THE Supreme Court in a decision last November 22, by a vote of eight to five, dealt a devastating blow to the nation’s policy of economic nationalism that had been enshrined in the 1987 Constitution.
This decision involves the case filed in 2007 alleging that the Philippine Long Distance Telephone Co. (PLDT) had violated the constitutional provision limiting foreign ownership of public utility firms to 40 percent.
The SEC, however, issued rules in 2013 which patently didn’t implement the Supreme Court’s decision, and allowed PLDT to maintain foreign companies’ control of it. A petition was filed by lawyer Jose Roy and others that year asking the Court to declare the SEC’s rules as not complying with the Court’s decision, and to order it to issue new guidelines
Surprisingly, the recent November 22 Court decision struck down the Roy petition, simply ruling that the SEC rules were “not contrary to the Court’s decision” – when any rational person reading the regulatory body’s guidelines would conclude without a doubt that these were crafted to skirt the tribunal’s ruling.
It is certainly a victory for Indonesian tycoon Anthoni Salim, a crony of the late strongman Suharto and the biggest and controlling stockholder of PLDT since 1998. With his control of the mammoth PLDT since 1998. With his control of the mammoth PLDT since the administration of President Estrada who helped him capture the firm, and using the firm’s financial resources to a significant extent, Salim has been successful in building the country’s biggest public-utility-based conglomerate that operates the electricity-monopoly Meralco, the water-distribution firm Maynilad, and the country’s largest toll-road operator. Such is the sorry state of our nation.
The gist of the Court’s decision is that it amazingly saw nothing wrong in PLDT’s use since 2004 of a corporate artifice it invented to claim that it is just 32 percent owned by foreigners, even if these foreigners officially hold 54 percent of its capital, 74 percent if American Depositary Shares (ADS) traded at the New York stock exchange are included in the counting.
Indeed, even Salim’s First Pacific Co. Ltd. has been declaring in its annual reports and in its website that its economic interest in PLDT is 26 percent. With the Japanese NTT group’s 20 percent holdings, as declared also in its reports, the ownership of PLDT by these two foreign entities is already, at 46 percent, past the Constitution’s 40 percent limit. These are based on the definition of corporate matters by every country in this planet that ownership percentages are computed based on common stocks.
74 percent foreign
PLDT’s annual reports to the US Securities and Exchange Commission also show that foreign entities altogether own 74 percent of the telecom firm. (Twenty percent of the 74 percent are in the form of ADS, which are technically still Filipino-owned, but with all income from these going to the American holder of these instruments.)
This artifice—which is so absurd it defies common sense—is the cheap 150 million “voting preferred stocks,” worth P150 million, which PLDT issued after the 2011 Court decision. PLDT sold these shares to only one entity, the employees’ pension fund that it controls called the Beneficial Trust Fund, in order to create the fiction that it is majority-owned by Filipinos. Its par value of P1 has remained unchanged since it cannot be sold without PLDT’s consent, much less traded in the stockmarket.
The value of these voting preferred shares, P150 million, is a fraction of the value of PLDT’s 216 million common shares. The par value (when it was first sold) of these common shares was worth P1.1 billion. At market prices, using its average last year of P2,000, these are worth a gargantuan P432 billion.
Foreigners own 54 percent of these common shares, way past the 40 percent limit stipulated by the Constitution, while Filipinos own 46 percent.
Yet the Court capitulated to PLDT and Salim lawyers’ claim that the firm is only 32 percent owned by foreigners, in compliance with the Constitution’s provisions. How can they make such a preposterous claim in the face of hard numbers?
By arguing that the computation should be based on the total number − the sum − of both common and voting preferred shares, and to disregard their values.
In this deception, PLDT’s Beneficial Trust Fund’s 150 million voting preferred stocks is already 41 percent of the sum of PLDT’s 216 common and 150 million voting preferred shares, or 366 million. Filipinos’ holdings of another 99 million common shares puts its total ownership at 249 million shares, or 68 percent, while those of foreigners are portrayed to be only 32 percent.
The trick here, which the Court pretended not to see, is that cheap voting preferred shares were precisely issued in order to dilute the number of foreigners’ ownership so that PLDT would appear to comply with the constitutional limits. (see chart below)
PLDT’s claim is patently absurd, yet the Court—or eight of the 13 voting justice—accepted it. Senior Justice Antonio Carpio in his dissenting opinion lucidly tore down the veil of deception:
“If the shares of stock have different par values, such a simple application will result in an absurdity or anomaly…It is hornbook doctrine that if a provision of the Constitution or the law is susceptible of more than one meaning, one resulting in an absurdity or anomaly and the other in a sensible meaning, the meaning that results in an absurdity or anomaly must be avoided, particularly an absurdity or anomaly that frustrates the intent of the Constitution or the law. Thus, to avoid such an absurdity or anomaly, the 60 percent Filipino ownership requirement should be applied to each class of shares if their par values are different.” (Emphasis supplied)
Beneficial Trust Fund
That PLDT made a fool of the Court is obvious in that it didn’t even discuss the fact that the sole owner of these “voting preferred stocks” is PLDT’s Beneficial Trust Fund. This is an entity effectively controlled through the firm’s management, under the control of the Indonesian tycoon Salim and his biggest foreign partner in the firm, the giant NTT group of Japan. In the absurdity of PLDT’s explanation of its ownership structure, it is its pension fund that is its single biggest stockholder, with its “41 percent stocks” more than half of Salim’s 26 percent.
It was actually Globe Telecom, the other member of the telecom duopoly, that first used—in 2001 when it bought Isla Communications that had a huge investment from the German Deutche Telekom—the voting-preferred-stocks artifice to skirt the constitutional ban on foreign control of a public utility.*
In Globe’s case, the cheap 159 million “voting preferred shares” that portrayed it as complying with the constitutional limits were issued to, and to this day held by, one shell company the firm itself set up, Asiacom, a joint venture between Ayala Corp. and Singtel. The latter is the Singaporean state-owned telecom giant that owns 47 percent of Globe’s common shares, more than the 40 percent limit under the Constitution. (Ayala strangely—as it has the money to increase its shares—only has 30 percent.)
One indication that something’s very wrong with the Court’s decision is that it was the most junior member, Alfredo Caguioa who was the college buddy of President Aquino who appointed him, who wrote the decision which favored Salim and reversed the Court’s earlier decision made in 2011 and 2012, both written by its most senior justice, Carpio.
These figures on ownership aren’t abstract ones, as these have an impact on the economy, and therefore on ordinary peoples’ lives. Because of foreigners’ ownership of 74 percent of the stocks of PLDT that exploits natural resources (the radio spectrum), our huge market, and its duopolistic powers, they have managed to take out of the country as profits since 2000 a mammoth $7 billion.
What does that figure mean? That’s roughly equivalent to the amount of foreign investments that has been coming into the country in the same period, which means PLDT’s foreign ownership structure is decapitalizing our economy.*
What a country. A crucial provision of the fundamental law of the land called the Constitution, essential to our economy’s growth and even the nation’s security, is subverted through corporate artifices, and ruled legal through convoluted and absurd legal arguments.
However, the Supreme Court decision on PLDT is really so convoluted—because it required such absurd contortions of logic—that there is actually hope that the nation, or specifically this administration, can still uphold our Constitution. That is for Friday’s column.
*Note: Details of these points are in my book, Colossal Deception: How Foreigners Control Our Telecom Sector, available at National, Popular, and La Solidaridad book stores.