‘Changing the rules’

A Supreme Court ruling which could force foreign shareholders to divest a significant portion of common shares in Philippine Long Distance Telephone Company (PLDT) could wreak havoc on the company’s financial health and on the local capital market, PLDT chair Manuel V. Pangilinan said on Wednesday.

Pangilinan aired the warning after the high court ordered the Securities and Exchange Commission (SEC) to determine “the extent of allowable foreign ownership in (PLDT) and… to impose the appropriate sanctions under the law.”

Philippine laws allow foreigners to own only up to 40 percent of a public utility.

The court said only voting or common shares could be used in assessing the capital stock, excluding preferred or non-voting shares which are currently included in the calculation.

“Our investors are asking why are they changing the rules,” PLDT chairman Manuel Pangilinan told reporters on Wednesday. “It’s not good from a foreign investor’s perspective to change the rules. That could lead to tremendous selling pressure on PLDT prices,” he said. “I don’t understand why we’re doing this, why we’re committing economic suicide.”

Pangilinan said the common and preferred share capital structure was something that the present management of PLDT simply inherited.

“PLDT has lived with this capital structure,” Pangilinan said, and pointed out that the set-up was believed to be “legal and valid” up until recently.

In reaction to the court ruling, shares in PLDT fell as much as 3.75 percent before closing down 3.2 percent, weighing on the main index which slipped nearly 1 percent to 4,249.35.

Major PLDT foreign shareholders include Hong Kong’s First Pacific Co. Ltd. and Japan’s NTT Communications and NTT DoCoMo.

Pangilinan and PLDT spokesperson Ramon Isberto said the company has not received a copy of the Supreme Court decision.

But Pangilinan told reporters that the SC order, if implemented, would translate to the sale of 24 percent of PLDT’s common shares worth about P110 billion.

“There would be a tremendous selling pressure (of PLDT shares),” Pangilinan said. “It will tank.”

Pangilinan said 64 percent of PLDT’s common shares were held by foreigners. But if preferred shares are included in determining PLDT’s ownership structure, he said 87 percent of company is owned by Filipinos and 13 percent by foreigners.

“If you want to bring it down to 40 percent, who will sell? How do you tell investors to sell? And who can buy?” he asked.

PLDT comprises about 30 percent of the stock market index, according to analysts.

“If that’s true, definitely, that’s not good for business. Not only is it not good for PLDT but other companies as well with similar share structure. Also, it’s bad considering that the Philippines would be accused again of being erratic. It would dampen the investment appetite, not only for the market but also for long-term, foreign direct investments. This should be clarified,” Astro del Castillo, managing director of brokerage and investment advisory firm First Grade Holdings, said in a phone interview.

Analysts warned the court ruling could hurt other stocks.

“With this court definition of capital, we have to look at other stocks that are already beyond the threshold,” said one analyst at a local brokerage who did not want to be identified as his firm has holdings in PLDT.

The Philippine Stock Exchange (PSE) said foreign investors had questioned it about the implications of the directive.

“The PSE expressed grave concern that an opposing interpretation on foreign capital limitation may result in capital flight of existing foreign investors, further cause market volatility, and discourage the entry of foreign investments into the country,” it said in a statement.

The court’s decision and its definition of capital would affect other public utilities which use outstanding capital, voting and non-voting, in determining foreign ownership.

Voting 10-3, the high court granted part of the petition of lawyer Wilson Gamboa who sought to void the sale of the government’s 46 percent stake in Philippine Telecommunications Investment Corp to First Pacific in 2007.