• Public ownership without representation

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    Emeterio Sd. Perez

    Emeterio Sd. Perez

    LISTED companies are not public. If they are, then the public stockholders would have elected their nominees to their boards. I have already written about this subject in the past and I admit that I myself have been guilty of referring to them as both listed and public because that’s the only way to describe these so-called stock corporations which are in the market for the convenience of their majority stockholders.

    But this unbalanced situation where the public remains at the mercy of the majority stockholders could still be remedied. It is time to fire the independent directors or elect them as nominees of the majority. In their place, let the public elect their nominees.

    I have been told even by market insiders who, I admit, are more knowledgeable than this sole contributor to Due Diligencer, how easy it is to circumvent the rule imposed by the Securities and Exchange Commission (SEC) that at least 10 percent of outstanding shares of listed companies should be owned by the public.

    Even the phrase “outstanding shares” should be redefined by the SEC. Does it include preferred shares, whether voting or non-voting? Certainly the public has been deprived of subscribing to these stocks because of the removal of pre-emptive rights from the charters of many listed companies. They would have been happy to have been included among the fortunate buyers of preferred shares with fixed earnings of, say, 4.75 percent per annum, as Ayala Land Inc. (ALI) priced its 13 billion voting preferred shares in 2012.

    ALI, a subsidiary of Ayala Corp., restructured its capital stock in 2012 following the Supreme Court’s ruling on a petition filed by the late Wilson Gamboa, a former legislator, against the ownership profile of Philippine Long Distance Telephone Co (PLDT). Gamboa questioned the continued use of preferred shares by PLDT in circumventing the 40 percent constitutional limit to foreign ownership in public utility companies such as PLDT.

    Gamboa was proven right when the SC upheld him. But he died not knowing that the High Court’s ruling against PLDT’s ownership structure would also affect other companies, one of them ALI.

    Prior to the SC ruling, ALI’s 13 billion preferred shares were non-voting. In February 2012, the property arm of the Zobel-owned AC redeemed and retired these shares. ALI eventually increased its authorized capital stock to also include the 13 billion preferred shares but classified them as voting shares, with a dividend rate of 4.75 percent per annum.

    (In a previous piece, I have argued against the continued issuance of preferred shares on the ground that, by being assured of fixed interest earnings, they are in fact liabilities.)

    Haven’t SEC officials even read the public ownership reports of listed companies to see if these are complying with the 10-percent minimum public ownership rule? If they do, then they would have noticed that some listed companies claim public ownership of much more than the rule requires. As a matter of fact, ALI reported that as of July 15, 2014, the public owned 7.1 billion shares or 50.2 percent of its 14.2 billion outstanding common shares.

    How can the public become the majority stockholders of a property company that is supposed to be a unit of the Ayala conglomerate when the nine members of ALI’s board, including three independent directors, are ALL nominees of the Zobels? According to the Philippine Stock Exchange (PSE) website, Fernando Zobel de Ayala is the chairman of the board while his older brother Jaime Augusto Zobel de Ayala is vice chairman.

    It is unfortunate that the public is being taken for granted by the owners, mostly families, of listed companies when, had it not been for their acquisition of a few shares during an initial public offering, these families could not have listed their companies and enjoyed the benefits of being publicly traded through the facilities of the exchange.

    By the way, ALI is listed but is not public anymore. This is because the Zobels also control the property company’s 13 billion shares, of which AC owns 12.2 billion shares, or 93.1 percent.

    Computed on ALI’s outstanding capital stock of 27.2 billion shares, consisting of 14.2 billion common shares and 13 billion voting preferred shares, AC would end up owning 18.5 billion shares or 68.2 percent of ALI, justifying the description of ALI as a subsidiary.

    esdperez@gmail.com

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