THE issuance of voting preferred shares has saved Philippine Long Distance Telephone Co. (PLDT) from violating the 40-percent limit to foreign ownership.
If PLDT did, then others could also do the same.
If as of March 31, 2013, foreigners owned 71.57 percent of PLDT’s common shares, without the 150 million voting preferred shares held by BTF Holdings Inc., it would have merited penalty to be imposed by the Securities and Exchange Commission (SEC) for allowing foreign ownership to exceed the 40-percent legal limit.
As a matter of fact, 71.57-percent ownership of PLDT common shares was what led the Supreme Court to come out with a formula in computing the 60-40 ratio of ownership between Filipinos and foreigners in favor of the former.
But even before the SEC could move against it, PLDT corrected the infraction by issuing 150 million voting preferred shares to a holding company named after a trust fund.
The three letters BTF stand for beneficial trust fund, which, as a corporate stockholder used to be preceded by “PLDT.”
An ownership filing posted on the website of the Philippine Stock Exchange showed that foreigners in control of at least 121.716 million PLDT common shares, or 56.336 percent of 216.056 million outstanding common shares, way over the 40-percent allowable limit.
Based on the SEC’s guidelines, computing the ratio should not be confined to common shares but should include voting preferred shares, which would bring PLDT’s total voting stock to 366.056 million voting shares including 150 million voting preferred shares held by BTF.
Recomputing the ratio, foreign-held 121.716 million common shares would be equivalent to 33.251 percent of expanded outstanding 366.056 million voting shares.
With these computations, PLDT and Globe Telecom Inc. have something in common: In both, foreigners own more than 40 percent of common shares and that both corrected the violation by issuing voting preferred shares.
But if you are one of the public investors, with the computation of ownership ratio, you would probably raise some questions:
First: If the preferred shares issued by PLDT and Globe Telecom to dilute foreign ownership to the 40-percent legal limit give their holders voting right, do they also entitle them to name their nominees to the board?
Didn’t the issuance of voting preferred shares require a new computation of the holdings of foreigners, to see if the preferred shares have also diluted their holdings that would also reduce their representation in the board or keep them entirely out of the board?
For example, if the NTT group still owns 35.43 million PLDT common shares, or 16.40 percent, its holdings would be reduced to 9.0679 percent. Does this percentage still entitle the Japanese stockholders to two seats in PLDT’s 13-man board?
If one were to go by the numbers, then each of the 10 PLDT directors, excluding independent directors, should own or get elected by at least 10 percent holdings, or 36.61 million PLDT voting shares.
Second: If the exchange requires public ownership of at least 10 percent of outstanding shares, will PLDT set a precedent by computing the 10-percent minimum public ownership, but this time based on the entire voting capital consisting of 216.056 million common shares and 150 million voting preferred shares?
As PLDT had disclosed, the public own 116.435 million common shares, which represent 53.89 percent of outstanding common shares, an ownership which is way over the required 10-percent publicly held shares.
But if PLDT would make a new computation based on 366.556 million outstanding voting shares, the public would own 36.656 million voting shares, which would be a mix of common and voting preferred shares.
Ironically, the public investors are PLDT’s majority owners of common shares but are not represented in the board. Instead, the board is composed of eight nominees of the First Pacific group; NTT, two and three independent directors, who get elected as long as they are acceptable to management.
Globe Telecom, which belongs to the Ayala group of companies controlled by the Zobel family, and PLDT, are only two of listed and public companies whose ownership may or may not be in accordance with the SEC guideline.
The fate of the two telecommunication companies would depend on the SEC examiners who would be tasked to decide if both are compliant or not with the law.
If not, then the SEC should take the blame because it has already set a precedent when it allowed PLDT to issue 150 million voting preferred shares, without even drafting a guideline on the High Court’s ruling on the Gamboa vs. PLDT case.
But more than the SEC, the exchange is facing the difficult task of monitoring compliance of listed companies to the High Court’s ownership ruling and SEC Circular 8 providing the formula in computing the 60-40 ownership ratio in favor of Filipinos.