Two peas in a pod
Had there been no congressional franchise to revoke, the Lopez crown jewel ABS-CBN Broadcasting Corp. was still likely to lose its license the same way that the Securities and Exchange Commission (SEC) canceled online news outfit Rappler Inc.’s authority to do business in January 2018.
SEC in its ruling said the sale of Philippine Depositary Receipts (PDR) to foreign entities violated its rules and the constitutional restriction on foreign media ownership.
The SEC said in its decision to revoke the Rappler license that while the PDR was not a stock that indicates ownership, it gives holders “certain rights derived from equity and reserved to Filipinos.”
Violated was the Securities Regulations Code’s implementing rules and regulations, which defined “beneficial owner or beneficial ownership” as “any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power (which includes the power to vote or direct the voting of such security) and/or investment returns or power (which includes the power to dispose of, or direct the disposition of such security).”
In almost an identical case with
Rappler, ABS-CBN Holdings Corp. issued over 298 million PDR valued at P46 per PDR. It admits that only 111 million PDR (37.4 percent of the total) with a value of about P5 billion were issued to Filipinos. The rest, about 187 million (62.6 percent of the total), worth P8.6 billion, was issued to foreigners. ABS-CBN echoed the defense of
Rappler that the issuing of PDR was approved by SEC.
During the House hearings on ABS-CBN’s franchise petition, SEC clarified that it had no control on who buys PDR.
SEC Commissioner Ephyro Luis Amatong said in his testimony that the actual buying and selling of PDR are not reported to the SEC.
The PSE (Philippine Stock Exchange) and the PDEC (Philippine Dealing and Exchange Corp.) are the bodies that are aware of the actual transfers, Amatong explained.
SEC’s grant or approval of the permit to sell PDR as securities, thus, pertained only to an authority to sell but not to the validity and constitutionality of the terms thereof and qualifications of the actual PDR holder, according to the Technical Working Group (TWG) report on the franchise bid.
The House Committee on Franchises formed the TWG to undertake a comprehensive review of the proceeding and to recommend an action on ABS-CBN. It issued a conclusion that the franchise application should be denied.
It noted that in the SEC testimonies it was shown that ABS-CBN’s PDR entitle non-Filipino holders to adjust the terms of the instrument and modify their own rights, and these adjustments or modifications happen after registration with the SEC.
The TWG, likewise, noted that the mechanism of corporate layering employed by ABS-CBN and its unit ABS-CBN Holdings effectively made the PDR holders the indirect owners of the underlying shares of stock of ABS-CBN.
“Indeed, while ABS-CBN Holdings is the nominal owner of the shares of stocks, it cannot exercise the full rights of ownership because it entered into a contract of pledge over the shares of stock with the Philippine Central Depository Inc., to hold on behalf of the PDR holders the shares as security for certain obligations of ABS-CBN Holdings Corp,” the report noted.
“The impression given by the issuance of PDR is that it was resorted to creatively allow the participation of foreigners to fully nationalized and partially-nationalized activities,” the TWG added.
The danger lies in the foreign holders of PDR owning 187 million underlying shares of ABS-CBN Corp., which constituted
62 percent of the total.
The TWG said in such a situation, “Nothing restricts ABS-CBN from issuing shares of stock to ABS-CBN Holdings Corp. and the latter from selling more PDR representing all of its shares in ABS-CBN Corp.”
“Congress shouldn’t indirectly allow foreigners to acquire economic rights to the cash flow of mass media corporations, which is the very evil the Constitution seeks to prevent,” TWG indicated.
The parallelism between
Rappler and ABS-CBN does not end in the PDR anomaly, since both are headed by Maria Ressa and Eugenio Lopez III, respectively, who both admitted being American citizens.
“Congress shouldn’t indirectly allow foreigners to acquire economic rights to the cash flow of mass media corporations, which is the very evil the Constitution seeks to prevent.
“ABS-CBN echoed the defense of Rappler that the issuing of PDR was approved by SEC.