MANILA, Philippines - The Supreme Court has directed the Securities and Exchange Commission (SEC) to investigate telecom giant Philippine Long Distance Telephone Co. (PLDT) for possible violation of the constitutional limit on foreign ownership in utilities.
The order was given out during Tuesday's regular en banc session wherein the court tackled a petition filed by human rights lawyer Wilson Gamboa seeking to annul the sale of the government's 46% stake in Philippine Telecommunications Investment Corp. (PTIC), part owner of PLDT, to Hong Kong-based First Pacific Co. Ltd. in 2007.
The sale, equivalent to a 6.4% indirect stake in PLDT, increased First Pacific's holdings in PLDT to over 30% at that time.
Gambao said that with the sale, First Pacific and another foreign stockholder, NTT DoCoMo, ended up owning over 50% of PLDT outstanding common shares, violating the 40% constitutional limit on foreign ownership of a public utility.
Section 11, Article XII of the 1987 Constitution states: "No franchise, certificate, or any other 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, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years."
During the Supreme Court session, majority of the justices held that the term "capital" refers only to shares of stock entitled to vote in the election of directors and thus, refers "only to common shares, and not to the total outstanding capital stock" which is composed of "common" or voting shares and "preferred" or non-voting shares.
"Respondent and the SEC is directed to apply this definition of the term 'capital' in determining the extent of allowable foreign ownership in respondent PLDT and if there is violation of Section 11, Article XII of the Constitution, to impose appropriate sanctions under the law," the court ruled.
The court held that SEC has the power to suspend or revoke, after proper notice, and hearing, the franchise certificate of registration of corporations, partnerships or associations upon any of the grounds provided by law.
In February 2007, First Pacific, through subsidiary Metro Pacific Assets Holdings Inc., bought the government's 46% stake in PTIC, which, in turn, owned over 13% of PLDT.
The PTIC stake previously held by Prime Holdings Inc. of the Cojuangco family was reconveyed to government after the high court declared it part of the ill-gotten wealth of the Marcoses. Prior to the sale to Metro Pacific Assets, First Pacific already owned indirectly 54% of PTIC.
Based on the list of PLDT's principal stockholders on the Philippine Stock Exchange website as of March 31, 2011, four foreign companies had substantial stakes in PLDT totaling over 45.15% of the telco's total outstanding "common" stock.
PTIC as of March had 13.94%. That, combined with those of foreign principal stockholders, amount to over 59% of PLDT.