PLDT cuts foreign equity to comply with SC ruling

MANILA, Philippines (UPDATED) – Telecom giant Philippine Long Distance Telephone Co. (PLDT) has formally signed a deal that will allow it to increase voting shares held by Filipinos in the company to comply with a Supreme Court decision on the foreign ownership limit.

In a disclosure to the Philippine Stock Exchange on Tuesday, October 16, PLDT said it signed an agreement with its affiliate BTF Holdings Inc. for the issuance of 150,000,000 voting preferred shares at P1 apiece or a total of P150 million.

BTF is a wholly owned subsidiary of the board of trustees for the PLDT Beneficial Trust Fund.

After the issuance, PLDT said the total voting shares held by foreign groups in the company will be reduced to approximately 34.5% of the outstanding stock from the current 58.4%.

The issuance will be done to comply with a recent SC decision on the 40% foreign ownership cap in public utilities.

In the decision, the high court affirmed its definition of “capital” in the 1987 Constitution as shares of stock with voting powers. This means preferred or non-voting shares shall not be included in computing the interests of foreigners in local utilities.

First Pacific stake

PLDT’s largest foreign shareholder, Hong Kong-based First Pacific Co. Ltd., said the share issuance will slash the stake it and its Philippine affiliates collectively hold in the telecom company.

“Immediately following the issue of the new voting preferred shares, the aggregate voting interest of the company and its Philippine affiliates in PLDT will be reduced to approximately 15.1% from 25.6%,” First Pacific said in a disclosure to the Hong Kong Stock Exchange on Tuesday.

First Pacific however clarified that their aggregate attributable economic interest in PLDT “will not be materially affected.”

The voting shares that PLDT will issue will carry a fixed, cumulative dividend of 6.5% of issue price per annum, and a preferred return of not more than 110% of issue price.

PLDT may redeem the shares, which are not convertible into common shares, PLDT said.

SC case

The PLDT foreign ownership issue stemmed from a case filed by the late PLDT stockholder Wilson Gamboa with the SC that sought to nullify the sale of the government’s stake in the telecom company to the First Pacific Group in 2007.

Gamboa claimed the sale pushed foreign equity in PLDT above the 40% limit set by the 1987 Constitution.

The SC directed the Securities and Exchange Commission to determine if PLDT indeed violated the limit and told the regulator to apply the definition of capital as “only shares of stock entitled to vote in the election of directors” or only common shares, and not the outstanding capital stock (common and preferred shares).

PLDT chairman Manuel V. Pangilinan, PLDT president Napoleon Nazareno and the Philippine Stock Exchange asked the high court to reverse its decision, warning it would have an adverse impact on foreign investments and the economy as a whole.

However, in a resolution on October 9, the high court dismissed the parties’ petitions. – Rappler.com