SC’s foreign ownership formula said worrying investors

SC's foreign ownership formula said worrying investors

A SUPREME COURT ruling that changes the calculation of foreign ownership stakes in local public utilities has started worrying investors, the bourse warned in a statement on Wednesday.

In that decision, promulgated last Tuesday, the court ordered the Securities and Exchange Commission (SEC) to study whether telecommunication giant Philippine Long Distance Telephone Co. (PLDT) has breached foreign ownership limits, and to impose sanctions if necessary.

"The Philippine Stock Exchange (PSE) would take strong reservations [sic] on the reported new interpretation of the Supreme Court modifying the concept and computation of the 60-40 capital limitation on foreign ownership of public utilities, as prescribed under Section 11, Article XII of the Constitution," the bourse said, acknowledging it has yet to receive a copy of the Supreme Court decision.

The PSE noted that some foreign investors have begun inquiring on the implication of the ruling. The bourse expressed "grave concern" that the "interpretation on foreign capital limitation may result in capital flight of existing foreign investors, further cause market volatility and discourage the entry of foreign investments into the country."

The PSE index fell 40.64%, or by 0.95%, to 4,4249.35 on Wednesday.
In its decision, the Supreme Court, voting 10-3, ordered the SEC to determine the extent of foreign ownership in PLDT. In doing so, the court granted part of the petition of lawyer Wilson P. Gamboa, who sought in 2007 to void the sale of the state's 46% stake in Philippine Telecommunications Investment Corp. -- representing a 6.4% interest in PLDT -- to Hong Kong-based First Pacific Co. Ltd., which partly owns PLDT.

The court said that in determining foreign ownership, the SEC should define "capital" in Section 11, Article XII of the Constitution to refer only to "shares of stock entitled to vote in the election of directors," or the common shares of stock, as opposed to the total outstanding capital stock, which includes preferred shares that do not have voting powers.

The Constitution allows foreigners to own only up to 40% of a local public utility.
"[The decision] is disappointing for me as a Filipino. One, it has negative and adverse impacts here and abroad," PLDT Chairman Manuel V. Pangilinan told reporters after the Philex Mining Corp.'s annual stockholders' meeting yesterday.
He noted that, since the news broke, PLDT officials have been flooded by calls from analysts, brokers and investors.
Mr. Pangilinan said that while only 13% of PLDT is foreign-owned if computed on the basis of both common and preferred shares, this percentage jumps to 64% if based on common shares alone.
"Our investors are asking why are they (Supreme Court) changing the rules. It's not good from a foreign investor's perspective to change the rules," Mr. Pangilinan said.
"That could lead to tremendous selling pressure on PLDT prices."
PLDT shares fell by as much as 3.75% before paring losses to close down 3.17% to P2,324 a share.
Metro Pacific Investment Corp., the local flagship of First Pacific, fell by as much as 3.3% before closing down 1.94% to P3.54.
"This common and preferred share capital structure of PLDT is something that we inherited. It was there when we came in in 1998. And that structure, from an ownership standpoint, is legal and valid," Mr. Pangilinan stressed.
He said the Supreme Court ruling could affect other listed utilities, as well.
"We are aware that certain listed companies have the same structure [hence, this ruling could also have] adverse impact when they're discovered by the market," he warned.
"I don't understand why we're doing this, why we're committing economic suicide."
Sought for comment, Gerard M. Lukban, commission secretary of the SEC, said in an interview yesterday that regulators will meet as soon as they get a copy of the ruling.
"We will have special executive sessions to address urgent concerns," Mr. Lukban said.
In its statement, the PSE said it will closely work with the SEC to clarify the issue.
Mediaquest Holdings, Inc., a unit of PLDT's Beneficial Trust Fund, has a minority stake in BusinessWorld. -- reports from Reuters and NJCM

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