Market players on Friday formally raised their objections to the Securities and Exchange Commission’s (SEC’s) draft rules on foreign ownership limits, claiming that investments could take a significant hit.
“Should the definition be extremely tight, it will have second round effect on stifling capital market products,” said Hans B. Sicat, Philippine Stock Exchange (PSE) president and chief executive, in a public dialogue at the SEC.
“The first victim... will be foreign direct investments in this country. The second effect would be on the stock market. I agree with the view it can precipitate a sell-down,” Mr. Sicat added.
The draft rules, issued by the SEC on Monday, came as the Supreme Court last month affirmed a June 28, 2011 decision where it declared that the 40% foreign ownership cap mandated by the Constitution should be based on common and not total outstanding shares of stock.
In its Oct. 9 ruling, the high court qualified 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”.
This was restated by the SEC, in Section 4 of the draft rules, as such: “All covered corporations shall, at all times, observe the constitutional or statutory ownership restrictions for each class of shares; provided that, if any class of shares is divided into series of shares and a particular series of shares has different rights, privileges, and limitations, the covered corporation must observe the same ownership restrictions for said series of shares.”
Mr. Sicat claimed the limitations would affect some 13% of the PSE’s 255 listed firms.
“The irony is that these types of companies typically require huge capex (capital expenditures) and long-term capital, and [in] the economic history of any country, you need capital outside your own geographical boundaries to balance risks and rewards,” he said.
Jaime E. Ysmael, Ayala Land, Inc. chief finance officer, said the SEC rule would push the firm’s foreign ownership to 40.5%, slightly over the limit.
Ray C. Espinosa, Philippine Long Distance and Telephone Co. (PLDT) regulatory and policy affairs head, said the draft rules could event halt the issuance of depositary receipts.
“I think the intention to make depositary receipts as a safe haven for foreign investors so that they do not end up violating the [foreign ownership] rule may have been undermined... Those are good instruments, except that if you read this in conjunction with Section 4, it even suggests that you can no longer issue any,” Mr. Espinosa claimed.
A question over the sale of a PLDT stake to Hong Kong’s First Pacific Co. Ltd. had prompted the Supreme Court to issue the June 28, 2011 ruling. The Oct. 9 affirmation rejected appeals filed by the PSE president, the SEC, and Manuel V. Pangilinan and Napoleon L. Nazareon, PLDT chairman and president, respectively.
Despite its objection, the telco has move to comply with the high court’s definition of foreign ownership. In June, it received SEC approval for a plan to issue preferred shares with voting rights -- which would limit foreign ownership in the firm to 35% from 64%.
“The rules will have a profound and far-reaching effect on stock exchange. I hope the rules will not have a black effect on the unprecedented gains of the economy,” Mr. Espinosa said.
Froilan M. Castelo, head of Globe Telecom, Inc.’s corporate and legal service group, said the SEC should consult with other concerned government agencies to fine-tune policy.
SEC officials did not immediately defend the draft regulations. They said position papers would be welcome up to the end of the month, after which final regulations could be issued by the middle of next year.
“Everyone will have until Nov. 30 to submit their comments and if we feel we will still need further clarification, we will schedule another public dialogue...,” SEC Chairman Teresita J. Herbosa said.
“With the suggestion we should also consult with other government agencies, plus the fact that the comment submissions will be diverse, I suppose we have to finish this, with all consultations and dialogue, in six months” time,” she added.
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