[Seventh of a series on the Salim Empire in the Philippines.]
That’s what the Supreme Court said of the Philippine Long Distance Telephone Co.’s ownership structure, which the firm’s defenders claim complies with the constitutional ban on foreigners owning more than 60 percent of a public utility.
The Supreme Court’s decision is certainly ironic for a firm with a former Chief Justice, Artemio Panganiban, as one of its board directors.
The High Court’s views were expressed in its G.R. No. 17659 promulgated June 28, 2011 and, reaffirmed October 9, 2012, both of which were written by ponente senior justice Antonio Carpio.
However, as will be discussed in Friday’s column, the Securities and Exchange Commission in effect later defied the Court’s decision, by inventing in its May 20, 2013 circular issued by its chairman Teresita Herbosa its own preposterous process of determining whether a firm is 60-percent owned by Filipinos or not. Herbosa’s circular served to strengthen the foreign firms’ control of PLDT.
The Supreme Court criticized PLDT for mocking the constitution specifically in reference to the argument by the SEC and then Philippine Stock Exchange president Francisco Ed Lim that PLDT did not violate the constitutional limits on foreign ownership of a utility firm since Filipinos own just “18 percent” of the total outstanding shares. This is also the share of foreign ownership PLDT has claimed in its official reports to the SEC.
But they computed that percentage by including even non-voting preferred shares—preposterously going against corporate-law definition and even commonsense understanding of the meaning of “capital” that determines corporate control as referring only to common, voting shares.
The new SEC definition of capital in respect of corporate control, the Supreme Court ruled, was absolutely not what the Constitution meant. The thing called “preferred shares” in all countries on this planet was invented for corporations to raise funds, without sharing control of the firm. The attractiveness of preferred shares though is that these were entitled to dividends bigger than those for common, voting shares.
(PLDT’s Chairman Manuel V. Pangilinan’s defense in the suit—in an indication of his confidence that the SEC would rule in his firm’s favor—was solely that it wasn’t the Supreme Court that had jurisdiction over the case but the corporate regulatory body.)
The Supreme Court decision lambasted that obviously contrived definition of capital by the SEC as a very flimsy justification for violating the Constitution.
The Court pointed out:
(1)”Foreigners own [the majority]of the common shares of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only a [minority]of PLDT’s common shares . . . and thus do not exercise control over PLDT; (3) preferred shares, 99.44-percent owned by Filipinos, have no voting rights . . . This kind of ownership and control of a public utility is a mockery of the Constitution.”
“The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the State’s grant of authority to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44-percent owned by Filipinos, are nonvoting . . . grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.”
This directly contravenes the express command in Section 11, Article XII of the Constitution that “[n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to . . . to corporations . . . Organized under the laws of the Philippines, at least 60 per centum of whose capital is owned by such citizens.”
The court didn’t mince words in condemning the view that PLDT complied with the Constitution with its stretched interpretations of what the basic law meant by “capital.” It even alluded to the Indonesian tycoon Anthoni Salim, whose firms control the firm:
“The interpretation of the term ‘capital’ would bring us back to the same evils spawned by the Parity Amendment, effectively giving foreigners parity rights with Filipinos, but this time even without any amendment to the present Constitution.
“Worse, this interpretation opens up our national economy to effective control not only by Americans but also by all foreigners, be they Indonesians, Malaysians or Chinese, even in the absence of reciprocal treaty arrangements.
“At least the Parity Amendment, as implemented by the Laurel-Langley Agreement, gave the capital-starved Filipinos theoretical parity—the same rights as Americans to exploit natural resources, and to own and control public utilities, in the United States of America.
“Here, that interpretation would effectively mean a unilateral opening up of our national economy to all foreigners, without any reciprocal arrangements. That would mean that Indonesians, Malaysians and Chinese nationals could effectively control our mining companies and public utilities while Filipinos, even if they have the capital, could not control similar corporations in these countries.”
PLDT appears to have prepared two parallel, but different tacks to claim that foreigners do not control the firm, which is a violation of the Constitution. The first involves the argument by the SEC discussed above that the Constitution by “capital” referred not only to common but also preferred shares.
Its second tack is that the two firms which Anthoni Salim controls through several corporate layers, Metro Pacific Resources and Philippine Investment Telecommunications Investment Corp., are “Filipino” since they were incorporated in the Philippines. The accompanying chart shows the obvious fallacy of this claim.
Salim simply created several layers of six interlocking companies all of which are controlled by his Bermuda-incorporated First Pacific Co. According to PLDT’s disclosures to the US SEC, all these firms are represented by only one man: Manuel V. Pangilinan, who owns only less than 1 percent of these firms, but is Salim’s chief representative.
In its 2012 annual report, and even in its updated website, First Pacific lists PLDT as its biggest profit generator, and that it’s “economic interest in the firm is 25.6 percent.”
This figure represents mostly the shares in PLDT of Philippine Telecommunications Investments Corp., which is 100-percent owned by First Pacific and its subsidiary Metro Pacific Assets Holdings, and those of Metro Pacific Resources, another Salim firm. About 4 percent is also held by Salim firms through American Depository Receipts.
If Pangilinan has bigger shares than Salim—as his supporters claim—there is absolutely no data indicating this.
The next biggest foreign shareholder of PLDT is the Japanese Nippon Telephone and Telegraph (NTT), the world’s biggest telecommunications firm through its two subsidiaries NTT DoCoMo and NTT Communications.
Including 7-10 percent (the definitive figure couldn’t be determined) held by foreigners through the stock market, foreign control of PLDT totals 49-52 percent, breaching the 40 percent constitutional ceiling.
(Some 12,174 stockholders own 1.2 percent of the firm. Tycoon John Gokongwei is the next biggest shareholder with 8 percent, while the Philippine state’s Social Security System has 4 percent, which is represented by one of President Aquino’s rah-rah boys in business, Juan Santos.)
That foreigners are in full, sole control of PLDT is also evident in a “Strategic and Cooperation Agreement” entered in 2006 by the Salim firms and the NTT firms, in which they agreed to work together as the controlling stockholder. The agreement specifically stipulated that the Salim-controlled management is required to get the Japanese bloc’s approval for most of its major actions.
The agreement for instance required the Salim-controlled management to seek the NTT firms’ consent for any capital expenditure above $50 million and for any new investments exceeding $25 million. The agreement even required the Japanese firms’ approval whenever PLDT wishes to issue new common stocks, and for them to be offered first option to buy these stocks. The Salim and NTT also agreed to vote as one in order to block the entry of what the agreement termed as “hostile” investors intending to get more than 30 percent control of PLDT.
Unfortunately though, the country’s political leadership, and mainstream media as well, and even the former Supreme Court chief justice in PLDT’s board have turned a blind eye to the firm’s brazen violation of the Philippine Constitution, as shown in indisputable facts.
One of their reasons for their unconscionable position is their thinking that the Philippine Constitution should be ignored for pragmatic purposes.
Such pragmatism was articulated in the Supreme Court hearings by the economist Dr. Bernardo Villegas who defended the foreign control of PLDT by claiming that such foreign capital “are badly needed to save our ailing economy,” and that, in contrast to our neighbors, we haven’t been getting enough foreign investments.
Justice Carpio fortunately demolished that argument in the hearings:
JUSTICE CARPIO: “I would like also to get from you, Dr. Villegas if you have additional information on whether this high FDI [foreign direct investment]countries in East Asia have allowed foreigners to control their public utilities, so that we can compare apples with apples.”
DR. VILLEGAS: “Correct, but let me just make a comment. When these neighbors of ours find an industry strategic, their solution is not to “Filipinize” or “Vietnamize” or “Singaporize.” Their solution is to make sure that those industries are in the hands of state enterprises. So, in these countries, nationalization means the government takes over. And because their governments are competent and honest enough to the public, that is the solution.”
You will be shocked though how the SEC and the PLDT defied the High Tribunal’s decision, and how patently phony the telecom company’s action was to pretend that it is majority owned by Filipinos.
That on Friday.
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