SEC to determine PLDT foreign ownership – SC

MANILA, Philippines—The Philippine Supreme Court has ordered the Securities and Exchange Commission (SEC) to study whether the Philippine Long Distance Telephone Company (PLDT), the country’s leading telecom, has breached foreign ownership limits, and impose sanctions if necessary.

In determining the level of foreign ownership in PLDT, the court ordered the SEC to use only voting, or common shares and exclude preferred, or non-voting shares in assessing the capital stock of the firm.

The order was given out during Wednesday’s  regular en banc session wherein the court tackled a petition by human rights lawyer Wilson Gamboa seeking to annul the sale of the government’s 46 percent stake in the Philippine Telecommunications Investment Corp. (PTIC), part owner of PLDT, to Hong Kong-based First Pacific Co. Ltd. in 2007.

The sale, equivalent to a 6.4 percent indirect stake in PLDT, increased First Pacific’s holdings in PLDT to over 30 percent at the time.

Gamboa said  that with the sale, First Pacific and another foreign stockholder, NTT DoCoMo, ended up owning over 50 percent of PLDT outstanding common shares, violating the 40 percent constitutional limit on foreign ownership of a public utility.

Section 11, Article XII of the 1987 Philippine Constitution states : “No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines, or to corporations or associations organized under the laws of the Philippines at least sixty per cent of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years.”

PLDT, [partly owned by Japan’s NTT Communications and NTT DoCoMo], said it was still preparing its comment on the SC ruling.

The court’s decision, and its definition of capital would most likely affect other public utilities which use outstanding capital – voting and non-voting – in determining foreign ownership.

Philippine laws allow forigners to own only up to 40 percent of a public utility.

According to Gamboa’s petition, the foreign shareholders of PLDT include First Pacific Indonesian); NTT Communications (Japanese); NTT DoCoMo (Japanese), FMR Corp (American); JP Morgan (Hong Kong).

Based on Gamboa’s computation, 59.14 percent of PLDT’s shares are owned by foreigners.

Observers of the Philippine business community believe the SC’s decision may have a ‘dampening’ effect on the international investment scene, not unlike past incidents when the SC came out with rulings quoting the constitutional restriction on foreign ownership in local firms.

Many other Philippine firms have adopted similar – but not identical – preferred share structures. The list includes market heavyweights such as Ayala Corp., Ayala Land, ICSTI, Globe Telecom, Manila Water, Energy Development Corp., First Gen, Megaworld and Filinvest Land.