The legally “correct” computation of the 60-40 percent ownership ratio in favor of Filipinos is based on outstanding voting shares, be they common or preferred. As the Supreme Court has ruled in an ownership case involving Philippine Long Distance Telephone Co., in each class of shares, whether voting or non-voting, Filipinos must own at least 60 percent.
Nowhere in that ruling, however, did the High Court require the ownership computation to include indirect holdings. Instead, it ordered the Securities and Exchange Commission (SEC) to look into PLDT’s violation of the 60-40-percent constitutional ownership provision. It gave the SEC the power to decide the fate of First Pacific Co., which as computed by the court, has exceeded the allowable 40 percent limit on foreign ownership.
The rest of the story is now history. SEC Chairperson Teresita Herbosa and the four other commissioners allowed PLDT to correct the Filipino-Indonesian ownership ratio in PLDT by the issuance of 150 million voting preferred shares to PLDT Beneficial Trust Fund.
Incidentally, SEC’s Herbosa knew First Pacific exercised its voting power over PLDT’s 150 million preferred voting shares. This enabled the Indonesian company to nominate and elect all the members of the company’s 13-person board, including three independent directors.
From BDO to TPG
The PLDT ownership issue is being recalled here not to revive the issue for its sake but to define the role of indirect holdings in subsidiaries that a listed company controls. The recent acquisition by US-based TPG Growth of 40 percent of One Network Bank (ONB) is an example of a mother company (BDO Unibank as the seller) reducing its ownership in a wholly owned subsidiary (ONB) to 60 percent.
The resulting 60-40 percent ownership ratio in ONB is contained in a joint press release issued by BDO and TPG. The numbers are correct because BDO sold to TPG only 40 percent of its 100-percent ownership in ONB. It could have sold more but decided to keep what it said is 60 percent majority holdings in ONB, which is based in Davao but operates “more than 100 branches and offices.”
There is no need to detail the rest of the contents of the BDO-TPG press release. It is enough that the public has been fully informed of the sale of ONB, which is expected to ultimately benefit BDO.
Did BDO end up still in control of One Network Bank? As far as the law is concerned, the answer is yes. As owner of 60 percent equity, BDO retains ONB as a subsidiary given that a company with a 60-40 ownership structure in favor of Filipinos is considered fully Filipino-owned when investing in another company.
On the other hand, as BDO’s majority stockholders, businessman Henry Sy Sr. and his family remain in control of ONB’s board even if they were to lose a few seats to TPG. A few seats as used here limit TPG to a minority representation on the board.
Theoretically, if ONB has a 10-person board, if would be divided between BDO and TPG, with the former getting six and the latter, four. The question, though, is who between the two would give way to the appointment of independent directors, if required.
Again, Duediligencer is using “appointment of independent directors” to describe those who are never qualified to get elected because they do not own enough voting shares to even qualify for nomination.
Finally, here is series of computations to show foreigners’ control of ONB. As BDO and TPG said in their press release, the former sold to the latter only 40 percent of its 100 percent holdings in ONB.
As of March 31, PCD Nominee Corp. listed foreigners among BDO’s 100 stockholders, crediting them with 1.172 billion common shares, or 32.16 percent of 3.645 billion outstanding common shares. If BDO sold to TPG 40 percent of its 100-percent holding in ONB, foreigners who owned 1.172 billion BDO common shares, or 32.16 percent, should end up as ONB’s indirect stockholders proportionate to their 32.16 percent holdings in BDO.
Since BDO sold 40 percent of its 100-percent ownership in ONB, the bank’s foreign stockholders who own 32.16 percent of BDO should be credited with ownership of BDO’s remaining 60 percent majority ownership in ONB. Computed, 32.16 percent of 60 percent would be equal to 19.296 percent.
Computing by dividend
The acquisition by TPG of 40-percent equity in ONB, plus PCD-held foreigners’ participation of 32.16 percent of BDO’s remaining 60 percent ownership, or 19.296 percent, in ONB, would give foreigners 59.296 percent control of ONB.
The stockholders of BDO Unibank would only experience the resulting ownership imbalance if and when ONB declared a dividend. If the dividend would be P1 per share, 60 percent, or 60 centavos would go to BDO and 40 percent, or 40 centavos to TPG.
Again, theoretically, if a 60-centavo dividend could only be quantified in BDO’s retained earnings as having come from ONB and declared as dividend, 32.16 percent, or 19.296 centavos of this would to go the bank’s unnamed foreigner stockholders.
Who then would economically benefit more from ONB’s P1 dividend? Try adding 19.296 centavos due BDO’s foreigner stockholders and TPG’s share of 40 centavos, and you would have the answer: 59.296 centavos for foreigners, against the Sys and the publics’ 40.704 centavos. That’s a total of 100 centavos or P1.
Meanwhile, the waiting begins. It seems BDO and TPG are keeping the public in suspense on what they intend to do with ONB. Will they list the bank’s shares? Again, your guess is as good as mine.