AS the securities industry regulator, the Securities and Exchange Commission (SEC) is tasked to determine whether Philippine Long Distance Telephone Co. (PLDT), Globe Telecom Inc. and Liberty Telecoms Holdings Inc. are all compliant with the rule requiring all listed companies to have at least 10 percent of outstanding capital owned by the public.
Last Friday, I came out with a brief ownership profile of PLDT, Globe Telecom and Liberty Telecoms to enlighten the public about their capital stock. I made no assertions that would suggest they have failed to comply with the 10-percent minimum public ownership rule. Instead, I presented only the numbers as they appear in various filings posted on the website of the Philippine Stock Exchange.
This time, I am presenting this analysis for the information of SEC officials led by Chairperson Teresita Herbosa, who may want to review the ownership postings of PLDT, Globe Telecom and Liberty Telecoms. Their findings should persuade them to reassess the SEC’s 10-percent minimum public ownership rule.
Specifically, Herbosa and company should redefine said rule on whether it should include all classes of shares that make up the outstanding capital stock of listed companies. In the case of PLDT, Globe Telecom and Liberty Telecoms, all three have issued preferred shares but they base their computations of public ownership only on common shares.
It is about time for the SEC’s five-person commission to see for themselves how the three telecom companies have been depriving the public of their preemptive rights over future stock issuances.
In the first place, the public stockholders not only of PLDT, Globe Telecom and Liberty Telecoms but also of other listed companies, bought shares in these companies looking forward to their preemptive rights to subscribe even to both voting and non-voting preferred shares. By owning these other classes of shares, they could recover their “losses” when the dividends on the common stocks they own do not pay well because of companies’ lower earnings.
Since dividends on preferred shares are fixed, say at six percent per annum, this interest income would help make up for public investors’ paper losses on their common shares, especially when market prices fall. This should make preferred shares a much better investment product than common shares.
Will Ms. Herbosa and the four other SEC commissioners take up the cudgel for the oppressed public? After all, without the public investors’ participation in the initial public offerings (IPO) of family-controlled businesses, the Zobels, the Sys, the Gokongweis, the Aboitizes, the two Tans and a few others, will not be able to save on income taxes for their companies.
Here are two posers for SEC officials: Will they stop the practice of certain listed companies that issue non-voting preferred shares and sell them at a premium, that is, above par value, to the public? Will they also act against the interest of the majority stockholders who, thru their control of the board, create preferred shares, fix their dividends and issue these shares to themselves at par value?
These are only two of a number of questions that beg for answers from SEC officials. The SEC’s legal opinion alone would not be enough to satisfy the outside investors who are never privy to anything that’s going on in the boardrooms. Besides, it is now much easier for listed companies to deprive public stockholders of their preemptive rights over future stock issuances. All they have to do is set a special board meeting and empower the board to amend their corporate charters without requiring the ratification of such amendments by the stockholders.
Incidentally, the public stockholders have no way of stopping any move by the majority owners to deprive them of preemptive rights. Remember that the majority owners introduce and approve amendments to corporate charters and, being in control of the ownership, ratify these changes during stockholders’ meetings.
In short, there is no way for the public to win against the majority. It is only the SEC, which is empowered to make the rules, that should require the approval not only by the majority but by all stockholders of corporate changes that would deprive them of their preemptive rights.