SC rules against PLDT in landmark foreign ownership

case
(This report was first published in print in issue 20 of the Philippine Collegian on 12 December 2012.)
by Keith Richard Mariano and Victor Gregor Limon
The Supreme Court (SC) upheld its 2011 decision against Philippines Long Distance Telephone Co.
(PLDT), the countrys largest telephone company, directing the Securities and Exchange Commission
(SEC) to probe into the telecoms giants possible breach of the 40 percent constitutional limit for foreign
ownership of utility firms.
In a 51-page resolution penned by Associate Justice Antonio Carpio on October 9, the high court affirmed
its June 28, 2011 ruling that 64.27 percent of the total common shares of PLDT are owned by foreigners,
while only 35.73 percent are owned by Filipinos.
Common shares are those shares which grant the right to vote in company elections. While Filipino
investors own 99.44 percent of preferred shares in PLDT, these shares do not have voting rights and
constitute a mere 1/170 of the total revenues generated by common shares, the SC said.
Sections 10 and 11 of Article XII of the 1987 Philippine Constitution state that at least 60 percent of the
capital of any public utility corporation, such as PLDT, should be owned by Filipinos. The term capital,
however, must be interpreted only as common shares and must exclude preferred or non-voting shares,
the high tribunal explained.
Any other meaning of the term capital openly invites alien domination of economic activities reserved
exclusively to Philippine nationals [and] will ultimately result in handing over effective control of our
national economy to foreigners making Filipinos second-class citizens in their own country, read the
SC decision.
Aside from Carpio and Chief Justice Ma. Lourdes Sereno, eight other justices voted in favor of affirming
its earlier ruling. Three dissented from the majority, while one magistrate abstained from voting.
Foreign ownership
The landmark case was initially filed before the SC by late PLDT stockholder and human rights lawyer
Wilson Gamboa, who sought to revoke the sale of 111,415 PLDT shares by state-owned Philippine
Telecommunications Investment Corporation to Hong Kong-based regional conglomerate First Pacific Co.
(FPC) Ltd. The said sale allowed FPC to increase its stake in PLDT from 30.7 to 37 percent and the total
foreign ownership to 81.47 percent, Gamboa said.
After the SC ruled in favor of Gamboa, PDLT Chairman Manuel Pangilinan, along with the SEC and the
Philippine Stock Exchange, then submitted a motion for reconsideration in July 2011.
In a 50-page appeal, Pangilinan questioned the high courts definition of capital as voting shares and
claimed the Constitution did not adopt inherent restrictions on foreign capital ownership because of the
dire economic condition and pressing need for investments.
The SC dismissed the appeal, saying the core purpose of the 2011 ruling is to ensure that Filipinos have
effective control of the Philippine national economy.
While the SEC has yet to finalize the draft Memorandum Circular outlining the guidelines, rules, and
regulation consistent with the SC decision, the PLDT board of directors has moved to preempt the
investigation directed by the SCs ruling.
By authorizing the sale of 150 million new shares to PLDTs own Beneficial Trust Fund Holdings Inc. for
P150 million, or P1 a share, the PLDT board of directors intend to reduce the number of foreign-owned
shares from the current 64.27 percent to about 35 percent.
Investigate officers as well
Meanwhile, Action for Consumerism and Transparency for Nation Building (ACTNB), a non-government
organization, called on the SEC to also probe into the management hierarchies of corporations in the
country to further ensure the executive control of public utilities by Filipinos.

The intent behind the Constitutional [economic provision may] be sidestepped simply by avoiding the
term officer, said ACTNB Secretary General Jake Silo in a position paper on the SECs draft
memorandum circular.
The management structure of PLDT, for instance, includes foreigners in the Advisory Board and
Committees on Executive Compensation and Technology Strategy. As members of these committees,
these officials are entitled to vote in policy-making and participate in the management of the corporation,
according to ACTNB.
Capital structure where the power to select a corporations Board of Directors is largely controlled by
foreigners could lend itself to certain abuses, especially where the selection of individuals into certain
corporate positions are lodged exclusively in the Board of Directors, ACTNB explained.