Indonesian tycoon skirts Charter limits through corporate layers

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Second of a Series

Our Constitution is quite categorical: “No form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens.”

So, how could Anthoni Salim — scion to the wealth of the late Indonesian strongman’s biggest crony Liem Sioe Liong — be the controlling stockholder of the Philippines’ biggest public utility firms that include such monopolies as Manila Electric Co., Philippine Long Distance Telephone Co. (PLDT), Maynilad Water Services, and even the firm with the longest toll roads? (For details, see the first part of this series “The Indonesian billionaires behind the ‘MVP Group,’ June 2, 2016)

The answer is so illustrative of how weak a state we are, how our regulatory bodies are captured by the elite, and how our laws can be easily skirted. On paper, and on so many World Bank or Asian Development Bank reports, we appear to have the most restrictions on foreign capital. In reality, our laws and regulations can be quite easily bent by clever, expensive lawyers and our systems so porous they can easily be penetrated. We are, in fact, the only country in Asia where the electric power and telecom industries are controlled by foreign firms.

Salim’s Hong Kong-based investment firm itself, First Pacific, in its company report boasts it has 55.8 percent beneficial ownership of the Metro Pacific Investments Corp. (MPIC), its Philippine holding company, and a controlling 26 percent of PLDT. Salim — mostly through shares he directly owns or through firms he owns entirely – holds 45 percent of First Pacific, with the rest of the shares dispersed among thousands of international stock market investors and fund managers.

Using First Pacific’s own figures — the accuracy of which is required under severe penalties by Hong Kong’s Securities and Futures Commission — and including other foreign investors, mostly through the stock market in the case of MPIC and a big 20 percent held by Japanese firms in PLDT, foreign ownership in these two firms account for 86 percent and 77 percent, respectively, way above the 60 percent constitutional limit.

How can Salim get away with this?

Here’s how.

The Indonesian tycoon had set up a system of labyrinthine corporate layers that both veil his control of the Philippine conglomerate and takes advantage of a loophole in our foreign investment laws and regulations. What else could be the purpose of such layers, the notion of which we first learned about only in 1986, when Marcos’ accounts in Swiss banks were found hidden, as a government official put it at that time, “in layers upon layers of companies”?  Note how transparent firms such as the Japanese NTT and its subsidiary, NTT DoCoMo, invested in PLDT with not a single intermediary firm.

Layers upon layers: What for?
Layers upon layers: What for?

Step 1. The first entity in the corporate layering labyrinth is a firm organized under Philippine laws named Pilipinas Pacific Enterprise Holdings (PPEH). Salim’s First Pacific Infrastructure Ltd. and the First Pacific Enterprise Holdings, B.V. hold 40 percent of it. The other 60 percent is held by a firm whose ownership it did not disclose but which it claims is “owned by a company organized under Philippine law that qualifies as a Philippine national.”

We will reveal, though, in the next part of this series the surprising, even shocking “stockholders” of this company.

Nevertheless, since 60 percent of the stockholders are “Filipinos”, Pilipinas Pacific Enterprise Holdings is technically a Philippine firm under the Foreign Investments Act of 1991.

Step 2. Salim sets up a second corporate layer, with PPEH organizing a firm named Enterprise Investment Holdings (EIH), in which it has 60 percent equity. Another Salim firm, First Pacific International Ltd., holds the remaining 40 percent.

Voila! Since PPEH is legally classified as a Philippine firm, being 60 percent owned by Filipinos, EIH is also classified as a Filipino corporation.

Grandfather rule

This is despite the fact that applying the SEC’s so-called grandfather rule, Salim’s control is equivalent to 64 percent: a 40 percent direct holding by First Pacific International in EIH, plus its indirect 24 percent through PPEH.

Step 3. Salim sets up a third corporate layer, with EIH owning 60 percent of Metro Pacific Holdings. Salim’s three firms — First Pacific International Limited, First Pacific Telecom Limited and Intalink B.V. — hold the remaining 40 percent.

Going by the SEC’s grandfather rule, though, and in terms of control and beneficial ownership, Salim has 78.4 percent of Metro Pacific Holdings — with 40 percent directly held by the three firms in this third-layer company, plus its effective 24 percent through EIH.

However Metro Pacific Holdings is classified, based on the Foreign Investments Law, as “Filipino” since 60 percent of it is owned by a “Filipino” company EIH.

It is this firm that has the controlling 55.8 percent of Metro Pacific Investments Corp., which operates nearly a dozen public utility firms, including such giant monopolies as PLDT, Meralco and Maynilad Water Services.

Salim set up two other corporate layers for his control of PLDT, the Metro Pacific Resources Corp. and Metro Pacific Asset Holdings, the latter being Salim’s corporate vehicle that in 1998 bought 60 percent of Philippine Telecommunications Investment Corp. (PTIC), which is the biggest single stockholder of the giant telecom firm.

Salim bought it from the Antonio Cojuangco family in a curious case of the son of a crony of an Indonesian strongman (Suharto) buying off the son of a crony of a Philippine strongman (Marcos). In 2005, First Pacific bought the remaining 40 percent of PTIC that had determined to be Marcos’ own shares.

The inanity of our purported restrictions on foreign capital is demonstrated by the fact that Metro Pacific Asset Holdings, through the system of corporate layering is considered under the Foreign Investments Act as a Philippine corporation, since a Philippine firm, Metro Pacific Resources, which owns 60 percent of it, is a Filipino firm as a result of a devious corporate layering scheme.

The reality, though, is that a foreigner, Salim, has effective beneficial ownership of 88 percent Metro Pacific Asset Holdings. It has 60 percent of PTIC, while the Hong Kong based First Pacific itself holds the remaining 40 percent. With a further 4 percent in PLDT through the New York stock market, Salim, through PLDT, has 26 percent of the company, the biggest single controlling stockholder.

This isn’t just arithmetical magic, but the “reality” since dividends from PLDT and its three dozen subsidiaries, from Meralco, and the other 40 firms of MPIC, will flow up the layers to the ultimate beneficial owner — Salim.

From 2000 to 2014, in fact, First Pacific’s Philippine operations generated $2.7 billion — $2.2 billion from PLDT — nearly double the $1.4 billion from its companies in Indonesia. First Pacific had all but recovered the $749 million it paid to acquire control of PLDT in 1998 and 2005. It was PLDT funds and those from the stock market that financed First Pacific’s acquisition of Meralco.

Meralco funds have even been used by Salim to set up a $1.2 billion megawatt plant in Singapore. In August last year, PLDT bought for 333 million euros (P17 billion) a 10 percent stake in German firm Rocket Internet.

Will that help enhance our internet speed here, from being the slowest in Asia? I doubt it. PLDT’s own press release claimed that the investment would help finance Rocket’s “drive for the development of online and mobile payment solutions in emerging markets.” PLDT —and Salim with his 26 percent share of the profits—may make tons of euros from the investment, but it won’t add to the capital invested in our telecom industry.


There is a term for all these—decapitalization of the country.

And this column has still been getting comments why we are writing about foreign dominance of public utility firms. Note that public utility firms mean a captive market.

In its reports to the US Securities and Exchange Commission, which has stringent requirements of full disclosure of ownership of firms listed on the US stock markets, all these seven investing firms mentioned and the two invested firms, PLDT and MPIC, are represented only by a single person: First Pacific Chief Executive Officer, Manuel V. Pangilinan. The name Anthoni Salim appears nowhere, although he is the ultimate, single biggest stockholder of these firms.

But SEC has that “grandfather rule” to determine the extent of foreign capital doesn’t it? Yes, but in a still another demonstration of how weak our regulatory systems are, the SEC clarified that this grandfather rule (also called the “control test”)” applies only when the “60-40 Filipino-foreign equity ownership is in doubt.”

And when will it be in doubt? When a case is filed at the SEC questioning that a company has violated the constitutional limits on foreign control in companies involved in public utility firms. Surprisingly, or to the credit of Salim’s main operative in the country, Manuel V. Pangilinan, or another indication of the twilight of nationalism in our country, no such case has been filed involving an Indonesian national’s control of Metro Pacific Investments.

That’s how useless our regulatory bodies are. There is a very high-profile firm operating the biggest and most strategic public-utility firms in the country. Yet the SEC does absolutely nothing to investigate if it is violating the Constitution.

However, one concerned citizen, the late Wilson Gamboa — an assemblyman in Marcos’ parliament — did file a case in 2007 protesting PLDT’s violation of the Constitution, since even classifying PTIC as a Filipino firm, First Pacific’s direct shares, as well as the 20 percent holdings of two Japanese firms, plus those held by foreigners, had accounted for 80 percent of the company’s stock at that time.

After more than a decade, with such personalities as Dr. Bernardo Villegas defending PLDT, the Supreme Court ruled in 2011 — with its decision reaffirmed in 2012 — that the firm was, indeed, violating the constitutional limits on foreign investment.

Salim’s tremendous power over this country apparently has been demonstrated by the fact that the Supreme Court’s ruling hasn’t been implemented three years later. (See my columns: “PLDT mocks our Constitution,” March 26, 2014 and “How Salim skirted foreign ownership limits,” March 3, 2014)

There could be a weak link, though, in Salim’s chain of corporate layers, designed to skirt constitutional limits on foreign investment in public utility firms.

The corporate layers are based almost entirely on the claim that a Filipino firm, Pilipinas Enterprise Management Corp., has 60 percent ownership of the first corporate layer, Pilipinas Pacific Enterprise Holdings.

As I have explained, because this firm is purportedly Filipino, the other companies down the system of corporate layers are alleged to be Filipino firms as well, through the 60-40 trick.

But is Pilipinas Enterprise Management Corp. really Filipino? If it is, the Salim conglomerate has hidden billionaires. Or could the stockholders be merely stand-ins, err . . . dummies?

That in the next part of this series.