• Don’t limit public ownership to common shares

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    EMETERIO SD. PEREZ

    EMETERIO SD. PEREZ

    PUBLIC investors enable the very rich families that control most of the nation’s wealth thru their businesses to list their shares on the Philippine Stock Exchange. As a general rule, their participation in the listed shares’ ownership is limited to common shares. No one outside the Securities and Exchange Commission knows how this kind of ownership participation continues to happen.

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    Even the PSE management would not explain how conglomerates are using the public as a tool in saving taxes. Have these units not been listed, they would have been paying 25 percent of market value instead of one half of one percent. That’s a huge difference that does not need any computation.

    For this reason alone, listed companies are not public, as I have written in this space a number of times. Let’s make listed companies also public by strictly enforcing the 10-percent minimum public ownership (MPO) rule. Maybe, the law may even need amendment to increase such percentage.

    Public investors
    By the way, public investors who trade on listed stocks may not be as rich as the families that own the companies in which they own shares. They are nevertheless either rich or very rich. Otherwise, they won’t be able to either buy or sell PSE-listed shares enabling them to become among the minority stockholders.

    The problem though lies with the computation of public ownership as presented in public ownership reports (POR). If SEC officials would only scrutinize closely the mathematical presentations in these filings, they would have noticed some glaring inconsistencies in them.

    How, for instance, do the public become the majority stockholders in some PORs? The question is raised here because it is not only unfair but a big insult to the public who are reported as the majority stockholders but don’t even deserve a seat on the board.

    Discriminatory issuance
    Repeating what I have written a few times in the past is worth the space to emphasize the need for the SEC and PSE to recognize the important role of the public in making family-owned companies listed if not necessarily public. Regulatory authorities should now change the rule on public ownership of listed stocks. It this needs changing the law, then change it.

    For a start, the formula should not be limited to common shares but should include all classes of shares. The Supreme Court has so ruled in the Gamboa case surrounding the use of preferred shares in circumventing the law on 60-40 percent ownership ratio in favor of Filipinos. The High Court even suggested that the Filipino-foreign ownership computation should arrive separately at a minimum of 60 percent of common and 60 percent of preferred shares being owned or held by Filipinos.

    As has been their practice for a long time now, listed companies report only common shares in their PORs. What happened to the preferred shares of some of them? Your guess is as good as mine but it is worth telling here that whenever “practicable” in their favor, the majority stockholders limit the public to the ownership of non-voting preferred shares. If this is not discriminatory, I don’t know what to call it.

    Change formula
    If the public would scrutinize the present PORs, they would perhaps arrive at a common conclusion that their role in the stock market is being taken for granted. To solve the problem, they should stand up against the majority’s self-serving formula in computing their ownership and presented as PORs.

    Why not change the formula? The public could change this by asserting their preemptive rights over issuances of all classes of additional shares. They should ask listed companies in which they invest their savings to also include them in any future stock sale. In this way, they won’t be diluted way below the required 10-percent MMPO rule.

    Even such rule on public ownership should also be overhauled to reflect the role of individual and institutional investors not related to the owners in making listed companies also public. Instead of only common shares, they should also be sold voting preferred shares. They should reject non-voting preferred shares that are intended only to prevent the dilution of their ownership to below 10 percent.

    The public has long been kind to the owners of listed companies. It’s payback time.

    esdperez@gmail.com

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