Foreign money in mass media through PDRs

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Emeterio Sd. Perez

ABS-CBN Holdings Corp. reported in an annual filing having “received cash dividends for its investment in ABS-CBN shares and in turn distributed interest to its PDR holders.”

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The public would surely notice the use of “dividends” and “interest” in the quotation, which was lifted from the company’s annual filing. Apparently, the difference would justify the utilization of dividends that came from ABS-CBN Corp. which ABS-CBN Holdings said were intended for “its investment” in ABS-CBN shares.”

In the same filing, ABS-CBN Holdings detailed these dividends as follows: P246,885,825 in May 2016; P197,880,660 in April 2015; and P194,886,420 in May 2014. Of these amounts, the company paid what it described as “interest” of P239,858,214 in May 2016; P196,600,944 in April 2015; and P188,792,503 in May 2014.

The interest payment per share translates to P0.7287 in May 2016; P0.5961 in April 2015; and P0.5812 in May 2014. In turn, computations showed that the “lenders” during the three-year period earned interest for their loans to ABS-CBN Holdings.

When computed, these investments made ABS-CBN Holdings owner of 338.803 million ABS-CBN shares in 2016, 331.959 million shares in 2015 and 335.317 million shares in 2014.

Due Diligencer based its conclusion on a filing of ABS-CBN Holdings, which apparently could not pay its “lenders” dividends because it does not have retained earnings to distribute. The company has been reporting over the years the same amount of deficit, P23,099,356, in its annual financial statements audited by SGV and Co.

PDR issuer

As issuer of Philippine Depositary Receipts (P R), ABS-CBN Holdings invests the proceeds from such issuances in ABS-CBN’s listed common shares. As of June 30, it directly owned 325.052 million ABS-CBN shares, which were equivalent to 33.97 percent of outstanding shares.

A public ownership report (POR) showed that ABS-CBN’s majority stockholder was – and still is – Lopez Inc., the unlisted investment unit of the Lopez group, with 480.934 million ABS-CBN shares, or 57.24 percent.

In an explanatory note to a financial filing, ABS-CBN Holdings said “ABS-CBN shares are still subject to ownership restrictions on shares of corporations engaged in mass media.” In other words, foreigners can invest on ACC shares by availing themselves of PDRs issued by ABS-CBN Holdings.

“Each PDR grants the holder, upon payment of the exercise price and subject to certain other conditions, the delivery of one ABS-CBN share or the sale of or delivery of the proceeds of such sale of one ABS-CBN share,” ABS-CBN Holdings said.

ABS-CBN Holdings added that it “remains to be the registered owner of the ABS-CBN shares covered by the PDRs.” At the same time, it also “retains the voting rights over the ABS-CBN shares.”

Due Diligencer’s take

With these footnotes in its annual report, ABS-CBN Holdings defined the dividends it received from ABS-CBN as “interest” which “is distributed to holders pro-rata on the day such dividends are received by the company.”
In other words, PDRs are issued to foreigners to avoid violating the pertinent provision of the Constitution, which reserves to Filipinos 100-percent ownership of mass media. They earn interest on the PDRs they hold which ABS-CBN Holdings pays them for their placements.

Of course, ABS-CBN is not alone in this predicament. Even GMA Network Inc. issues PDRs to aliens. Like ABS-CBN Holdings, GMA Holdings Inc. issues PDRs, proceeds from which are invested in shares of GMA Network.

The question is whether or not the Securities and Exchange Commission (SEC) has studied fully the implications of PDR issuances. As regulatory authority, the SEC may want to take another look at the constitutional prohibition against foreign investments in mass media.

Are PDRs the legal replacement for listed common shares issued by mass media companies and publicly traded?

To solve the dilemma over foreigners’ possible incursion and eventual control of mass media in the country, SEC officials should closely monitor aliens’ money poured into any of the country’s media outlets.

I suggest that readers of The Manila Times read again the column of Mr. Rigoberto D. Tiglao on Rappler Inc., which appeared last Wednesday.

esdperez@gmail.com

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