SEC lifts 40% cap on foreign ownership

MANILA, Philippines - The Securities and Exchange Commission (SEC) has finalized the foreign ownership cap rules for Philippine companies.

In a memorandum issued yesterday, the SEC en banc said it will no longer implement the hotly-contested 40-percent foreign ownership cap for each class of shares.

“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.

Erring firms will be given one year to comply with the foreign ownership limit.

In March, SEC sought public comments for the second and final draft that outlines the rules on the ownership of local firms.

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

This followed the Supreme Court’s ruling last October stating 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).”

The Philippine Stock Exchange earlier said the implementation of the foreign ownership cap on each class of shares will 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 in 2007 sought 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.