First of a series
SOME 22 percent of the shares of media conglomerate ABS-CBN Corp., now worth at least P3.5 billion, are owned by foreign companies, mainly the Los Angeles-based, privately owned The Capital Group, one of the world’s largest investment management firms.
Together with several other foreign firms, including the United Kingdom’s Prudential Plc (through its Singapore firm), the United States company received P1.3 billion in income out of ABS-CBN’s profits from 2015 to last year, Securities and Exchange Commission (SEC) reports show.
This is a blatant violation of Section 11, Article XVI of our Constitution: “The ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such citizens.”
This violation of the Constitution is one of the two main grounds that Solicitor General Jose Calida invoked in a request he made to the Supreme Court the other day to revoke ABS-CBN’s franchise.
In a similar constitutional violation case that Calida brought against the online news source Rappler Inc. and Rappler Holdings, he asked the SEC to revoke the two firms’ license to operate as corporations. The SEC agreed with Calida; the two firms appealed the case to the Court of Appeals.
How ABS-CBN got to have substantial foreign ownership certainly looks like a case study of how oligarchic control of government is crucial for their wealth. Owned by the Marcos’ archenemies, the Eugenio Lopez clan, ABS-CBN disguised its acquisition of foreign funds when it issued though its shell company ABS-CBN Holdings (which has 36 percent of the media firm) in 2013 — at the height of its patron former president Benigno Aquino’s 3rd’s, power — P4.5 billion worth of what it called Philippine Depositary Receipts (PDRs). These entitled its holders to 36 percent of ABS-CBN Corp.’s shares the shell company had, giving them the profits from those shares.
ABS-CBN Holdings sold a huge block of these PDRs mainly to the US-based The Capital Group and subsequently to other foreign firms, with the firm reporting that 62 percent were held by foreigners. That computes to 22 percent of ABS-CBN Corp.’s shares (0.62 x 36 percent).
PDRs are a kind of security, which entitles its holder to a share of a company, as well as to any benefits from owning it. It has been a flimsy way for media companies to skirt the constitutional ban on any foreign funds in media, the legitimacy of which rests entirely on an SEC ruling or, as the case actually was during Aquino 3rd’s administration, its mere acquiescence.
PDRs as a means to cloak foreign money and even control in media firms were first used in 2012 by the Indonesian tycoon Antoni Salim to fund his MediaQuest, which became the holding company of the Philippine Star-TV 5 media conglomerate.
I had first reported such gross violation of the Constitution in 2013, but the Aquino 3rd government — of course — did nothing to ask the SEC or any court whether this was legal.*
It was only when the Office of the Solicitor General (OSG) in 2016 asked the SEC to investigate if Rappler’s PDRs were in violation of the Constitution that the agency issued a ruling. The SEC upheld the solicitor general’s claim that these were unconstitutional.
One of the provisions of the SEC ruling read: “The constitutional and statutory prohibition with regard to foreign control of mass media is absolute. It means to isolate the Filipino masses from all foreign influence (even apparently ‘harmless’ ones) sent via ‘any medium of communication…’ The restriction on foreign equity prevents any scheme to grant rights attached to equity — even the guise an equity derivative.”
In that ruling, the “equity derivative” is so obviously Rappler’s PDR. It is the foreign investments’ disguise. Objective observers have agreed with the SEC: How could a corporate disguise overturn a provision of the Constitution?
Among other commentators, University of the Philippines professor Amelia Ylagan, PhD, in a column in BusinessWorld, a newspaper in the Indonesian magnate’s media empire, made this point regarding the Rappler case:
“Mass media companies here in the Philippines really must observe the all-Filipino rule for mass media in the Constitution. No ifs or buts, no indirect or backdoor sneaking in and around this. And what must not be forgotten in finance is never to invest or offer something, which you do not fully understand, unless, as the SEC implied — you precisely want to skirt the attendant issues.
The OSG hit the nail right on the head when it quoted a maxim from Roman law: “Quando aliquid prohibetur ex directo prohibitur et per obliquum,” It means “what cannot be done directly can’t be done indirectly.” The solicitor general expounded: “If acts that cannot be legally done directly can be done indirectly, then all laws would be illusory.”
ABS-CBN had claimed that it issued the PDRs in order to raise capital it needed. One of its reports even had the gall to state that “it was to obtain foreign investments to increase their undervalued shares, and to allow foreigners to participate in mass media.”
But why didn’t it get local partners instead, or raise money in the local capital markets through bonds? The Lopezes obviously had been so possessive of ABS-CBN that they didn’t want local partners, unlike most Filipino tycoons who have struck alliances with other local magnates. They also wanted to scrimp on the costs involved in raising capital in the financial markets. “The Lopezes will be paying heavily for their reliance on a supportive government,” one magnate remarked.
I don’t think the Philippine elite will mount an attack against President Rodrigo Duterte to support ABS-CBN for their boo-boo in using PDRs as a flimsy disguise to get foreign money.
Only two media companies are similarly using PDRs to get foreign money, which is violative of the Constitution: Salim’s Philippine Star-TV 5 conglomerate and GMA 7. The solicitor general’s case so far is only against ABS-CBN, encouraged by the SEC decision on Rappler. It is a forewarning to Salim and GMA 7 that they still have time to remove their PDRs to comply with the Constitution.
Salim’s media empire is puny compared to his other stakes in the country — the Manila Electric Co., PLDT Inc., Maynilad Water Services Inc., power generation firms and tollways — that he can easily give it up, and maybe even offer it to government to convert into the Philippine version of BBC, NHK or the mostly state-controlled newspapers in Singapore, South Korea and Japan.
The Ayalas have retreated, giving up control of Manila Water Co. Inc. to tycoon Enrique Razon after Duterte went after them for their reportedly onerous contract with the government. I don’t think GMA 7 will try to oust Duterte. It’s likely to buy back its PDRs from foreign holders of these, and then sell these to locals, especially since GMA 7 would be so attractive as an investment when ABS-CBN closes down.
Few are betting that the Supreme Court will rule against the solicitor general’s complaint, with its track record of leaning to strict adherence to the Constitution, especially its nationalist provisions.
The only other way the Supreme Court could rule is, as in the case of the case brought against PLDT for violating the Constitution’s limits on foreign equity in public utilities, is to ask the SEC to decide on it instead. Guess how the SEC would rule, given the Rappler case?
How will the PDR holders, especially the foreigners, react if the Supreme Court rules that the securities they bought for P4.5 billion are illegal, as these violate the Constitution? Corporate Armageddon for ABS-CBN.
With the Yellow Cult’s demise, its main propaganda machine since 1986 will also likely disintegrate.