Implementing Rules on the new interpretation of foreign ownership rule under Foreign Investment Act of 1991 as amended which arose from the recent question of TEL’s ownership status has been a hot topic last week.
The said new rule now clarifies the 40% foreign ownership of corporations on certain industries that are given priority to Filipinos. (A draft of the said SEC Memorandum Circular is available in the SEC website by clicking here). This new rule that now clearly defines the ownership limit is now seen as something that limits Philippines’s attractiveness as the next investment haven.
An article about various reaction market players is in Bworldonline.com as cited below:
Posted on November 09, 2012 09:05:54 PM
Market players buck new foreign ownership rules
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.
(click hereto read full article)
Listed corporation who are required to comply with the foreign limit rule are given 5 years to comply. From the new interpretation the 40% foreign ownership limit is not only confined to common shares/capital of the company which has the voting powers but it is interpreted as that of the corporations entire capital stock. Thus all other series or variations of issued stock must be identified and the rule should be taken into consideration. With this TEL or PLDT of which the bulk of the common shares is owned by Hong Kong based First Pacific will issue Preferred shares with voting rights to reduce the foreign ownership from 64% to 35%.
There are lots of opinion regarding this regulation. First is that such corporation has huge capital requirements which for now can only be augmented by outside investors. Others see this as a reverse reaction since the Philippines now is in the spotlight for being considered as one of the best place to put investments. The SEC is still open for changes and they are leaving their doors open till the end of November before finalizing the regulation.
For my opinion such rule will have some negative effects in the near and future periods. We know the fact the number of investors in the Philippine population is still so small to totally participate in the market and thus to keep the iron from shaping into its intended outcome we have to keep on funding this surge by way of foreign investments. The vagueness may have been cleared but the percentage should be adjusted and some fine tuning be made so that both outside investors and the Filipino populace will be able to have a win-win position over the matter.
If foreign investors decided to pull out investments instead of staying, the problem we will face is who will buy such investments when the Philippine populace is not yet ready and the government needs more cash now in order to fund the growth we are experiencing. I hope the SEC and the market participants will find common ground in this matter so that the current momentum the Philippines has will not be disrupted.
How about you what position would you take in this foreign ownership issue?