PLDT creates voting preferred shares to comply with SC ruling

by Coco Alcuaz, ANC

Posted at Jul 05 2011 04:12 PM | Updated as of Jul 06 2011 09:04 AM

May sell shares to pension fund

MANILA, Philippines (1st UPDATE) - Philippine Long Distance Telephone Co. (PLDT), controlled by Hong Kong's First Pacific Co. and Japan's NTT, has created new voting preferred shares to comply with foreign ownership limits if an order issued by the Supreme Court last week becomes final.
The Supreme Court had said that in calculating compliance with the Constitution’s 40 percent limit on foreign ownership of public utilities, only voting shares should be counted. That excluded PLDT's non-voting preferred shares, putting PLDT over the 40 percent limit.
(For Supreme Court ruling:
Based on PLDT's general information statement, foreign ownership is at least 45 percent.
         PLDT’s Biggest Foreign Stockholders
JPMorgan Asset Holdings (Hong Kong)       25%
NTT Docomo (Japan)                                       9.8%
NTT Communications (Japan)                       6.8%
Unidentified American (Held by HSBC)        3.2%
Source: PLDT General Information Statement
In a statement today, PLDT said the new class of stock could only be bought by Filipinos and Filipino-controlled entities. It said it could sell 150 million of the new class of stock to reduce foreign ownership of voting shares from 64 percent to 36 percent. It said it could sell the shares to its own pension fund.
PLDT said it would sell the voting preferred shares if the ruling becomes final "to protect the interests of PLDT and its stakeholders." Uncertainty over the effect of the court's ruling dragged down pldt shares by 3 point 7 percent over two days last week.
It's risen the three days since, closing at P2,398 today, 2 pesos lower than the day before the court ruling.

PLDT Chairman Manuel Pangilinan last week said the court ruling prompted investors to call the company and ask why the court is "changing the rules." The Philippine Stock Exchange expressed "strong reservations" about the ruling and said it would work closely with the Securities and Exchange Commission, which the court charged to "apply" the definition and impose sanctions if there has been a violation.

On Tuesday, PLDT's regulatory affairs head Ray Espinosa said creating the new shares doesn’t mean the company won't try to maintain the status quo. But he said the company had to come up with a safety measure in case the court's interpretation is upheld and applied, even if the case filed by lawyer Wilson Gamboa was against PLDT's key shareholders and not the company itself.

"That is more of a protective, anticipatory, protective measure," Espinosa said. "Because, although PLDT is not a party in Gamboa's case, PLDT is concerned with the interest of its stakeholders and consumers. We are precisely trying to avoid a situation where the Gamboa ruling, to which PLDT is not a party, will be used to question its franchise."

Fund managers said the ruling’s effect on PLDT's share price is an opportunity to buy.

"There will still be some volatility in the coming days as that overhang is still there," said Theresa Marcial-Javier, senior vice president at BPI Asset Management. "But over the long term I would look at this as buying opportunity for the stock. Anytime it dips below P2,200 is a buying opportunity particularly as a dividend play."

"The fact that they may have to put together this plan if the SEC comes through is to me positive as well," said Phillip Hagedorn, investment committee chairman at ATR-KimEng Asset Management. "To me it’s a good opportunity if the stock is sold down on this news. I think the company will do the right thing and address the situation when it comes."

A ruling in favor of PLDT will help the company in another arena. Rival Globe Telecom yesterday said PLDT's foreign ownership is another reason to block its purchase of Digitel, the owner of Sun Cellular. The closing of the sale is already delayed from the end of last month to the end of this month. - With a report from Alvin Elchico, ABS-CBN News