New equity rules may result in investment backslide – JFC

MANILA, Philippines - The Joint Foreign Chambers (JFC) of the Philippines has expressed concern over the draft rules on foreign ownership recently released by the Securities and Exchange Commission (SEC) as it could discourage investments to the country.

“Of particular concern is the effect that the draft guidelines will have on foreign direct investment (FDI) in the Philippines,” the JFC said in its letter to SEC chairperson Teresita Herbosa.

The group expressed concern over the criteria used to determine compliance with foreign capital restrictions and coverage of draft rules, citing that such could have a negative impact on investments in the country.

The draft guidelines were released recently by the SEC amid the Supreme Court’s ruling that “the 60 to 40-percent ownership requirement in favor of Filipinos shall apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares.”

The guidelines provide that compliance with such constitutional restrictions on ownership by a covered corporation be observed “for each class of shares” or “series of shares”.

“The JFC submits that requiring foreign equity percentages to apply not just to the total outstanding capital of a corporation but to each class of shares of such capital is a step backward, and may have a negative impact on the investment climate of the Philippines, which is already struggling to keep pace with neighboring countries that are working to relax their FDI restrictions to encourage entry of more foreign investment,” it said.  

The group likewise expressed concern over the coverage of the draft rules which does not just include public utility companies but all wholly or partially nationalized corporations under the Constitution, the Foreign Investments Act, and other existing laws.

“Under the Constitution, the restrictive criteria for complying with equity requirements would then apply to areas such as the ownership and management of mass media and the utilization of marine resources (both wholly nationalized); the 40-percent foreign capital cap imposed on the operation of public utilities, land ownership, exploration, development and utilization of natural resources, and ownership, establishment and administration of education institutions; and the 30-percent foreign capital cap imposed on advertising. Add to that investment areas listed in the Foreign Investment Negative List, existing law, and perhaps even future legislation, and the possibility of an investment backslide becomes more disturbing,” it said.