Top global fund manager bucks new rules on foreign ownership

MANILA, Philippines - Lazard Asset Management LLC, a leading global financial advisory and investment firm managing over $146 billion in assets, is contesting the new rules on foreign ownership limits in Philippine firms, warning these regulations could drive away foreign investors.           

“We have been shareholders of PLDT (Philippine Long Distance Telephone Co.)  for over a decade and are concerned that the proposed changes may negatively impact the country as a destination of capital,” said Rohit Chopra, portfolio manager at Lazard, in a letter to Securities and Exchange Commission (SEC) chair person Teresita Herbosa, a copy of which was furnished The STAR.           

Chopra said Lazard wants to keep its investments in the Philippines, particularly in PLDT, but may be forced to sell its holdings if the SEC implements the 60 to 40 foreign ownership limit on each class of company shares instead of tallying compliance cumulatively per firm, regardless of share type.           

The SEC, Chopra said, should stick to the current method of computing foreign ownership in Philippine firms.  “We believe that the limit on foreign ownership should continue to be calculated as a percentage of total shares outstanding as opposed to being segregated by share class. The new proposal, we believe, is unfairly grouping our passive interests with those of possible foreign strategic investors,” Chopra said.

Chopra said Lazard has nearly $1 billion invested in the Philippine equities market since the  early 90s.

Eight local business groups earlier asked the SEC to relax the rules on foreign ownership, arguing the implementation of these new measures  could lead to a massive outflow of foreign capital  and would ultimately drive  stock prices down.  These include the Makati Business Club, Management Association of the Philippines, Financial Executives Institute of the Philippines, Foundation for Economic Freedom, Asia Pacific Real Estate Association (Philippines), Shareholders Association of the Philippines, Trust Officers Association of the Philippines and the Investment Houses Association of the Philippines.

In their position paper submitted to the SEC, the groups said the proposed measure, when implemented, would require foreigners to sell P383 billion worth of shares in PLDT and other telecommunication companies, as well as media, mining and property firms.

The new rules were in response to the Supreme Court’s ruling   that  PLDT, under its present shareholder structure, exceeded the 40-percent foreign ownership limit as stated in the 1987 Constitution.  The High Court likewise decided that “the 60 to 40 ownership requirement in favor of Filipino citizens must apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares.”                        

The court granted part of the petition of lawyer Wilson P. Gamboa, who sought in 2007 to nullify the sale of the government’s 46-percent stake in Philippine Telecommunications Investment Corp. —  representing a 6.4 percent interest in PLDT — to Hong Kong-ba-ed First Pacific Co. Ltd., which partly owns PLDT.

The High Tribunal also directed the SEC “to apply this definition of the term ‘capital’ in determining the extent of allowable foreign ownership in respondent PLDT and, if there is violation of Section 11, Article 12, of the Constitution, to impose appropriate sanctions under the law.”