PLDT, Globe Telecom saved by preferred shares

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Emeterio Sd. Perez

Emeterio Sd. Perez

THE Philippine Long Distance Telephone Co. (PLDT) has its own mathematical formula to show that it is a 60-percent Filipino-controlled public utility corporation.

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Since the Securities and Exchange Commission has accepted PLDT’s ownership presentations, then its approval and tolerance should be enough assurance that the foreign ownership of stocks in the giant telecom conglomerate should be legal.

Nevertheless, Due Diligencer is computing the capital stock of PLDT, along with that of Globe Telecom Inc., to show how the numbers game on foreign ownership could be played differently.

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If you completely agreed with the numbers PLDT presented in its ownership posting on the website of the Philippine Stock Exchange without considering the impact of the Supreme Courts’ definition of Filipino control, you would conclude that the telecom company is absolutely correct.

In a footnote to an ownership disclosure, PLDT cited SEC Memorandum Circular No. 8 and said “the bases for the calculation of foreign ownership restriction are PLDT’s outstanding shares of voting stocks (common and voting preferred) which are entitled to vote for the election of directors.”

Relying on the SEC’s policy, PLDT concluded that its foreign ownership level was 31.58 percent of the 366.056 million outstanding shares of voting common and preferred stocks as of March 31, 2014.

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Here is how PLDT arrived at a much diluted foreign ownership structure: It issued 150 million voting preferred shares to PLDT Beneficial Trust Fund which, when added to 216.056 million outstanding common shares, would give the company a total of 366.056 million in outstanding capital stock.

Then PLDT divided the foreigner-owned 115.589 million common shares by 366.056 million outstanding shares and came out with a much lower foreign ownership ratio of 31.58 percent. The result of the computation made the company compliant with the ownership law.

However, going by a layman’s reading of the SC formula that each class of shares in the capital stock of public utilities should be separately computed to determine Filipino control of at least 60 percent, the foreigners’ 115.589 million PLDT common shares would be equal to 53.50 percent of 216.056 million outstanding common shares, breaching the 40 percent foreign ownership limit.

Which of the two computations should prevail?

Certainly, it should not be Due Diligencer’s dangerous interpretation of the SC-suggested calculation but that of PLDT, which has gotten the SEC approval, thus allowing the dilutive effect of 150 million voting preferred shares on foreign ownership of the company’s total outstanding capital stock.

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Incidentally, PLDT is not the only listed public utility company that uses voting preferred shares to show 60 percent Filipino ownership.

One of them is Globe Telecom Inc., which has also issued voting preferred shares to maintain Filipino control of at least 60 percent of the company’s voting stocks.

In a PSE posting, Globe, the telecom unit of the Ayala group controlled by the Zobel family, reported its issuance of 158.515 million voting preferred shares to only one subscriber, Asiacom Inc., a unit of Ayala Corp.

Why did Globe issue preferred shares when it is very profitable that it has even piled up retained earnings of P5.69 billion after dividends as of March 31, 2014?

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Globe Telecom needed preferred shares in its capital stock to dilute the foreigner-owned 85.759 million common shares, equivalent to 64.637 percent, to the legal level of 40 percent. If it had had only common shares, Ayala’s telecom subsidiary would have been controlled by foreigners, one of them being Singapore Telecom Pte. Ltd. and the Zobels’ significant but still minority stockholders.

As of March 31, 2014, a filing listed Ayala Corp. only as a minority stockholder with 40.328 million common shares, or 13.85 percent, while SingTel, the Zobels’ partners, owned 62.646 million common shares, or 47.217 percent. PCD Nominee Corp. held 23.113 million common shares as record stockholder for unnamed foreigners.

With Asiacom-held 158.515 million voting preferred shares, Globe not only effectively increased its outstanding capital to 291.111 million shares but, more importantly, ensured the Zobel’s control of 75.971 percent.

On the other hand, the holdings of the foreigners have been reduced to 29.459 percent from 64.637 percent, computed on the expanded outstanding capital stock of 291.111 million shares.

esdperez@gmail.com

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