Carpio: SEC stand on PLDT ownership issue ‘void’

MANILA, Philippines – Voting and non-voting shares. Regulator Securities and Exchange Commission (SEC) defined “capital” as covering both during oral arguments on foreign ownership of telecommunications giant Philippine Long Distance Telephone Co (PLDT) at the Supreme Court on Tuesday, June 26.

The oral arguments stemmed from a June 28, 2011 ruling of the SC asking SEC to determine if PLDT violated the 60-40 ownership rule, which bars foreigners from owning over 40% of a public utility. 

In said ruling, the SC ordered SEC to compute foreign equity in the company using only common shares or shares entitled to vote in the election of directors and not the outstanding capital stock, which also includes preferred or non-voting shares.

“For many years, the SEC has taken the view that total sum of outstanding capital stock is irrespective of nomenclature,” SEC Commissioner Manuel Gaite said. “The SEC applied this definition in good faith.”

But Acting Chief Justice Antonio Carpio called SEC’s definition “void.”

Carpio reiterated the position of the SC, citing two laws: the Foreign Investments Act of 1991 and the Omnibus Investment Code of 1987. The two state that at least 60% of the outstanding capital of a corporation organized under Philippine laws should be held and voted by Filipinos.

“I have shown you that position is void for the last decade or so and that’s why they said you have been negligent,” Carpio said. 

The 2011 SC ruling favored the late PLDT stockholder Wilson Gamboa, who sought to nullify the 2007 sale of the government’s stake in the telco to Hong Kong-based First Pacific group.

Gamboa alleged the acquisition raised the total foreign stake in the company to 81.47%, hence putting the selection of PLDT’s board of directors in the hands of foreigners.

‘Statutory, not constitutional’ 

The SEC’s position contradicts that of Solicitor-General Francis Jardeleza, who did not represent SEC during the oral arguments. Jardeleza maintained that capital refers only to voting shares.

Constitutional expert Fr. Joaquin Bernas, meanwhile, explained that the “60-40” capitalization is not expressed in the 1987 Constitution, but is an issue that Congress already threshed out.

Section 11, Article 12 of the Constitution limits foreign ownership of public utilities to 40%, but does not offer anything on the definition of capital, he said.

He added that members of the Constitutional Commission disagreed on what constitutes capital, though he said one member, Jose Bengzon, claimed that the controlling interest in favor of Filipinos was already “assumed.”

This assumption, he said, “is a silent sentinel of Filipino interest.”

The problem with this, however, is that “silent sentinels are not effective guardians… SEC has ignored the silent sentinels,” noted Bernas.

He said that Congress, by passing the Foreign Investments Act, clarified this already.

“The problem is more statutory than Constitutional,” he said. – Rappler.com