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SC: PLDT 'breached' Constitution's foreign ownership limits

June 30, 2011 8:23am
Telecommunications giant Philippine Long Distance Telephone Co. (PLDT) may have violated the 1987 Constitution by breaching the 40-percent foreign ownership limit imposed by the Charter.

This, after the Supreme Court (SC) found out that foreigners "unmistakably" control more than 64 percent of the firm's common shares.

Earlier, PLDT chairman Manuel V. Pangilinan said the SC ruling was "extremely disappointing" and characterized its promulgation as "economic suicide."

"It's extremely disappointing personally for me as a Filipino... It would have a negative and adverse impact on the financial markets here and abroad..." Pangilinan said.

SC ruling

In a 43-page ruling written by Associate Justice Antonio Carpio, the high court ordered the Securities and Exchange Commission (SEC) to check the extent of allowable foreign ownership in PLDT and to determine whether PLDT violated the constitutional provision that limits to 40 percent the foreign ownership of public utilities.

But in the same ruling, the court stated PLDT exceeded the 40-percent foreign ownership limit. Citing PLDT records, the high tribunal said foreigners control the firm's 120,046,690 common shares while Filipinos only control 66,750,622.

"In other words, foreigners hold 64.27 percent of the total number of PLDT common shares while the Filipinos hold only 35.73 percent. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution," it added.

The said constitutional provision mandates that foreign entities can only own up to 40 percent shares in a Philippine corporation.

The high court likewise said the term "capital" found in Section 11, Article XII refers to common shares, which entitle a holder to participate in the voting for the firm's directors. The SC clarified that the term "capital" does not refer to the total outstanding capital stocks, which constitute common shares and non-voting shares.

The high court then ordered the SEC chair Teresita Herbosa to apply this definition of "capital" in determining the extent of the allowable foreign shares in PLDT. The SC also directed the commission to check whether PLDT has complied with the Constitution and to impose the appropriate sanctions if any violation is found.

The ruling was made in response to the petition filed by lawyer-accountant Wilson Gamboa, who wanted to annul the sale of government-acquired 111,415 PLDT shares under the name of Philippine Telecommunications Investment Corp. (PTIC) to Hong Kong-based First Pacific Co. Ltd. The transaction was valued at P25.2 billion.

Pangilinan's warning

On Wednesday, Pangilinan said foreigners own 64 percent of PLDT's common shares.

But he said that if preferred, non-voting shares are included, Filipinos own 87 percent and foreigners 13 percent.

The Supreme Court, however, said in its ruling that when the SEC determines the allowable foreign ownership in PLDT, the term "capital" should refer to common shares, "and not to the total outstanding capital stock (common and non-voting preferred shares)." — LBG/RSJ, GMA News
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