Computing public ownership based on voting shares only

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Emeterio Sd. Perez

Emeterio Sd. Perez

SHOULD listed companies determine their compliance with the 10-percent minimum public ownership rule by using the entire capital stock to include non-voting preferred shares or only voting shares?

To allow the practice of limiting public ownership to voting common shares would be tantamount to depriving the public of their pre-emptive rights over additional issuance of capital stock.

No one has challenged any of the listed companies’ issuance of non-voting preferred shares to their majority stockholders.

Perhaps it may seem too trivial to worry about but the issue is not and should not be treated as too small to affect the public. It may be time to review the rules on the issuance of additional shares to prevent the majority’s potential abuse of the continued silence or passiveness of the public stockholders.


To illustrate and emphasize this particular issue, which only the Securities and Exchange Commission could probably resolve, Due Diligencer is analyzing the ownership change in Starmalls Inc.

Ownership transfer
The sale by the majority stockholders of some, or even all, of their holdings does not necessarily mean giving up control of ownership and of the board. It may be intended only to consolidate their holdings under one roof by using a corporate stockholder that they also own. This happened in Starmalls (STR), when it reported the recent change in the ownership holdings of former Sen. Manuel Villar Jr. and his son Mark.

As a matter of fact, father and son did not sell, as indicated in their filing, but only transferred 75.9 million STR shares and 24.58 million STR shares to Fine Properties Inc., the family-owned holding company and STR’s majority stockholder. The company reported the transfer price at P6.80 per share on May 22, 2015 when STR opened trading at P7.11 and closed at P7.06.

While consolidating more than 100 million of the Villars’ STR holdings, Fine Properties is also engaged in buying STR shares in the open market. Last month, it acquired at the average price of P5.27 each 246,300 STR shares thru Althorp and Vitale from individual investors. Fine Properties also beneficially owns these newly acquired shares.

Computations
As a result of the two transactions, Fine Properties increased by 100.7 million STR shares its holdings in Starmalls to 7.7 billion shares, or 63.96 percent. Prior to the acquisition of additional shares and the Villars’ transfer of STR shares, Fine Properties controlled 7.63 billion STR shares, or 62.76 percent.

In an ownership filing, however, Starmalls reported total capital stock of 10.77 billion shares divided into 8.42 billion common shares and 2.35 billion preferred shares. In arriving at the above percentages, the company based its computations on 12.15 billion outstanding STR shares. Due Diligencer has yet to find the 1.38 billion STR shares missing in its definitive information statement (DIS).

DIS, by the way, is the final filing on the holding of an annual or special stockholders’ meeting. It serves as the basic information material for stockholders, particularly the public who are never privy to anything going on inside the boardrooms.

Due Diligencer is re-computing the ownership percentages based on 10.77 billion outstanding STR shares. The re-computation shows Fine Properties’ present ownership of 7.73 billion STR shares would be equivalent to 71.73 percent and its previous 7.63 billion shareholdings would be equal to 70.8 percent.

Public ownership
Starmalls placed at 1 billion STR shares, or 11.96 percent, public ownership of its outstanding shares but based its computations only on common shares. Thus, public ownership of STR shares is 1.96 percent higher than the minimum public ownership of 10 percent required under the rules governing public companies.

Starmalls may be compliant with the 10-percent public ownership rule. Nevertheless, Due Diligencer is presenting its own computations based on the entire capital stock of 10.77 billion shares for the information of the public.

One billion shares out of 10.77 billion shares equals 9.35 percent. This resulting percentage, in effect, would put Starmalls in violation of the 10 percent-minimum public ownership rule.

If the ruling on the foreign ownership in Philippine Long Distance Telephone Co. were to be applied to Starmalls’ ownership profile, then the Villar-controlled company is correct in using only its common shares in determining its compliance with the 10-percent minimum public ownership rule.

As the Supreme Court has ruled, foreign ownership of outstanding shares should be based only on voting shares. With this ruling, it ordered the SEC to “apply this definition of the term capital the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Co. and if there is a violation….to impose the appropriate sanction thereof.”

Apparently, the SEC’s five-person regulatory body did not find any infraction of the law by PLDT. The commission did not review PLDT’s ownership ratio for possible violation of the ownership law. Instead, it allowed the company to issue 150 million voting preferred shares to the PLDT Beneficial Trust Fund to dilute foreign ownership in PLDT to 40 percent or less.

Ironically, with said voting preferred shares, First Pacific even strengthened its control of PLDT by exercising the voting right over them thru Manuel V. Pangilinan, the Indonesians’ chairman nominee in PLDT’s 13-person board.

esdperez@gmail.com.

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