SEC seeks public comments on foreign ownership cap

MANILA, Philippines - Philippine companies will be mandated to comply with the 40-percent foreign ownership cap on both voting and non-voting shares.

The Securities and Exchange Commission (SEC) yesterday started seeking public comments for the second and final draft that outlines the rules on the ownership of local firms.

“The required percentage of Filipino ownership shall be applied to both the total number of outstanding shares of stock entitled to vote in the election of directors, and the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors,” SEC said.

“All covered corporations, shall at all times, observe the constitutional or statutory ownership requirement,” SEC added.

Under the first set of draft rules released in November, the SEC required all covered corporations like utility firms to meet the constitutional requirements of 40 percent foreign ownership limit for each class of shares at all times.

In October, the Supreme Court decided that “the 60-40 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.”

But in an entry of judgment the SEC received on Jan. 8, the Supreme Court directed the SEC to apply the definition that the term capital “refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not the total outstanding capital stock, common and non-voting preferred shares.”

“We simplified the computation (of the foreign ownership),” Gerard M. Lukban, commission secretary of the SEC, said in a telephone interview.

“(The second draft) is based on the dispositive portion of the June 2011 decision of the Supreme Court,” Lukban said.

In January, SEC said it would no longer implement the hotly-contested 40-percent foreign ownership cap for all classes of shares. It would base its definition of capital on the voting rights of shares.

Lukban said the second draft would be the last. It would be tweaked depending on public comments before being implemented.

“Our lawyers are reserving comment until they have had the opportunity to study the current draft,” PLDT spokesperson Ramon S. Isberto said in a text message.

However, Freya Natividad, investment analyst at brokerage firm 2Trade-Asia.com, said: “I think foreign investors would be more cautious given the new draft. It might likely push away investors.”

Companies that are close to breaching the 40-percent ownership limit would face pressures to sell more shares, Natividad said.

Industry officials like the Philippine Stock Exchange earlier said the implementation of the foreign ownership cap on all class of shares would dampen the attractiveness of the Philippines to foreign capital and hold back the development of capital markets.

The foreign ownership issue stemmed from the June 2011 decision of the Supreme Court, which granted part of the petition of lawyer Wilson P. Gamboa, who sought in 2007 to void the sale of the state’s 46 percent stake in Philippine Telecommunications Investment Corp. – representing a 6.4 percent interest in PLDT – to Hong Kong-based First Pacific Co. Ltd., which partly owns PLDT.