Is the Supreme Court afraid of Indonesian-owned PLDT and Singaporean Globe?

  • Reading time:14 mins read

I certainly hope not.

But it’s really not surprising why President Aquino and Congress would just ignore the Supreme Court decision that ruled unconstitutional the pork-barrel scheme and continue such funding, in fact even increase it in 2015 and 2016.

If mere corporations—Philippine Long Distance Telephone Co. and Globe Telecom which are controlled by an Indonesian tycoon and a Singaporean state firm, respectively—could ignore Supreme Court rulings for years now, why wouldn’t a powerful body like the Congress pay any attention to them?

They control our telecom industry. Left, Indonesian tycoon Salim, owner of First Pacific, the biggest stockholder of PLDT with 25.6%. Right, Prime Minister Lee Hsien Loong of Singapore, whose state firm Temasek Holding owns Singtel, the biggest stockholder, with 47.2 % of Globe Telecom, dwarfing Ayala Corp.’s 30%.

Consider the facts.

In 2011, in response to a suit filed by the late  assemblyman Wilson Gamboa against PLDT, the Supreme Court ruled that the firm’s foreign ownership at that time was 64 percent; it therefore violated the Constitutional provision that foreign shares in public utility companies cannot exceed 40 percent.

(PLDT’s foreign ownership is now at 61 percent. Its single biggest stockholder, through intermediary firms, is the Indonesian tycoon Anthoni Salim, scion of the late Soedono Salim, whose cronyism under strongman Suharto was the subject of a recent sympathetic 500-page book.)

Cover of book by richard borsuk, a former Wall Street Journal reporter and Nancy Chang, Straits times feature writer,  on first Pacific founder liem (right)  and his patron, the late indonesian dictator Suharto (left).
Cover of book by richard borsuk, a former Wall Street Journal reporter and Nancy Chang, Straits times feature writer, on first Pacific founder liem (right) and his patron, the late indonesian dictator Suharto (left).

PLDT argued that the preferred shares it had issued for years to consumers under a Marcos decree that required these under its “Subscriber Investment Plan” (which helped raise capital for PLDT during the dictatorship) should be included in the computation of the 60-Filipino, 40-foreign percentage limits. Including those 388 million preferred shares in the computation, Filipino ownership would be 77 percent.

The Court called such an argument a “mockery of the Constitution.” It went into the intricacies of the issue, even discussing what “capital” means in the history of capitalism and its forms in modern times, and pointed out so many defects in PLDT’s argument from various angles. It even harshly claimed that Securities and Exchange Commission officials’ erroneous interpretations of the 60-40 rule “signifies their lack of integrity and competence.”

At the end of the day, and brilliantly expecting that corporations may invent different types of shares to circumvent its decision, the High Court directed, in its 2012 resolution dismissing a petition to reverse its earlier 2011 decision, a clear formula for determining whether a public utility company is more than 40 percent owned by foreigners, and therefore violates the Constitution:

“(T)he 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 uniform application of the 60-40 ownership requirement in favor of Filipino citizens clearly breathes life to the constitutional command that the ownership and operation of public utilities shall be reserved exclusively to corporations at least 60 percent of whose capital is Filipino-owned. Applying uniformly the 60-40 ownership requirement in favor of Filipino citizens to each class of shares, regardless of differences in voting rights, privileges and restrictions, guarantees effective Filipino control of public utilities, as mandated by the Constitution”. (Emphasis added.)

I think that’s clear enough to anybody who understands English, whether he’s Filipino, Indonesian, or Singaporean.

The Court is saying: Do not mix apples and oranges, and count the 60-40 proportion separately for apples and oranges, not the sum of the number of apples and oranges.

If foreign holdings of common shares exceed 40 percent but doesn’t in terms of voting preferred shares, it is in violation of the Constitution.

The Court in November 2011 under Chief Justice Renato Corona (who voted in PLDT’s favor) ruled, with ten out of the 14 justices concurring, that PLDT violated the Constitution since 64 percent of its common stocks were owned by foreigners.

PLDT appealed the decision, which the Court now under Chief Justice Maria Lourdes Sereno, dismissed in October 2012, with ten (including Sereno) of the 14 concurring. (It was senior justice Antonio Carpio who wrote both decisions, which were brilliantly and meticulously argued. I wonder why he doesn’t seem to be bothered that all his efforts and brain power seem to have been for naught.)

As if PLDT didn’t read the decision entirely (or read only the parts where the court discussed the difference between voting common shares and non-voting preferred shares) and even to insult the Court, I would think, PLDT in October 2012 issued an entirely new type of shares it didn’t have before: “Voting Preferred Shares.” “Preferred” shares so that it’s share of profits won’t be proportional to its share, and determined beforehand — by the controlling common stockholders.

 Chairman Pangilinan, left, owns 0.1% of Pldt (and 1.4% of first Pacific). Chairman ayala’s clan owns 30% of globe, smaller than Singtel’s 47.2%.
Chairman Pangilinan, left, owns 0.1% of Pldt (and 1.4% of first Pacific). Chairman ayala’s clan owns 30% of globe, smaller than Singtel’s 47.2%.

It issued 150 million of such shares at a P1 par value, 1/10 of the common stock’s P10 par value or P150 million in total. It sold all of these shares to one entity, which PLDT controls: BTF Holdings, created by the Board of Trustees for the Account of the company’s Beneficial Trust Fund, or its employee pension fund.

PLDT then declared: With these voting preferred stocks, issued to its own pension fund overnight, “PLDT’s foreign ownership decreased from 58.4 percent of outstanding common stock as at October 15, 2012 to 34.5 percent of outstanding voting stocks (common stock and Voting Preferred Stock) as at October 16, 2012. Thus, we believe that as of the date of this report, PLDT is in compliance with the requirement of Section 11, Article XII of the 1987 Constitution.”

To borrow Senator Miriam Defensor Santiago’s expression of utter shock: Whaaaaa? Didn’t the Court clearly say that you calculate the 60-40 proportion for each class of shares? Why did PLDT calculate it on the basis of the sum of the number of both common and voting preferred stock?

That PLDT simply undertook a cheap trick that insults everyone’s intelligence is so obvious in that the common shares’ par value is P10 and its market value (in 2011) was P2, 600 each, while the voting preferred stocks had a P1 par value, with zero market value as it is not, and cannot be, traded. How can their number of shares be lumped together?

Where the hell did PLDT get the gall to defy the Court’s clear ruling using a cockamamie formula?

That question was answered a few months later. On March 20, 2013 Securities and Exchange Commission chair Teresita Herbosa issued “Memorandum Circular No. 8” — it is not clear whether it was under the authority of the Commission en banc which is required for such policy rulings — which in effect said that PLDT’s calculation was correct. Political scientists have a term for such ugly phenomenon: “regulatory capture.”

The SEC chair’s memo claimed that the Constitutional requirement is deemed complied with if “the required percentage of Filipino ownership shall be applied to both: (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors.”

But didn’t the Court quite clearly rule that the computation must be done “separately to each class of shares”?


Only in the Philippines.

The use of cheap ‘preferred’ shares to pretend it’s not foreign-controlled leads to an absurd situation. An entity, BTF Holdings which invested P150 million in PLDT preferred shares had 41 percent voting power, nearly three times say that of First Pacific companies (with 15 percent) whose investments (in common shares) amounted, at market value, to P142 billion.

Needless to say, such method of calculating corporate ownership control — on the basis of the number (not even the value) of preferred shares — has never been done anywhere in the world.

First Pacific casually declares in its website and in its annual report that it has 25.6 percent stake in PLDT and similarly does the NTT group, that it has “20.3 percent ownership” of PLDT. Singtel’s annual reports report that its “percentage of effective equity interest held by the group” in Globe Telecom is 47.2 percent.

Only Filipinos it seems are fooled by the artifact of the “voting preferred shares.” Are we an inferior race to Indonesians and Singaporeans?

PLDT also has the gall to use its pension fund for its farce, which results in an absurdity. How can an entity (BTF Holdings ) that is part of a bigger entity (PLDT) be the main owner of that entity (PLDT)?

Even PLDT seems aware of how flimsy is its claim to be majority controlled by Filipinos. Because of the strict rules for disclosing risks in its stock markets (PLDT stocks are listed in the New York Stock Exchange through American Depositary Receipts), PLDT has been reporting every single year to the US Securities and Exchange Commission:

“However, we cannot assure you that …relevant authorities in the Philippines will view shares of Voting Preferred Stock issued to BTFHI as shares of stock owned by Filipinos entitled to vote in the election of directors for the purpose of determining whether PLDT is in compliance with the 60 percent to 40 percent Filipino­alien equity requirement as provided under the Philippine Constitution. As a result, PLDT may be subject to certain sanctions imposed by the Philippine SEC, which may have a material and adverse impact on our reputation, business, financial position and prospects.”

For some reason, PLDT in its latest report to the US SEC (for the year ending December 31, 2014 seemed to be more worried over the foreign ownership restrictions it violated:
“Exceeding the foreign ownership restrictions imposed under the Philippine Constitution may subject the Company to sanctions … and/or the Philippine government commencing a quo warranto case … against the Company to revoke its franchise that permits it to engage in telecommunications activities.

“While the law is still unsettled on this issue, we have been advised by our Philippine counsel that once a sufficient number of the Company’s shares are issued or transferred to or are otherwise acquired by qualified Philippine nationals so as to result in the Company’s foreign ownership percentage being in compliance with the foreign ownership restriction threshold, such a quo warranto case would not have merit, and if already initiated, would be subject to dismissal prior to the time that a judgment becomes final and executory.

“If an adverse decision becomes final and executory without the necessary transfer of shares having been made, the Company would have to secure a new franchise from the Philippine Congress (after the foreign ownership violation has been cured) if it still desires to engage in the telecommunications industry.”

Globe Telecom on the other hand appears to be more contemptuous of the Constitution and the Supreme Court, as it has never even acknowledged the difference of its own interpretation of the Constitution from that of the Supreme Court.

Mimicking PLDT’s Voting-Preferred-shares trick, Globe Telecom since 2003 has been reporting that it is majority owned by Filipinos, because of the 158.5 million in voting preferred shares worth P158.5 million it had issued to Asiacom, 60-40 owned by Ayala Corp. and Singtel.

The reality though is that Globe Telecom is owned 64.6 percent by foreigners, with the biggest bloc of 47 percent held by Singtel, more than the Ayala Corp.’s 30 percent.
 (See Table below)


On June 10, 2013, Atty. Jose M. Roy III – grandson of the late distinguished Senator Jose Roy who served in the Senate from 1967 to 1972 — filed a petition with the Court claiming that the SEC chair and PLDT were in contempt of the Court’s decision. PLDT responded to Roy’s petition on September 5, 2013, and on February 10, 2015 it filed another “consolidated memorandum” setting forth its arguments against the petition.

Two and half years have now passed, but the Court hasn’t acted on Atty. Roy’s petition.
Worse, the SEC, PLDT, and Globe Telecom’s distortion of the Supreme Court ruling in effect has amended the Constitution’s limits on foreign investments in certain industries.

Ayala Land in 2012 issued 13.1 billion voting preferred shares at par value of 10 centavos while the Chinese-Filipino businessmen George Ty last year issued 174 million voting preferred shares also at P10 par value in order for their current foreign ownership shares in their property firms would seem to decrease, to prepare for bigger foreign stakes in their companies that would breach the 40 percent limit.

(Do some arithmetic for fun: With the voting preferred shares trick, a P1 billion company of 1 billion shares at P1 par owned 90 percent by foreigners can be made to appear 60 percent Filipino through the issuance of 12.5 billion preferred shares at 1-centavo par.)

In ALI’s case, foreign ownership went down from 40 percent to 23 percent while such alien stake in GTI Capital Holdings decreased from 37 percent to 19 percent.

Isn’t that a good reason to ask the valid question: Is the Supreme Court afraid of the Indonesian-controlled PLDT and the Singaporean-controlled Singtel?

What kind of country have we become that our Constitution and our Supreme Court are ignored?

Next in this series: Foreign telcos sucking capital out of the country.