Court upholds PLDT shares conversion

MANILA, Philippines - The Court of Appeals (CA) has upheld the conversion of stocks in the telecommunications giant Philippine Long Distance and Telephone Co. Inc. (PLDT) in 2011.

In a 20-page decision, the 17th division of the appellate court affirmed an earlier ruling of Makati City regional trial court Branch 149 that had declared legal two resolutions of PLDT’s board approving the conversion of shares from preferred to common.

The first resolution issued by the PLDT board on July 5, 2011 amended the seventh article of its Articles of Incorporation, which essentially sub-classified the authorized preferred capital stock of PLDT into 150,000,000 shares of voting preferred shares, with a par value of P1 each, and 807,500,000 shares of non-voting serial preferred stock, with a par value of P10 each.

The second issued on Sept. 3, 2011, authorized PLDT to redeem, effective Jan. 19, 2012, its subscribers investment plan (SIP) shares, covering all outstanding shares of 10-percent cumulative preferred stocks (Series T), series A to FF, as well as series GG, HH, II.

The CA dismissed the petition of former Securities and Exchange Commission (SEC) chairman Perfecto Yasay and Edgardo de Leon – both shareholders of PLDT who contested and did not avail of the conversion.

In a nutshell, the CA said there is no record showing the conversion of shares was intended to violate the constitutional provision that limits foreign ownership of public utilities to 40 percent after the Supreme Court required PLDT to comply with the limit.

“Petitioners’ claim that the creation of the additional preferred shares was meant to circumvent the decision of the Supreme Court in Gamboa v. Teves but this argument necessarily fails in the absence of any evidence to support the same,” read the ruling penned by Associate Justice Pedro Corales.

Associate Justices Sesinando Villon and Florito Macalino concurred in this decision.

The CA also noted that the issue raised by the petitioners is only about the validity of the redemption of SIP shares and not about the creation of additional preferred shares.

The CA further stressed that corporations are allowed to repurchase already issued shares, including preferred shares on the condition that the terms of its issuance expressly state that said shares may be redeemed at the option of either the issuing corporation, the stockholder, or both at a certain redemption price.

“In this case, PLDT clearly reserved the right to redeem, at its option, the PLDT clearly reserved the right to redeem, at its option, the SIP preferred shares as show by the terms and conditions found on the dorsal portion of the certificates of stocks for shares,” it held.

The appellate court also junked petitioners contention that PLDT’s redemption of preferred shares violated Presidential Decree No. 217 because it forced stockholders to convert its preferred shares into common shares.

Petitioners alleged that P.D. No. 217 provides that the preferred shares shall be convertible to common shares at the option of the telephone subscriber and that the redemption of the SIP shares was illegal because it effectively gave control of PLDT to foreigners

But the CA cited a review of the terms and conditions annotated on PLDT’s certificate of stock for preferred shares, which shows that the option to convert the same to common shares remains with the stockholders.

“In fact, PLDT respected the right of its stockholders to convert their SIP preferred shares even during the period of redemption. It bears stressing that the decision to convert is still available to the stockholders and PLDT merely specified the reasonable period for its exercise,” the court further ruled.