SEC has already amended the Constitution!

by Rigoberto Tiglao on December 11, 2014

Through a mere memorandum, the Securities and Exchange Commission has, in effect, lifted in 2013 the constitutional provision that foreign equity cannot exceed 40 percent in utility firms.

Philippine Long Distance Telephone Co. (PLDT), and therefore, its cell phone subsidiary Smart, is 54 percent foreign-owned, mainly by the Indonesian Salim conglomerate’s First Pacific and the Japanese Nippon Telephone and Telegraph’s firms. Its competitor Globe Telecoms is 47 percent owned by Singapore Telecoms, with the Ayalas, the firm’s face, owning only 30 percent.


Which one is correct? Or who has the authority to define?

But based on the SEC’s memorandum, a bureaucratic sleight-of-hand, the two firms are considered majority controlled by Filipinos and are complying with the constitutional requirements.

How did the SEC manage to trash our Constitution? Quite ironically, or maybe even in a defiant pose, it was through its response to the Supreme Court’s earth-shaking decision in June 28, 2011 (reaffirmed June 2012) on a petition made by the late Wilson Gamboa in 2007.

The SEC changed the definition of “capital” in order to dilute foreigners’ shares.

The petition had claimed that that the purchase of the firm’s controlling shares by Salim and Japanese companies starting in 1999, and foreign firms’ holdings of its shares in the stock market, had resulted in an ownership structure that violated the constitutional limits on foreign equity in utility firms.

The Court itself pointed out that based on PLDT’s data itself (for 2010), 64 percent of the firms’ common shares were held by foreigners while Filipinos owned only 36 percent, thus breaching the Constitution’s 40 percent limit.

PLDT, however, argued that foreign ownership must be computed as a percentage of all kinds of shares, both common and preferred shares.

PLDT claimed that including preferred shares, Filipinos had 86 percent of total shares, while foreigners had only 14 percent.

PLDT’s arguments were hogwash, and everyone in the corporate and legal world knew it.

Nowhere in the world are preferred shares included in computing an entity’s control of a firm. From its invention in the US at the turn of the late 19th century, a preferred share is a bit of a misnomer, and is essentially a type of debt, reflected in the fact that it is assured of a fixed dividend, unlike dividends of common shares, which are based on the firm’s profitability. Preferred shares are almost by definition non-voting, that is, its owners have absolutely no say in running the corporation.

“Capital” means common shares

The Court threw out PLDT’s arguments and affirmed what everyone in the country and the world believe how corporate control is determined.

The court declared: “The term ‘capital’ in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus, in the present case only to common shares, and not to the total outstanding capital stock (common and non­voting preferred shares).”

The Court ordered: “Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term ‘capital’ in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.” (All caps font in original decision.).”

But what does the SEC do?

It issued Memorandum Circular No. 8 May 22, 2013, signed solely by its chair Tersita Herbosa — who was formerly a partner at ACCRA law, which has been PLDT’s law firm for decades. The most important part of the memorandum reads:

“For purposes of determining compliance (with the constitutional ownership requirement), the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors.”

The highest court of the land very clearly pointed out, and elucidated in most of its decision, that “capital,” when used in computing corporate control, should mean only common shares.

Yet, the SEC ignores that decision, and says that the percentage ownership by foreigners is to be computed using the “total number of outstanding shares of stock, whether or not entitled to vote,” which includes preferred stocks.

A mere SEC circular, in effect, lifted the 40 percent constitutional ban and has allowed PLDT and Globe, both utility companies, to get away with being foreign controlled.

According to Globe’s own data in its November 2014 report to the Philippines Exchange, foreigners own 85.5 million common shares, or 64.4 percent of the total, which is clearly over the 40 percent limit provided in the Constitution and affirmed by the Supreme Court.

(According to Globe’s own list of “Top 100 stockholders,” Singapore Telecom International PTE, Ltd. is its biggest owner with 47.2 percent of the total. Second is Ayala Corp., with 30.23 percent. A further 17.4 percent is held by foreigners, registered with the PCD Nominee Corp.)
However, these 85.5 million common shares make up just 27.2 percent of the total 311 million common and preferred shares, according to the SEC ruling that Globe follows.

PLDT: 54 percent foreign-owned

In the case of PLDT, based on its latest report (April 2014) to the SEC, 54 percent of its common shares are owned by foreigners, clearly in violation of the Constitutional 40 percent limit.

However, PLDT claims foreigners own only 17.4 percent, using the SEC’s memorandum that the percentage is on the basis of total common and preferred shares, which total 660 million.

According to PLDT’s list of its largest stockholders, the Salim-controlled firms Philippine Telecommunications Investment and Metro Pacific Resources have 12 percent and 10 percent, respectively, while the Japanese companies NTT DoCoMo and NTT Communications Corp. together own 16.4 percent. Foreigners, through JP Morgan Asset Holdings in Hong Hong Kong, and the PCD Nominee Corp., hold 20 percent.

PLDT even made an important move in October 2012, which it thought was a clever one that would convince the Supreme Court that it was complying with the 40 percent constitutional limit. It issued 150 million new preferred shares to a strange entity, BTF Holdings – funded entirely by the firms’ pension fund, the Beneficial Trust Fund.

What a sham. It calculates that the shares given to BTF Holdings, which would dilute total outstanding shares, made it compliant with the Supreme Court’s definition of control, as those new shares were given voting rights. But management controls BTF itself, with three out of its five-man board of trustees designated by the PLDT board.

The basic law of the land, the Constitution and the only entity authorized to interpret it, the Supreme Court, say one thing how that foreigners’ extent of control of a firm is defined. The regulatory body, the SEC, tells the firms it regulates to compute it differently, in this case favoring PLDT and Globe’s current ownership structure, which is tightly controlled by foreigners.

What kind of rule of law do we have?

Economists have actually invented a new term for a similar phenomenon in developing countries: Regulatory Capture — elites managing to capture a regulatory body to make it serve its interests, not the nation’s.

I realize many think that foreigners’ control of utility firms does not matter, just as long as they provide efficient services and pay the right taxes.

Two things, though. First, don’t we care anymore about our Constitution and the rule of law, when foreigners trash them?

And an important second point: These foreign firms aren’t really bringing capital in. They are actually bringing capital out. That, on Monday.

PLDT and Globe, however, haven’t really gotten away with it totally. The lawyer who took up Gamboa’s cause, Jose Roy, filed a petition with the Supreme Court right after the SEC issued its memorandum in 2013, claiming that it violated the High Court’s rulings.

The response filed by PLDT has been mainly to claim that if a Court ruling against it could result in an economic chaos, given the firm’s size and the foreign funds that would be spooked. “Too big to be ruled constitutional,” PLDT is basically saying.

And I believe that the Supreme Court, unlike the SEC, hasn’t been, and won’t be, captured.

Bane for all of us, boon for Roxas

by Rigoberto Tiglao on December 9, 2014

IF there’s one person in the country possibly looking forward to disastrous typhoons, even visibly enjoying them if you had watched him at his televised “command” conference yesterday barking orders at officials in Borongan, Samar, it could be Interior and Local Government Secretary Mar Roxas.

Leading the government’s preparations and response to typhoons has been Roxas’ biggest, and even only, opportunity to improve his popularity ratings and project himself as a capable leader for the country come 2016.

It is not President Benigno S. Aquino’s nor is it National Disaster Risk Reduction and Management Council (NDRRMC) chairman, Defense Secretary Voltaire Gazmin’s that is this government’s face in responding to the recent typhoon Ruby. It has been Roxas’.

It is, of course, laudable for Roxas to be so compassionate that he’s in the frontlines traversing muddy roads and sleeping in dingy hotels so he could help our countrymen suffering the disaster. Why am I, and many netizens writing nasty posts on reports of his typhoon activities, so cynical?

Well, because it’s so obvious that, for Roxas, typhoons have become a big opportunity, to use a recently invented and popularized slang term, for epal, derived from the term pumapel, which roughly means to appear as having a big role (papel) in some laudable activity.


Same for-typhoons shirt? Roxas dropping his bike in Leyte the other day, with nasty comments from netizens. Top inset: Roxas in Borongan, Samar yesterday. Lower inset, in Tacloban, Leyte right after super typhoon Yolanda November last year, arguing with a CNN reporter.


Roxas, Presidential Spokesperson Edwin Lacierda and their staff even seemed dressed for an election campaign. They were all wearing the same especially-designed-for-typhoon-rescue yellow T-shirts with black bands, emblazoned with the Yellow Cult’s yellow-ribbon logo and the outline of the Philippine archipelago.

Roxas’ credit-grabbing yesterday morning was irritating, if not sickening, as the live televised briefing on the typhoon’s aftermath by NDRRMC Executive Director Alexander Pama (where was the chairman Gazmin, anyway? Sick again?) was interrupted, and replaced, by what was billed by the TV station as “DILG chief’s press conference” in Borongan.

It wasn’t a press conference, but a meeting, chaired by Roxas, of local officials up to municipal officers of national agencies in Eastern Samar purportedly to assess the impact of Typhoon Ruby and the government’s response to it.

It was nothing, though, but a lengthy photo-op for Roxas to show he was busy in the frontline responding to the typhoon. A brilliant move, I would say, as most Filipinos were hungry for news — which surprisingly was sparse —on Typhoon Ruby’s morning-after. Early morning, there was nothing on the typhoon but Roxas’ performance at Borongan.

What was the DILG head doing there, taking over the role of the provincial governor who by law heads the provincial disaster risk reduction and management council? The governor sat idly by Roxas’ side, doing absolutely nothing and just smiling occasionally, with Roxas not once consulting him. Roxas had a notebook and a pile of papers, and was writing notes furiously.

What was Roxas actually doing? Probably to pretend he was in control, he was counting casualties, even interrogating a poor municipal health officer how she got the reported information on deaths and injuries for each barangay. Roxas was irritated when a health officer reported a death during the typhoon that turned out to be due to a heart attack. Roxas barked at the official: “But that’s a “pre-existing” condition, a myocardial infarction.”

With the 2015 budget deliberated on by Congress to give funds to the DILG for activities that in the first place are not even under its responsibility, such as housing, social work, and livelihood projects, a joke started going around that Roxas is the “new Imelda.” That is in reference to his high-profile involvement in so many events and projects as Marcos’ wife did during the last years of martial law, in order to portray himself as Aquino’s successor.

Roxas, though, seems to keep stumbling and bumbling his way through these events in a struggle to make typhoons a boon for his popularity rating.

The script was intended to portray him as a macho man riding a motorcycle so he could navigate dirt roads to inspect typhoon preparations even in Samar’s remote towns. He, instead, took a fall with his bike. (Did his driver’s license allow him to drive a motorcycle?)

A disloyal aide, or a Samar official who probably disliked him, unfortunately managed to snap a photo at the precise moment he fell with his bike, and promptly posted it in cyberspace. It got viral with so many nasty comments, such as a hilarious one that he should be fined for not wearing a helmet.

Roxas should watch it, though. From Mr. Palengke, he might be known as Mr. Typhoon. But in that murky world of people’s consciousness, it might not be his help during typhoons that would be remembered. Instead, he could be associated with typhoons, and the suffering it brings.

PAGASA updates 4-hours late
Our weather forecaster, the Philippine Atmospheric, Geophysical and Astronomic Services Administration (PAGASA), has boasted that the path it predicted for Typhoon Ruby was the most accurate, beating those made by its counterparts in Hong Kong, Japan, and even the US military. They may be right, but for me as a consumer of their information, their forecast was useless.

I had been closely monitoring the typhoon, as its path in the past two days indicated that it could pass directly where we lived, and I was bit anxious that a tree near our house would be uprooted. I also wanted to experience passing through a typhoon’s eye. I’ve read some claims that it is strangely exhilarating when for a few minutes you suddenly see a blue sky (or a starry one) above you in the middle of a blinding fury as the typhoon’s eye passes over you.

I wasn’t able to do so. PAGASA’s purported “hourly” updates posted on its website were all four to five hours late, and I have screenshots of these as proof. Even as I write these words at 4:17 pm Tuesday, PAGASA’s latest hourly update is only for 10:00 am, more than six hours ago at the time of this writing. This has been the case throughout the other night. I even thought that the sudden strength of the wind meant the typhoon was getting close to where I lived. It was five hours later when PAGASA in its hourly update reported that Ruby had veered off to the west and had not passed over us.

Five-, even a four-hour period is a long time in a typhoon’s path. Given its vaunted new equipment, why should PAGASA’s update take that long to issue?

(My three-part series on foreign investments continues on Friday.)

What foreign investment restrictions?

December 7, 2014

First of Three Parts In the past few months, moves to change the constitution by foreign chambers of commerce to lift purported restrictions on foreign investments’ entry into the country have intensified. Both Senate President Franklin Drilon and House Speaker Feliciano Belmonte are saying there is enough time under the 16th Congress and during President [...]

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One big economic reason to have an Aquino-free nation

December 4, 2014

One of the biggest reasons why even an important sector of our business community can’t wait to have President Benigno S. Aquino 3rd step down, and for a totally new regime to take over, involves our territorial dispute with China in the West Philippine (South China) Sea. To bolster his regime, Aquino roused—quite successfully I [...]

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EDCA: The price of Obama’s visit last April

December 2, 2014

The “Enhanced Defense Cooperation Agreement” (EDCA) was the price President Benigno S. Aquino 3rd paid to get US President Barack Obama to make a state visit to the country last April. The problem is, as Senator Miriam Defensor-Santiago has argued, it wasn’t something Aquino could give away on his own. The Senate must ratify it. [...]

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Trillanes: DFA chief deliberately worsened PH row with China

November 30, 2014

If our relations with China are at their lowest ever, and if Filipinos are livid at the superpower for its purported bullying, our top diplomat, Foreign Affairs Secretary Albert del Rosario, should to a great extent be blamed. That’s the only conclusion one would get from the report of Senator Antonio Trillanes 3rd as President [...]

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Belmonte, Drilon take us all for fools

November 27, 2014

It’s so sad for our country that our high officials, the leaders of the legislature, either are taking us for fools, think we’re all stupid, or are treating us like kids who don’t deserve any explanation. Reacting to the escalating protest that the 2015 budget still retains pork barrel that the Supreme Court ruled unconstitutional, [...]

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Is Miriam the only real senator left?

November 25, 2014

For all intents and purposes, a resounding yes. Senator Miriam Defensor-Santiago is the only one in the 24-member chamber shocked and aghast—as the entire Congress and nation should be—that President Benigno Aquino’s 2015 budget is a document of deceit and defiance against the Supreme Court’s decision in November 2013 declaring the pork-barrel system unconstitutional. “They [...]

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The horror: Our national shame continues

November 23, 2014

I’m afraid the photos published the other day of the demonstration led by the National Press Club and the National Union of Journalists protesting the snail pace of justice for victims of the November 2009 Maguindanao massacre do not quite remind the nation of how horrific that crime was. These do not quite shock us [...]

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Born into a class, you’ll die in that class

November 20, 2014

That’s not some Marxist firebrand sloganeering. It’s one of the many insights one can conclude from an academically rigorous book that came out earlier this year by economic historian Gregory Clarke, “The Son Also Rises: Surnames and the History of Social Mobility” (Princeton University Press, 2014). Ingeniously using as data the prevalence of surnames in [...]

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