Pangilinan currently chairs PLDT, representing the company’s single-biggest shareholder, Hong Kong’s First Pacific Co. Ltd.

“[The country] has to make a decision on how it deals with foreign investors,” Pangilinan told reporters Tuesday. “I have been accused of over-hyping this issue. But I disagree. This is a very serious issue,” he said.

The high court’s decision, written by Associate Justice Antonio Carpio, said that PLDT’s current ownership structure was illegal. PLDT is controlled by First Pacific together with Japan’s NTT DoCoMo. The two firms own about 64 percent of the company’s common voting shares, but only a fraction of PLDT’s total stock if non-voting preferred shares were counted.

The ruling stemmed from a petition by PLDT shareholder Wilson Gamboa asking the Supreme Court to nullify the sale of the government’s stake in PLDT to the First Pacific group.

PLDT is the country’s most valuable company with a market capitalization of P448.2 billion.

Under the Constitution, foreigners may own up to 40 percent of a local utility company’s “capital,” which the high tribunal’s decision said pertained only to voting shares. PLDT has argued that capital should mean all shares, regardless of whether these have voting rights.

He said barring foreigners from controlling local corporations would work in countries with deep capital markets that could support and fund the growth of industries on their own.

“But we have to be practical about the whole thing. We don’t have that kind of money inside the Philippines,” Pangilinan said.

He said no less than London-based law firm Clifford Chance, in a recent investment seminar attended by financial giants in Hong Kong, raised concerns over the Philippine court’s ruling.

Chance’s law firm is included in the so-called “Magic Circle,” referring to the five biggest law firms in the United Kingdom.

“This ruling has taken the interest of the foreign investor community,” Pangilinan said. He warned that foreign companies could just as easily bring their capital elsewhere in the region. “They have other investment destinations,” he said, noting that the Philippines might miss out on the global shift to the Asia-Pacific region as the new investment hotspot, replacing traditional safe havens such as the United States and Europe.

If the Supreme Court decision is affirmed, he warned that companies might sue the government for damages if the foreigners were forced to divest at a loss. He said the government was a signatory to bilateral treaties with several countries that protect the investments of foreign companies.