SEC nixes 40% foreign ownership cap

MANILA, Philippines - The Securities and Exchange Commission (SEC) will no longer implement the hotly-contested 40-percent foreign ownership cap for all classes of shares, its top official said.

This, as the Supreme Court issued an entry of judgment clarifying that the definition of capital depends on the voting rights of shares.

“Definitely we will not go to the strict rule of requiring [the foreign ownership cap] in each class of shares,” SEC chairperson Teresita J. Herbosa said in a briefing.

“The Supreme Court is saying that based on the facts in the case, the 60-40 should be based on voting shares,” Herbosa said.

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).”

In November, the SEC released for public comment the guidelines on the monitoring and investigation of compliance to the constitutionally-required foreign ownership limit.

Under the draft rules, 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.

The Philippine Stock Exchange (PSE) earlier said the draft foreign ownership cap rules will affect around 13 percent of the more than 250 listed firms in the local bourse, with numerous mandatory selldowns in local stocks expected.

Herbosa said the SEC is collecting all comments until end-January, which will allow the agency to craft new rules in March that will likely be implemented in June.

“The restrictive rule of 60-40 limit for all shares is easy to apply but that will prevent companies to come out with shares that are attractive to foreigners,” Herbosa said.

Herbosa said certain classes of shares are designed for the passive foreign investors.

“It is a welcome development. Applying the limit to each class of shares is unduly restrictive and will adversely impact on the competitiveness of the country,” former PSE president and CEO Francis Lim said in a text message.

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.”

The court 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 Philippine Long Distance Telephone Co. (PLDT) — to Hong Kong-based First Pacific Co. Ltd.