The Market Monitor Minding the Nation's Business
By Riza Lozada
The Supreme Court (SC) has left to corporate regulator Securities and Exchange Commission (SEC) the nationality question that has long hounded telecommunications giant Philippine Long Distance Telephone Co. (PLDT), despite clearing an SEC memorandum that applied the 60:40 rule only on voting shares.
The SC denied a petition of intervention filed by lawyers questioning the SEC’s implementation of the high court’s ruling in June 2011 of the 40-percent limit to foreign ownership of PLDT.
In its decision, however, the SC said it was not a trier of facts and threw out a petition on whether the SEC had gravely abused its discretion in ruling that PLDT was compliant with the constitutional cap on foreign ownership.
“The Court found that the SEC had yet to make a definitive ruling on PLDT’s compliance with the capital requirement pursuant to the Gamboa decision and the Gamboa resolution, thus any ruling would be premature,” it stressed.
Gamboa had questioned the ownership structure of PLDT after the entry of the Hong Kong- based First Pacific Group represented by businessman Manny V. Pangilinan (MVP). The question revolved around whether or not the 60 percent Filipino ownership requirement under the Constitution should include both the voting common shares and non-voting preferred shares or merely the common shares which PLDT contended should be used as basis to compute the ownership requirement.
“Also, the Court cited that the determination of PLDT’s compliance with the capital requirement is a question of fact (that is) best left to the SEC, as the court is not a trier of facts,” the high court said.
PLDT reported to the bourse that it had received a copy of the ruling released before the end of last year.
In its full-court (en banc) resolution dated Nov. 22 but released to the media only last Dec. 22, the SC justices voting 8-5, denied a petition filed by lawyer Jose Judd Roy III against SEC Chairman Teresita Herbosa who, the High Court said, did not commit grave abuse of discretion when she issued Memorandum Circular (MC) 8 series of 2013 for “lack of merit both on procedural and substantive grounds.”
The controversy stemmed from a petition filed in 2007 by lawyer Wilson Gamboa saying PLDT violated the Constitution when total foreign ownership in PLDT reached 59.14 percent.
Article 12, Section 11 of the Philippine Constitution provides that, “No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least 60 per centum of whose capital is owned by such citizen.”
This means that only corporations owned by at least 60 percent of Filipinos can operate a public utility such as PLDT. In effect, the provision limited foreign ownership to 40 percent.
The Supreme Court (SC) then clarified in a decision in 2011 that the term “capital” in the Charter’s provision refers to “common shares” alone or those with voting rights and not to total capital stock, which includes both common shares and preferred shares.
The petitioner argued that the SEC abused its discretion in issuing MC 8 wherein it omitted the uniform and separate application of the 60:40 rule in favor of Filipinos to each and every class of shares of a corporation to implement the SC ruling.
In a decision written by Associate Justice Alfredo Benjamin Caguioa, the Court en banc upheld the validity of the SEC memorandum (or the Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the Constitution and/or Existing Laws by Corporations Engaged in Nationalized and Partly Nationalized Activities).
The five Justices who dissented with the decision were Senior Associate Justice Antonio Carpio, Associate Justices Teresita Leonardo de Castro, Arturo Brion, Jose Mendoza and Marvic Leonen.
In the Gamboa decision, the Court held that the “capital” requirement in Article XII, Section 11 of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors.
The Court directed SEC to apply this definition of the term “capital” in determining the extent of allowable foreign ownership in the case of PLDT and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.
Roy questioned the constitutionality of the memorandum for not conforming with the spirit and letter of the Court’s decision in the case of Gamboa vs Teves promulgated on June 28, 2011, and its Resolution on the motions for reconsideration issued on October 9, 2012, on the limit to foreign ownership under Section 11, Article XII of the Constitution.
The high court, in a ruling, said there was no grave abuse of discretion on the part of the SEC when it issued MC 8.
MC 8 provides that “all covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For purposes of determining compliance therewith, 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
“The Court found that the SEC did not gravely abuse its discretion as it was simply implementing the Gamboa decision and the Gamboa resolution (2011 and 2012 rulings). The Court reviewed the Gamboa decision and resolution and reiterated that both defined “capital” broadly but only to apply to shares of stock that can vote in the election of directors and that MC No. 8 simply implemented this and is, thus, fully in accordance with Gamboa,” the high court said.
In a disclosure, PLDT said that on January 4, 2017, the SC served the company a copy of its decision and noted that the Court stated that the petitioner’s suggestion to nullify the SEC memorandum would “effectively and unwarrantedly amend or change” the Court ruling in the Gamboa case in categorically rejecting the petitioners’ claim.
In respect of ensuring Filipino ownership and control of public utilities, the SC noted that this is already achieved the requirement under MC 8. According to the Court, since Filipinos own at least 60 percent of the outstanding shares of stocks entitled to vote directors, which is what the Constitution precisely requires, then the Filipino stockholders control the corporation, and they dictate corporation actions and decisions.
At the time PLDT made its disclosure about the case in June 2010, the company noted that MC 8 “provides that the Philippine nationality requirement of Section 11, Article XII of the Philippine Constitution is met if at least 60 percent of (a) the outstanding voting stocks, and (b) the outstanding capital stock of the company is owned by Filipinos.”