Second of Two Parts
Compared to our neighbors, how pathetic our country has become!
In January 2006, Thai Prime Minister Thaksin Shinawatra sold his cellphone company, the biggest in the country, to Singapore’s Temasek. That further enraged nationalistic Thais against him, with the opposition calling him a traitor. By September a military coup overthrew him, forcing him to flee the country.
In the Philippines, a President who had illegally shepherded an Indonesian takeover of PLDT became the runner-up in a presidential election, held in 2010, and would since then serve as a two-term mayor of the country’s capital. As worse as that, another President’s defiance of the Constitution as to practically amend it to allow foreigners to dominate public utilities has gone unnoticed, except by the two big firms that have benefited from his action.
I am referring to Erap in 1998, who illegally used his presidential powers – allegedly for a P3 billion “commission”, according to then Securities and Exchange Commission Chairman and now incoming Foreign Affairs Secretary – to let Indonesian magnate Anthoni Salim to take control of PLDT, the country’s largest telco, as I discussed in my Monday column.
It is President Aquino who defied the ruling by the Supreme Court in 2012 that PLDT violated the Constitution’s 40 percent limit on foreign ownership, and who, in effect, has practically lifted such restrictions.
PLDT is owned 76 percent by foreigners, and the other member of the duopoly, Globe Telecom, is foreign-owned 64 percent. How on earth are they allowed to operate here under that setup when the Constitution categorically specifies that foreign ownership of a public utility firm cannot exceed 40 percent of its capital?
Through an accounting trick – the extreme absurdity of which is matched only by PLDT and Globe’s gall in foisting an obvious deception.
To pretend they are majority Filipino-owned, PLDT and Globe fabricated cheap, so-called “voting preferred shares.” PLDT issued 150 million shares, more than half its 216 million common shares. These were not tradable and worth just P150 million, a tiny fraction of common shares’ par and market values of P1 billion and P540 billion, respectively.
Globe, way back in 2001, after Deutsche Telecom’s equity pushed foreign ownership to 54 percent, issued 159 million similar shares, even more than its 133 million common shares. These were worth P795 million, a fraction of its common shares’ par and market values of P7 billion and P320 billion, respectively.
PLDT issued these strange shares to just one entity, its Beneficial Trust Fund; in the case of Globe, to Asiacom, owned 60 percent by Ayala Corp. These two entities, therefore, were classified as Filipino corporations.
The duopoly’s trick
The duopoly’s trick has been to claim that the foreign shareholders’ percentage ownership is computed as their holdings of both common and voting preferred shares as a percentage of total common and voting preferred shares, no matter if the value of the preferred shares is a tiny fraction of the common shares.
This, of course, diluted the foreign shareholder’s percentage ownership. While foreigners owned 76 percent of PLDT’s 216 million common shares, they supposedly had only 29 percent of the 366 million total common and foreign shares. In the case of Globe, foreigners had 64 percent of common shares. They only had 29 percent of the total 292 million of common and preferred shares.
That such absurd “ownership” using the voting preferred shares mocks the Constitution – as the Supreme Court decision itself put it – is obvious in terms of the following:
First, it claims that in the case of PLDT, Filipinos who own P130 billion worth of shares at market value are the controlling owners, because of the huge number of their 150 million preferred shares, rather than foreigners who own only common shares, but valued at P410 billion. In Globe’s case, it is making the absurd claim that Filipinos with P120 billion worth of shares (P0.75 billion in preferred shares) are the biggest, controlling owners, rather than foreigners, whose shares are worth P214 billion.
Second, In the case of PLDT, its foreign owners got $7 billion in dividends during the period 2000 to 2015. Its Filipino owners, who own all the preferred shares, got only $2.2 billion in dividends, with just $40 million from income from their preferred shares. Similarly, Globe’s foreign owners received $1.6 billion from 2003 to 2015, while its Filipino owners, just $0.9 billion, with income from preferred shares amounting to just $15 million.
The Supreme Court in a case brought to it involving PLDT, of course saw through the trickery and ruled in 2011 that it was a mockery of the Constitution. Apparently foreseeing that foreign companies could invent new kinds of shares to enable them to skirt this ruling, the Court even stipulated in its 2012 resolution, which finalized its 2011 decision as non-appealable:
“(T)he 60-40 ownership requirement in favor of Filipino citizens must apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares….Applying uniformly the 60-40 ownership requirement in favor of Filipino citizens to each class of shares, regardless of differences in voting rights, privileges and restrictions, guarantees effective Filipino control of public utilities, as mandated by the Constitution.” (Emphasis added.)
Clear and unambiguous SC ruling
That ruling is obviously so clear and unambiguous it cannot lead to any other interpretation. And, indeed, the Securities and Exchange Commission a few weeks later, circulated to the business community for comments its draft memorandum to implement the decision. The draft was faithful to the Court’s ruling, explaining that the foreign ownership restrictions must be observed for “each class of shares.”
However, when the draft memo was circulated, the financial elite was in uproar, alleging economic doomsday scenarios. Salim’s top executive Manuel Pangilinan called a press conference in which he lectured the country: “What this country needs is to come to grips with whether it needs foreign investments to develop certain industries.” He warned that many, if not all foreign investors, would leave the country in favor of other Southeast Asian markets that, unlike the Philippines, are starting to open up to more foreign capital.
My sources claimed that it was Aquino himself who talked to SEC Chairman Teresita Herbosa (whose ACCRA law firm had been one of PLDT’s major legal counsels) and ordered her to totally change her draft memorandum.
Herbosa issued the new rules May 22, 2013, a 180-degree turn from her earlier draft. It ordered that foreign ownership should be “computed on the basis of “the total number of outstanding shares of stock entitled to vote,” i.e., the sum of common and voting preferred shares. That, of course, was exactly what PLDT had argued for in the Court, and which it threw out.
On June 10, 2013,Jose M. Roy 3rd, grandson of the distinguished late Senator Jose Roy, filed petitions with the Supreme Court against the SEC claiming that it was, in fact, in contempt of the Court’s decision on the issue. The Court so far has not acted on the petition.
The farce is such a Damocles Sword that hangs over PLDT’s head that in all of its annual reports to the US SEC since 2013, it admits it is one of the major risks the company faces, and which therefore, investors in its shares should know:
“However, we cannot assure you that the Philippine SEC or the other relevant authorities in the Philippines will view shares of Voting Preferred Stock issued to BTFHI as shares of stock owned by Filipinos entitled to vote in the election of directors, for the purpose of determining whether PLDT is in compliance with the 60 percent to 40 percent Filipino – alien equity requirement as provided for under the Philippine Constitution. As a result, PLDT may be subject to certain sanctions imposed by the Philippine SEC, which may have a material and adverse impact on our reputation, business, financial position and prospects.
However, with the Court still remaining silent, the SEC as ordered by Aquino has, in effect, lifted the Constitution’s 40 percent limit on foreign capital in public utilities and in land ownership.
All a company has to do now, as PLDT and Globe Telecom have done, is to issue the necessary number of “Voting Preferred Shares,” at a price a fraction of common share’s par value, so that the foreign-dominated number of common shares represent less than 40 percent of the sum of both common and preferred shares.
Even real estate companies, such as Ayala Land and GT Capital Holdings of Chinese-Filipino tycoon George S.K. Ty, have issued such voting preferred shares in order to get more foreign capital that exceeds the Constitution’s 40 percent limit.
What kind of a country have we become, that a mere regulatory body such as the SEC, upon orders of a President, can reverse the ruling of the Supreme Court on a Constitutional issue involving our sovereign rights? What kind of a Supreme Court do we have, that it has remained silent for three years now over the SEC’s defiance of its ruling?