joaquin madrileno p. catalan said,

March 6, 2007 @ 8:55 am

REPUBLIC OF THE PHILIPPINES

SUPREME COURT

M A N I L A

WILSON P. GAMBOA,

Petitioner,

-Versus- SC GR SP NO. _____________

For: Prohibition/Injunction with urgent prayer for TRO/ Writ of Preliminary Injunction / Declaratory Relief / Annulment

FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND COMMISSIONER

RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR

AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO. LTD.

IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET

HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO. LTD.;

PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE

LONG DISTANCE TELEPHONE COMPANY; CHAIR FE BARIN OF THE

SECURITIES AND EXCHANGE COMMISSION, AND PRESIDENT

FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE,

Respondents.

x—————————————————-x

P E T I T I O N

Petitioner to this Honorable Court most respectfully states:

I.

PREFATORY STATEMENT

As the country’s fundamental law, the 1987 Constitution has to be respected and followed by citizens of this country. It embodies their collective dreams, aspirations and sense of nationhood. When brazenly violated, the Constitution is reduced to a mere scrap of paper, resulting in social disorder and anarchy. The Constitution has to be upheld at all times. Any effort to mock the Constitution must be stopped and contained to prevent any damage to society.

As shall be shown in this petition, respondents have already violated the 1987 Constitution and are about to violate again the country’s fundamental law by completing the sale of government-transferred assets at a discount very disadvantageous to the government to a major foreign investor in the country’s largest telecommunications firm. The completion of this sale will not only result in the loss of revenues for the government, but will raise anew the foreign shareholdings in the telecommunications firm far in excess of the allowable maximum level laid down by the 1987 Constitution.

Despite warnings that they have already violated – and are about to violate again – the constitutional limitation on foreign ownership of a public utility company, which is a telecommunications firm, the respondents appear adamant and determined to complete the sale. Their refusal to follow the Constitution will have serious consequences to the country and to the national treasury.

Hence, injunction lies.

II.

NATURE OF THIS PETITION

This is an original action for prohibition and extraordinary writ of injunction in order to restrain whimsical and arbitrary acts, all done in violation of the 1987 Constitution, and there is no other plain, speedy, and adequate remedy in the ordinary course of law.

This petition also seeks a declaratory relief on the Section 11, Article XII of the 1987 Constitution, which provides a limit of foreign ownership in a domestic public utility. Specifically, this petition seeks to clarify the intent of the Constitutional Commission that crafted the 1987 Constitution to determine the very nature of such limitation on foreign ownership.

This petition also seeks the declaration of nullity of the previous sales of common stocks to foreigners in excess of 40 percent of the total subscribed common stocks of Philippine Long Distance Telephone Company, or PLDT, being in violation of Section 11, Article XII of the 1987 Constitution.

Specifically, herein being assailed is the impending completion of the sale by the government of 111,415 shares of the Philippine Telecommunications Investment Corporation, hereinafter referred to as PTIC, to First Pacific Co. Ltd., which is based in Hong Kong and registered in Bermuda. First Pacific Co. Ltd, hereinafter referred to as First Pacific, has decided to acquire the shares when it had exercised its right of first refusal to the winning bid of Parallax Venture Fund XXVII and matched the latter’s bid.

If and when the transaction is completed, the foreign shareholdings in Philippine Long Distance Telephone Company, hereinafter referred to as PLDT, a Philippine-based and registered telecommunications company, will further exceed, as it has exceeded by now, the constitutionally mandated maximum allowable limit of 40 percent in capital of a public utility company.

The inter-agency Privatization Council is spearheading the completion of the sale. It derives its mandate to handle and oversee the sale and disposition of government assets to the private sector by virtue of Executive Order No. 323, which then President Joseph Estrada signed on December 6, 2000. Finance Secretary Gary Teves is the concurrent chairman of the Privatization Council. Finance Undersecretary John P. Sevilla and PCGG Commissioner Ricardo Abcede are the representatives of Secretary Teves and PCGG Chairman Camilo Sabio respectively in the Council, which, among its powers, decides on which government asset is to be disposed and sold to the private sector and the manner of its disposal.

III.

TIMELINESS OF THE PETITION

The instant petition is being filed after the respondents from the government sector have agreed on February 14, 2007 to sell to First Pacific Co. Ltd., through its wholly-owned intermediate holdings firm, Metro Pacific Asset Holdings Inc., the 111,415 PTIC shares, collectively worth P25,217,556.000., or US$510,580.189. The conditional Sale and Purchase Agreement, which the respondents have reached upon initial payment of the 50 percent (or US$268,685,233 in escrow account), paves the way for the formal conclusion of the sale, which the respondents have set upon full payment on or before March 2, 2007. This is stipulated in several earlier press reports and the formal announcement by First Pacific in its Feb. 14 company statement, which is readily available in its official Internet website and photocopies of which are herewith attached as Annexes A to A-4.

IV.

THE PARTIES

Petitioner WILSON P. GAMBOA is a CPA-Lawyer, taxpayer and stockholder of PLDT by his being a PLDT subscriber with address at 3 Hubbard St. , Filinvest 1, Quezon City , where he may be served with writs and notices of this Honorable Court.

Respondent MARGARITO B. TEVES is presently the Secretary of Finance and concurrent Chair of the Privatization Council, and holds office at the Department of Finance, 6th Floor, Executive Tower Bldg. BSP Complex, Roxas Blvd., Manila, where he may be served with writs and notices of this Honorable Court.

Respondent JOHN P. SEVILLA is the current undersecretary for privatization of the Department of Finance, with address at DoF Bldg., BSP Complex, Roxas Blvd. Manila , where he may be served with writs and notices of this Honorable Court.

Respondent RICARDO ABCEDE is a current commissioner of the Presidential Commission on Good Government and holds office at IRC Bldg., 82 EDSA, Mandaluyong City , Metro Manila , where he may be served with writs and notices of this Honorable Court.

Respondent ANTHONI SALIM is the current chair of the First Pacific Co. Ltd. and concurrent director of Metro Pacific Asset Holdings Inc. with office address at 18/F Liberty Center, 104 HV dela Costa St., Salcedo Village, Makati City, where he may be served with writs and notices of this court.

Respondent MANUEL V. PANGILINAN is the current chairman of the board of directors of the Philippine Long Distance Telephone Company and holds office at 7th Floor, Ramon Cojuangco Bldg., Makati Avenue , Makati City, where he may be served with writs and notices of this Honorable Court.

Respondent NAPOLEON L. NAZARENO is the current president of the Philippine Long Distance Telephone Company and holds office at 7th Floor, Ramon Cojuangco Bldg., Makati Avenue , Makati City where he may be served with writs and notices of this Honorable Court.

Respondent FE BARIN is the current chair of the Securities and Exchange Commission and holds office at SEC Bldg. EDSA, Greenhills, Mandaluyong City , where she may be served with writs and notices of this Honorable Court .

Respondent FRANCIS LIM is the current president of the Philippine Stock Exchange and holds office at the PSE Bldg., Exchange Road , Ortigas Commercial Center , Pasig City , where he may be served with writs and notices of this Honorable Court.

The last two respondents are impleaded herein on the basis of their failure to require PLDT to make full and public disclosures of foreign ownership, direct and indirect, of shares of stocks of the telecommunications company.

V.

NARRATION OF FACTUAL AND LEGAL ANTECEDENTS

Herein petitioner, as nominal stockholder of PLDT and as taxpayer has sufficient stake and interest on how valuable resources of government are preserved and protected. As advocate of economic nationalism as an alternative economic paradigm for the Philippines , petitioner believes in empowering Filipino businessmen in a playing field of selected enterprises that is circumscribed, defined, and limited by the fundamental law of the land.

The Philippine Long Distance Telephone Company (PLDT) is a Philippine-registered telecommunications firm that was established on November 28, 1928 by an act of the Philippine Legislature. Act 3436 had granted PLDT an initial 50-year charter and the right to establish a telephone network that sought to link major points nationwide. By the 1930s, PLDT had an expansive fixed-line network and, for the first time, linked the Philippines to the outside world through radiophone services that connected the country to the United States and other parts of the world.

In 1967, the American-owned General Telephone and Electronics Corporation (GTE), a major shareholder since PLDT’s incorporation and now part of Verizon, a major U.S. telecommunications firm, sold the controlling equity to a group of Filipino businessmen, led by the late Ramon Cojuangco. Pressed by the 1969 expiration of the Laurel-Langley Agreement, GTE sold 26 percent of PLDT’s equity to Philippine Telecommunications Investment Corporation (PTIC), a firm which serves as the holding firm for the PLDT shares of the Ramon Cojuangco group. PTIC bought the PLDT shares at a 30 percent premium over its then prevailing share price at the New York Stock Exchange, where PLDT is listed until now.

In 1977, the U.S. Securities and Exchange Commission, which has stringent rules on all shares listed in its bourses, had said that then President Ferdinand Marcos had allegedly used corporate layers to conceal financial stake in the ownership of PLDT shares. The first layer was PTIC, the firm which the Cojuangco group had formed to buy PLDT shares from GTE. The Philippine Securities and Exchange Commission had listed the following as PTIC incorporators: Ramon Cojuangco, Imelda Cojuangco, Leonides Virata, Alfonso Yuchengco and Antonio Meer.

The second layer was Prime Holdings Inc., a firm which was formed in 1977 by Rolando Gapud and Jose Campos Jr., the son of Jose Yao Campos of the pharmaceutical giant United Laboratories Inc., or Unilab. Gapud was reputedly the financial expert, whom Marcos reportedly used to manage his financial dealings and organize front corporations for him. Campos, the father, was reputedly a Marcos crony, who later surrendered sizeable Marcos assets to the Philippine government in exchange for immunity from suit. Campos had control of the local pharmaceutical industry and he admitted fronting for Marcos in a number of corporations.

Gapud and the younger Campos formed Prime Holdings as the vehicle for the transfer of 46 percent of the PLDT shares, which the PTIC held. The transfer was consummated in 1977. This is the block of PLDT shares, which was later the subject of government sequestration and long drawn court litigation on the firm belief that they are part of the “ill-gotten wealth” of the Marcoses.

Prime Holdings later became a major PTIC stockholder, controlling 46 percent of PTIC. At that time, the other PTIC stockholders were the Cojuangco family, 42.8 percent; Yuchengco, 7.0 percent; and Meer, 4.2 percent.

In 1986, the Presidential Commission on Good Government (PCGG), through the efforts of its then chair Jovito Salonga, had placed Prime Holdings’ equity, involving 111,415 PTIC shares or 46 percent of PTIC equity, under sequestration. That was immediately done after the ouster of Marcos from power. For still unexplained reasons, the PCGG had spared those PLDT shareholdings of the Cojuangco family, Yuchengco, and Meer.

In 1999, the Hong Kong-based First Pacific Co., Inc, an investment firm owned by the Salim family of Indonesia, had acquired the 54 percent equity of the PITC (those held by the Cojuangco family, Yuchengo, and Meer), thus paving the way for the First Pacific’s control of PLDT. First Pacific paid $875 million for what appeared to be the single largest buyout in the history of Philippine business. First Pacific paid a 20 percent premium over the then prevailing PLDT share price at the Philippine Stock Exchange.

On the other hand, the Prime Holdings-held shares underwent court litigation. At least four entities had emerged as claimants: the Philippine government; the Marcoses, led by former first lady Imelda Marcos (who claimed ownership of the entire PLDT controlling interest and that the Cojuangco group was a mere group of “front men” for the dictator), the Cojuangco family; and the Yuchengco family.

On May 6, 2002, the Sandiganbayan had ruled that the Prime Holdings shares belonged to the Cojuangcos. But in January 20, 2006, the Supreme Court reversed the Sandiganbayan decision, ruling that they are part of the Marcos’s “ill-gotten wealth.” On August 10, 2006, the Supreme Court had dismissed all motions for reconsideration filed by the three claimant-parties and ruled with finality that they have to be forfeited in favor of the Philippine government.

The issue involves 111,415 PTIC shares, which the Philippine government intends to sell to a foreign buyer, which is First Pacific. Since PTIC holds those PLDT shares, what the government is actually but indirectly selling are about 12 million PLDT shares, which have a current combined market value of nearly P30 billion. These shares, equivalent to 6.3 percent of PLDT equity, are to be sold at nearly 20 percent discount or P25,217,556.000, or US$510,580.189.

On November 20, 2006, the interagency Privatization Council announced that a public bidding was to be held on December 4, 2006 on those PTIC shares. Finance Undersecretary John P. Sevilla announced that a winning bidder was to be announced on that date. It was reset on December 8, 2006. On that day, Sevilla announced that Parallax Venture Fund XXVII, a subsidiary of the Singapore-based Parallax Capital Management Fund, won the public bidding after it submitted a bid of P25.6 billion or US$510 million. Incidentally, the undue haste and limited publicity of the public bidding had attracted only two bidders, Parallax and Pan-Asia Presidio Capital, also a Singapore-based investment firm.

The fact that it only took 20 days from the date of announcement to the selection of a winning bidder could be regarded anomalous because public biddings of this magnitude generally take several months or even more than a year. Compared with the public biddings associated with the privatization of the sprawling Fort Bonifacio in Taguig-Makati City area and the waterworks system of then state-owned Metropolitan Waterworks and Sewerage System (MWSS), the public bidding of the PTIC shares only took nearly three weeks. Incidentally, Parallax was reported to be either owned by or related to the Salims, further raising the impression that the public bidding was rigged to favor the Salim-owned and related corporations, especially First Pacific.

Pursuant to its right of first refusal, First Pacific announced that it would match Parallax winning bid and that it was teaming up with Japan ’s NTT DoCoMo, a minority stockholder in PLDT, on a 50-50 basis to cough up P25.6 billion for those PTIC shares. On December 15, both First Pacific and NTT Docomo had issued separate official press statements to confirm their intention to buy those shares (Herewith attached as Annexes B and B-1). But NTT DoCoMo was later reported to have backed out of the deal due to the reported “pricing” and “legal” issues, which it did not disclose publicly. Thus, this leaves First Pacific alone to pursue and buy those 111,415 PTIC shares.

The government, through the Privatization Council, had set February 1, 2007 as deadline for the transaction and, by that date, First Pacific could have completed the payment for those PTIC shares. But First Pacific had failed to raise the money, prompting it to yield the right of first refusal to PTIC itself. This decision has moved the purchase deadline to March 2, 2007.

The move to transfer to PTIC the right to match Parallax’s winning bid has virtually enabled First Pacific to bid for time to raise the money for the purchase of PTIC shares (Photocopies of PLDT disclosure to Philippine Stock Exchange are herewith attached as Annexes C and C-1). Since First Pacific controls PTIC, First Pacific is still the one buying those shares. This is being proven by First Pacific’s announcement that its shareholders – not PTIC or any of its holdings firms – would have to approve the deal to make it official and binding.

The impending sale has caused a public outcry since the indirect sale of PLDT shares would put the government at a loss. PLDT is a very profitable company and it will likely rank as the most profitable firm in 2006 with a possible net income of P33-P35 billion. It could be said that current holders of PLDT shares are not likely to sell their stocks since its share prices at the stock market continue to rise. Thus, PLDT stockholders can only yield their stocks to potential buyers at an acceptable premium. Citing previous two incidents of sellout of PLDT shares as precedents, critics claimed that the block of PLDT shares under PTIC ownership could command a premium of between 20 to 50 percent over their current market price.

Critics have raised the twin issues of valuation and transparency on the impending sale. Critics claimed that the selling price is not only below the prevailing market price, the public bidding was likewise fraught with undue haste, lack of transparency, and irregularity. The failure of the respondents to hire a credible and independent financial advisor was also cited as another issue, since a financial advisor could have advised the respondents on how to attract the widest array of potential bidders to get the best bidding price. Critics further alleged that what the respondents did was “a negotiated sale under the guise of a public bidding.”

Another critic claimed that the failure of the government to dissolve PTIC and get those PLDT shares has virtually tied its hands, leaving it with no choice but to deal with First Pacific. In brief, the government has been dealing with First Pacific, as if everything has been pre-ordained and arranged. This critic also alleged that it was possible that the government respondents opted to deal with First Pacific even at a loss because of bribe money.

But the most serious issue is foreign ownership. The Philippine Constitution of 1987 allows foreigners to own only up to 40 percent of the capital of a local telecommunications firm. Going beyond the 40 percent cap is unconstitutional and, thus, prohibited.

Section 11 of Article XII of the 1987 Constitution says:

“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. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines .” (Emphasis supplied)

If and when the sale is completed, First Pacific’s equity in PLDT will go up from 30.7 percent to 37.0 percent of its common – or voting – stockholdings, which, as herein asserted in this petition, is the basis in determining the maximum allowable foreign capital in a public utility. Hence, the consummation of the sale will put the two largest foreign investors in PLDT – First Pacific and Japan’s NTT DoCoMo, which is the world’s largest wireless telecommunications firm, owning 51.56 percent of PLDT common equity. Notwithstanding the other foreign investors in PLDT, their common equity alone is over and above the 40 percent maximum allowable capital under the 1987 Constitution.

With the completion of the sale, data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those foreign entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDT’s common equity. Incidentally, PLDT has issued as of December 31, 2005, a total of 180,789,003 common shares and 451,589,551 preferred shares.

The following table shows the possible foreign ownership profile after the consummation of the sale:

Table 1: Possible Foreign Ownership of PLDT (1)

Beneficial Owner Nationality Number of Common Percentage

Stockholdings

First Pacific Co. Ltd. (2)
Indonesian
67,552,513 shares
37.00 %

NTT DoCoMo Ltd. (3)
Japanese
25,633,487 shares
13.90 %

J.P. Morgan ( Hong Kong ) Nominees Ltd. (4)
American
29,921,268 shares
16.45 %

FMR Corp. (5)
American
11,674,230 shares
6.37 %

Capital Research & Investment Company (6)
American
14,575,690 shares
7.75 %

TOTAL

149,358,188 shares
81.47 %

Sources: 2006 Form 20-K disclosure reports and

2006 General Statement on Beneficial Ownership

(www.nyse.com)

__________________________________________________

1. In updating foreign ownership of common equity in PLDT, the figures in the General Statement of Beneficial Ownership, also called Schedule 13 D/A report, which First Pacific submitted to the New York Stock Exchange were used. This report lists down all PLDT common shares, which are under the beneficial ownership of First Pacific and its associate and intermediate holdings firms. The latest available Schedule 13 D/A report, which it submitted on January 3, 2006, says First Pacific owns 55,552,513 common shares and this figure includes 3,832,466 American Depositaries (ADs). To this figure, 12 million shares were added.

Also, this list of foreign owners does not include those that own less than 5.0 percent of common equity. Several U.S. investment firms have acquired common stocks, which are less than 5.0 percent of the overall common equity. PLDT itself has been omitting them in their periodic disclosure reports to the NYSE.

2. In its General Statement of Beneficial Ownership, or Schedule 13 D/A report, which First Pacific submitted on Jan. 3, 2006 to the New York Stock Exchange, First Pacific, along with several wholly owned intermediate holdings firms, reported it is the beneficial owner of 55,552,513 common shares, representing 30.7 percent of PLDT common equity. This figure is much higher than what has been reported in the 2006 Form 20-K disclosure report because it includes the American Depositaries (ADs), which First Pacific holds. When the 12 million PLDT shares under PTIC are added, the total will reach 67,552,513 shares or 37.66 percent of PLDT common equity.

3. Half of those PLDT common shares were listed under the name of NTT Communications before they were transferred to NTT DoCoMo only last December.

4. J.P Morgan( Hong Kong ) Nominees Ltd. is the holder of those common stocks held by various foreign entities.

5. FMR Corp., a U.S.-based investment firm, reported last February 14 to have acquired 2,573,349 common shares to raise its common equity holdings to the current level.

6. Capital Research and Investment Company, also a U.S.-based investment firm, made a disclosure of this acquisition to NYSE last Feb. 6.

As this petition herein stated, the constitutionally mandated limit on foreign ownership of a public utility, specifically PLDT, has been breached and violated even before this issue of foreign ownership has been brought to the attention of this Honorable Court or any other forum. This is not without basis though, as the annual disclosure reports, also referred to as Form 20-K reports and which are available in the NYSE’s official website (www.nyse.com), which PLDT submitted to the New York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities have breached the constitutional limit of 40 percent foreign ownership as early as 2003. Indeed, these disclosure reports showed that foreign ownership of the common equity in the country’s largest telecommunications firm hovered at 60 percent for the period 2003-2005.

Why this violation of foreign ownership in PLDT has happened – and is still happening – with impunity is anybody’s guess. But it appears that this breaching is mainly a function of a mistaken interpretation of Section 11, Article 12 of the 1987 Constitution. As asserted in this petition, the aforementioned constitutional provision allows foreign ownership in a public utility like PLDT to only 40 percent of common equity. But foreigners, however, can still own in excess of 40 percent of the common equity provided that such excess will cover preferred stocks. Under no circumstance shall a foreigner own more than 40 percent of the common equity of a public utility.

The following table shows the details:

Table 2: Foreign Ownership for period 2003-2005 (1)

Beneficial Nationality Common Percent Common Percent Common Percent

Owner shares shares shares

held in held in held in

2003 2004 2005

First Pacific (2)
Indonesian
53,238,376
31.43%
53,238,379
31.41%
53,238,379
31.19%

NTT Communications (3)
Japanese
25,266,971
14.92%
25,266,971
14.91%
25,266,971
14.81%

NTT DoCoMo
Japanese
Added to NTT Com

Added to NTT Com

Added to NTT Com

J.P. Morgan HK Nominees Ltd. (4)
American

25,000,119
14.75%
22,048,327
12.92%

Chase Manhattan HK Nominees Ltd.
American
27,040,020
15.96%

TOTAL

105,545,367
62.31%
103,505,469
61.07%
100,553,677
58.92%

Source: Form 20-K disclosure reports for 2003-2005

(www.nyse.com)

__________________________________________________

1. As part of the requirements for the listing and trading of its shares in the U.S. bourses, PLDT has been submitting to the U.S. Securities and Exchange Commission and New York Stock Exchange (NYSE) periodic disclosure reports, which cover a wide range of its operational and financial developments and updates. These disclosure reports are so systematic and exhaustive to the point that they contain a number of operational and financial details, which are not normally disclosed to the Philippine Securities and Exchange Commission and the Philippine Stock Exchange (PSE), where PLDT shares are also listed and actively traded.

One of the requirements is the submission of the annual disclosure report called Form 20-K.This is more than the annual report, which PLDT submits to its local stockholders. In fact, a single Form 20-K report submitted by PLDT has more than 300 pages of reportage ranging from practically every aspect of its operations. The failure of a listed company to comply with this stringent requirement is dealt with sanction that ranges from fines and suspension to outright delisting and ejection from the NYSE.

The submission of Form 20-K reports appeared to have started only in 2003. This was the year the U.S. Securities and Exchange Commission has adopted a new set of generally accepted accounting principles (GAAP), which is different to the Philippines ’. The available reports, which PLDT submitted during the years preceding 2003, were also examined but they did not contain details that were as exhaustive as those submitted in 2003 and beyond.

2. In 2003 and 2004, PLDT submitted a list, which named First Pacific as the beneficial owner of those shares. But in 2005, PLDT broke down First Pacific ownership into those shares owned by its intermediate holding firms, Philippine Telecommunications Investment Corporation and Metro Pacific Resources. Curiously, PLDT described these intermediate holdings firms as Filipinos.

3. Those shares used to be owned 50-50 by NTT Communications and NTT DoCoMo. But for the purpose of discussion, they were all placed under NTT Communications. Incidentally, all shares owned by NTT Communications were placed under NTT DoCoMo’s name only last December.

4. J.P Morgan was named as the nominee bank of other foreign investors in 2004, replacing Chase Manhattan Bank.

Parenthetically, the SEC and PSE, by following limited and superficial disclosure policy, do not require PLDT to make a full disclosure of beneficial ownership so essential for the protection of the constitutional limit on foreign ownership of capital of public utilities.

The basic classification of capital stock is common and preferred shares. As defined By Batas Pambansa Blg. 68, also known as the Corporation Code of the Philippines, common stocks do not have any special contract rights or preferences, but they confer voting rights to their holders. They are usually the bases of taking control and active management of a corporation.

On the other hand, a preferred stock is one “which entitles the holder thereof to certain preferences over the holders of common stock…designed to induce persons to subscribe for shares of corporations. The most common forms of which may be classified into two: (a) preferred shares as to assets; and (b) preferred shares as to dividends. Preferred shares as to assets give the holder the preference in the distribution of the assets of the corporation in case of liquidation. Preferred shares as to dividends gives the holder the right to receive dividends on said shares to the extent agreed upon before any dividends at all are paid to the holders of common stock” (Republic Planters Bank v. Agana 269 SCRA 1, 1997).

Even PLDT subscribes to this basic definition, when it has described in its Form 20-F disclosure report that it submitted to the New York Stock Exchange on June 29, 2006 the very nature of the PLDT common stock in the following words:

“Set out below is a statement of the dividend, voting, pre-emption and other rights of the holders of Common Stock as set out in the Articles of Incorporation and/or By-Laws of PLDT:

“(a) After the requirements with respect to preferential dividends on the serial Preferred Stock shall have been met and after PLDT shall have complied with all the requirements, if any, with respect to the setting aside of sums as purchase, retirement or sinking funds, the holders of the Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor.

“(b) After distribution in full of the preferential amounts to be distributed to the holders of serial Preferred Stock in the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of PLDT, the holders of Common Stock shall be entitled to receive all the remaining assets of PLDT of whatever kind available for distribution to stockholders ratably in proportion to the number of Common Stock held by them, respectively.

“(c) Except as may be otherwise required by law, or by the Articles of Incorporation of PLDT, each holder of Common Stock shall have one vote in respect of each share of such stock held by him on all matters to be voted upon by the stockholders, and the holders of Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes. At every election of directors, a holder of Common Stock is entitled to vote such shares of Common Stock held by him for as many persons as there are directors to be elected, or to cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or to distribute such votes on the same principle among as many candidates as he shall think fit. (Emphasis supplied)

“In addition to the foregoing rights, the Corporation Code provides for other stockholders’ rights generally. These include:

“(a) Appraisal right or the right of a dissenting stockholder to demand payment of the fair value of his shares of stock in the following instances: (a) in case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholders or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence; (b) in case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets of the corporation; (c) in case of merger or consolidation; and (d) in case of investment of funds of the corporation in any other corporation or business or for any purpose other than the primary purpose for which it was organized, except where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in its articles of incorporation.

“(b) The right to approve certain corporate acts, such as: (a) election of directors; (b) removal of directors; (c) extension or shortening of the corporate term; (d) increase or decrease of capital stock, and incurring, creating or increasing bonded indebtedness; (e) sale or other disposition of all or substantially all of the corporate assets; (f) investment of corporate funds in any other corporation or business or for any purpose other than the primary purpose for which it was organized except where the investment is reasonably necessary to accomplish its primary purpose as stated in the corporation’s articles of incorporation; (g) declaration of stock dividend; (h) entering into a management contract with another corporation; (i) plan of merger or consolidation; and (j) voluntary dissolution of the corporation by shortening the corporate term.

“(c) The right to inspect at reasonable hours on business days the records of all business transactions of the corporation and the minutes of any meeting; however, the stockholders’ right to inspect corporate records and books is not an absolute right so that the corporation may deny said right on the basis of impropriety of the purpose or motive of the stockholder.

“(d) The right to be furnished the most recent financial statements of the corporation, within ten days from receipt by the corporation of a written request from a stockholder. The same right exists at the annual meeting of stockholders at which the Board of Directors must present to the stockholders a financial report of the operations of the corporation for the preceding year which shall include financial statements duly signed and certified by an independent certified public accountant.”

The same disclosure report has described a PLDT preferred stock in the following words:

“Preferred Stock may be issued from time to time in one or more series as the Board of Directors may determine. The Board of Directors is authorized to establish and designate the title and number of shares of each series and to fix the terms thereof, including dividend rate, redemption and sinking fund provisions, conversion rights and the amount to be received upon liquidation, provided that the amounts payable upon redemption or liquidation may not be more than 110%, nor less than 100%, of par value, plus in each such case accrued and unpaid dividends. Except as otherwise provided by law, the holders of Preferred Stock are not entitled to vote for the election of directors or for any other purpose; provided, however, that PLDT may not change the rights of the holders of any series of Preferred Stock in any manner prejudicial to the holders thereof without the affirmative vote of the holders of a majority of the shares of such series. No such approval is needed to increase the number of shares of Preferred Stock (up to the number from time to time authorized by the Articles) or to authorize classes of shares ranking on parity with the Preferred Stock.” (Emphasis supplied)

In a fitting display of enterprise reporting, the Malaya newspaper had published a series of articles in September and October, 2006 to say that foreign ownership of PLDT has exceeded the constitutional limit of 40 percent of capital of a public utility firm. In its September 13, 2006 issue, a Malaya front page story, under the byline of its publisher Amado “Jake” Macasaet (a photocopy of which is herewith attached as Annex D), started with this lead paragraph: “Foreign investors, with obvious impunity, are violating the Constitution and the law by having more than 60 percent control of [PLDT].”

The article refers to the foreign ownership of PLDT common shares, not the preferred shares or a combination thereof of the two kinds of shares. As herein stated and asserted in this petition, the ownership of common shares is the basis in the computation of the constitutionally mandated maximum allowable 40 percent foreign capital in a public utility firm. This is because ownership of common equity confers voting rights for the control and management of a public utility, the operations of which are vital to the national security and well-being of the nation. Incidentally, Malaya based its series of enterprise reports on the Form 20-K disclosure report to the New York Stock Exchange, which PLDT submitted on June 29, 2006.

The abovementioned Form 20-K report, a copy of which is readily available in the NYSE official website (www.nyse.com), disclosed the following details and Item 7 that covers the major stockholders of PLDT is being quoted in its entirety including the table and footnotes, for purposes of precision and clarity:

“Item 7. Major Shareholders and Related Party Transactions

“The following table sets forth information regarding ownership of shares of PLDT’s common stock as at May 31, 2006 of all shareholders known to us to beneficially own 5% or more of PLDT shares of common stock. All shares of PLDT’s common stock have one vote per share.

Name of Beneficial Owner
Name and Address of Record Owner and Relationship with Issuer
Citizenship
Title of Class
Number of Shares Held
% of Class

First Pacific(3)
Philippine Telecommunications Investment Corp.(1)
12/F Ramon Cojuangco
Philippine
Common
26,034,263
14.32

24/F Two Exchange Square
8 Connaught Place, Central,

Hong Kong
Building, Makati Avenue , Makati City
Corporation

Metro Pacific Resources, Inc.(2)
Philippine
Common
17,112,534
9.41

c/o Corporate Secretary
Corporation

18th Floor Liberty Center

104 H.V. Dela Costa St.

Salcedo Village , Makati City

PCD Nominee Corporation(4)
See Footnote 4 below
Philippine
Common
72,125,189
39.66

G/F MSE Building

6767 Ayala Avenue, Makati City

Corporation

FMR Corp.(5)
See Footnote 5 below
U.S.
Common
9,100,890
5.00

82 Devonshire Street

Corporation

Boston, Massachusetts 02109

NTT Communications(6)
Same as Record Owner
Japanese
Common
12,633,487
6.95

1-1-6 Uchisaiwai-Cho

I-Chome, Chiyoda-ku

Tokyo 100-8019, Japan

Corporation

NTT DoCoMo, Inc.(7)
Same as Record Owner
Japanese
Common
12,633,486
6.95

41st Floor, Sanno Park Tower

Corporation

2-11-1 Nagata-cho

Chiyoda-ku, Tokyo 100-6150

Japan

J. P. Morgan ( Hong Kong ) Nominees Limited(8)
See Footnote 8 below
HongKong
Corporation
Common
29,921,268
16.45

20/F Chater House

8 Connaught Place, Central, Hong Kong

Social Security System(9)
Same as Record Owner
Philippine
Common
12,125,009
6.67

East Avenue, Diliman, Quezon City

Corporation

“(1) Pursuant to a resolution adopted by the Board of Directors of Philippine Telecommunications Investment Corporation, or PTIC, a copy of which had been furnished to PLDT, the President of PTIC, Mr. Manuel V. Pangilinan, has the continuing authority to represent PTIC at any and all meetings of the stockholders of a corporation in which PTIC owns of record or beneficially any shares of stock or other voting security, and to sign and deliver, in favor of any person he may deem fit, a proxy or other power of attorney, with full power of delegation and substitution, authorizing his designated proxy or attorney-in-fact to vote any and all shares of stock and other voting securities owned of record or beneficially by PTIC at any and all meetings of the stockholders of the corporation issuing such shares of stock or voting securities.

“(2) Based on the resolutions of the Board of Directors of Metro Pacific Resources, Inc., or MPRI, copies of which had been furnished to PLDT, Mr. Manuel V. Pangilinan has been appointed as proxy or duly authorized representative of MPRI to represent and vote the PLDT common shares of MPRI in the Annual Meeting of Stockholders of PLDT.

“(3) First Pacific has a 24.76% economic interest and 31.36% voting interest in PLDT based on the PLDT common shareholdings of the intermediate holding companies PTIC, MPRI, Larouge B.V. (which holds 8,479,805 shares of PLDT common stock lodged with the Philippine Depository and Trust Co.) and Semilion Enterprises, Inc. (which holds ADRs evidencing ADSs representing 5,408,346 shares of PLDT common stock).

“(4) Registered owner of shares held by participants in the Philippine Depositary and Trust, Co., or PDTC, a private company organized to implement an automated book entry system of handling securities transactions in the Philippines . Under the PDTC procedures, when an issuer of a PDTC-eligible issue will hold a stockholders’ meeting, the PDTC shall execute a pro-forma proxy in favor of its participants for the total number of shares in their respective principal securities account as well as for the total number of shares in their client securities account. For the shares held in the principal securities account, the participant concerned is appointed as proxy with full voting rights and powers as registered owner of such shares. For the shares held in the client securities account, the participant concerned is appointed as proxy, with the obligation to constitute a sub-proxy in favor of its clients with full voting and other rights for the number of shares beneficially owned by such clients. Based on the information provided by PDTC to PLDT, none of the owners of the PLDT common shares registered under the name of PCD Nominee Corporation, or PCD, owns more than 5% of PLDT’s outstanding common stock as at May 31, 2006, except The Hongkong and Shanghai Banking Corporation, or HSBC, and Standard Chartered Bank which own approximately 18.81% and 5.88%, respectively, of PLDT’s outstanding common stock as at May 31, 2006. The Company has no knowledge if any beneficial owner of the shares under the HSBC Clients account and Standard Chartered Bank own more than 5% of PLDT’s outstanding common stock as at May 31, 2006.

“PCD account also includes 7,100,220 shares beneficially owned by the Social Security System, 8,479,805 shares beneficially owned by Larouge B.V., and 9,100,890 shares beneficially owned by FMR Corp., or FMR. Please refer to footnotes 3, 5 and 9.

“(5) According to the Schedule 13G of FMR filed with the Securities and Exchange Commission on February 14, 2006, FMR, through subsidiaries, beneficially owned 9,847,130 shares of PLDT’s common stock as of December 31, 2005. According to this Schedule 13G, some or all of these shares of PLDT’s common stock may include shares of common stock represented by ADSs. According to subsequent filings of FMR with the Philippine SEC, FMR, through subsidiaries, beneficially owned 9,100,890 shares of PLDT’s common stock as of June 16, 2006.

“(6) Based on publicly available information, NTT Communications is a wholly-owned subsidiary of NTT. Based on a certification signed by a duly authorized officer of NTT Communications, a copy of which had been furnished to PLDT, Mr. Kenji Sato is authorized to execute for and on behalf of NTT Communications, endorsements, transfers and other matters relating to the PLDT shares of common stock held by NTT Communications. On March 14, 2006, NTT Communications transferred to DoCoMo approximately 12.6 million shares of PLDT’s common stock, representing approximately 7% of PLDT’s outstanding shares of common stock, pursuant to the Stock Sale and Purchase Agreement dated January 31, 2006 between NTT Communications and DoCoMo.

“(7) DoCoMo completed the acquisition of 12,633,486 shares of PLDT common stock from NTT Communications on March 14, 2006. Based on publicly available information, DoCoMo is a majority-owned and publicly traded subsidiary of NTT. Based on a certification signed by a duly authorized officer of DoCoMo, a copy of which had been furnished to PLDT, Mr. Toshinari Kunieda or Mr. Matsuo Yamamoto, is authorized to execute for and on behalf of DoCoMo, endorsements, transfers and other matters relating to the PLDT shares of common stock held by DoCoMo.

“(8) Holds shares as nominee of JPMorgan Chase Bank, successor depositary under the Common Stock Deposit Agreement, dated October 14, 1994, as amended on February 10, 2003, between JPMorgan Chase Bank and the holders of ADRs evidencing ADSs representing shares of common stock of the Company (the “Deposit Agreement.”) Under the Deposit Agreement, if the depositary does not receive voting instructions from a holder of ADRs, such holder will be deemed to have instructed the depositary to provide a discretionary proxy to a person designated by PLDT for the purpose of exercising the voting rights pertaining to the shares of common stock represented by such holder of ADRs, except that no discretionary proxy will be given with respect to any matter as to which substantial opposition exists or which materially and adversely affects the rights of the holders of such ADRs. This account includes shares underlying the ADSs beneficially owned by FMR. This also includes 5,408,346 shares of common stock underlying the ADSs owned by Semilion Enterprises, Inc. Please refer to footnote 3.

“(9) Consists of 5,024,789 shares registered in the name of the Social Security System and 7,100,220 shares held of record by PCD Nominee Corporation. Ms. Corazon S. de la Paz, as President and Chief Executive Officer of the Social Security System, may exercise the voting rights in respect of these shares.”

On the basis of the 2006 Form 20-K disclosure report, the following table represents foreign ownership of PLDT as of May 31, 2006:

Table 3: Foreign Ownership of PLDT as of May 31, in 2006

Beneficial Nationality Number of common Percentage

Owner shares held

First Pacific (1)
Indonesian
43,146,797
23.72%

NTT Communications (2)
Japanese
12,633,487
6.95%

NTT DoCoMo
Japanese
12,633,486
6.95%

FMR Corp.
American
9,100,890
5.00%

J.P. Morgan ( Hong Kong ) Nominees Ltd.
American
29,921,268
16.54%

TOTAL

107,435,928
59.16%

Source: 2006 Form 20-K PLDT Disclosure Report

(www.nyse.com)

__________________________________________________

1. The disclosure report broke down First Pacific-held common shares into those common shares that were registered under the names of Philippine Telecommunications Investment Corporation and Metro Pacific Resources, Inc., two Philippine-registered intermediate holding firms of First Pacific.

2. These shares were transferred to the name of NTT DoCoMo only last December.

The annual Form 20-K disclosure report is not the only basis in determining the foreign ownership of PLDT. The telecommunications giant also submits periodic statements on the beneficial ownership of PLDT. This is called the General Statement of Beneficial Ownership, or the Schedule 13 D/ report. This is submitted separately to the U.S. Securities and Exchange Commission and the New York Stock Exchange. PLDT submits its Form 20-K report, but, in a Schedule 13 D/A report, the beneficial owner is the one that submits a report of the shares it holds and beneficially owns in a listed firm in NYSE. Like the Form 20-K reports, the Schedule 13/D report is readily available in the NYSE official website (www.nyse.com).

In the General Statement of Beneficial Ownership, or Schedule 13 D/A report, which was submitted on January 3, 2006, First Pacific and its associate and intermediate holdings firms have admitted that they are the beneficial owners of a total of 55,552,513 common stocks, including 3,822,466 American Depositaries (ADs), to represent 30.7 percent of PLDT’s common equity. This aforementioned report revealed what appeared to be an intricate corporate layering of the beneficial ownership of PLDT common equity.

The General Statement of Beneficial Ownership, or Schedule 13 D/A report somewhat differs from the Form 20-K report; the former gives a bigger universe of ownership of PLDT common stocks since it includes the ownership of those offshore PLDT common stocks, which are called American Depositaries (ADs). These common stocks are first converted into ADs and traded. Each AD is equivalent to one PLDT common stock.

The 2006 Schedule 13 D/A report, a copy of which is available in the NYSE official website (www.nyse.com), lists the following associate and intermediate holdings firms as holders of PLDT common shares:

1. Holland Pacific N.V., registered in Netherland Antilles, Intalink B.V., registered in the Netherlands, and La Rouge B.V., registered in the Netherlands, jointly own 8,573,250 common shares, representing 4.7 percent of common equity.

2. Metro Pacific Holdings Inc., Metro Pacific Resources Inc., and Metro Pacific Asset Holdings Inc., all Philippine-registered, jointly own 43,146,797 common shares, representing 23.9 percent of common equity. Metro Pacific Investments Ltd., registered in Cayman Islands , is listed as one of the intermediate holdings firms but it was reported to own zero PLDT common stock.

3. Philippine Telecommunications Investment Inc. and Enterprise Investments Holdings Inc., both Philippine-registered, jointly own 43,146,797 common shares, representing 23.9 percent of the common equity.

4. Semilion Enterprises Inc. and Osbert Limited, both registered in the British Virgin Islands, jointly own 3,832,466 ADs, representing 2.1 percent of common equity.

Judging from the aforementioned Schedule 13 D/A report, Metro Pacific Holdings Inc., Metro Pacific Resources Inc., Metro Pacific Asset Holdings Inc., Philippine Telecommunications Investment Inc. and Enterprise Investments Holdings Inc., all Philippine-registered holdings firms, hold the same set of PLDT common shares. The report however did not mention as to which of them were the holdings firms that serve as front companies for First Pacific. Neither did the report mention which firms serve as intermediate holdings firms, which means they own the holdings firms that own those PLDT common shares. In its convoluted world of corporate layering, First Pacific has made it difficult to determine which are the associate or front holdings firms and the intermediate holdings firms. The distinction is not that obvious.

The aforementioned report showed that PLDT did not report in its Form 20-K disclosure reports those PLDT common shares and American Depositaries (ADs) owned by other First Pacific’s associate and intermediate holdings firms, which include the following: Holland Pacific N.V., Intalink B.V., La Rouge B.V., Semilion Enterprises Inc., and Osbert Limited.

Incidentally, the same report said that each of these First Pacific’s associate and intermediate holdings firms has First Pacific managing director and concurrent PLDT chair Manuel Pangilinan as either its managing director or director. First Pacific chair Anthoni Salim is listed as a director in La Rouge B.V., Enterprise Investments Holdings, Metro Pacific Holdings Inc., Metro Pacific Resources Inc. and Metro Pacific Asset Holdings, Inc.

The September 13, 2006 Malaya article said the distribution of board seats appears proportional to the PLDT foreign equity. Malaya said that although the number of board seats was raised to 13 from nine, NTT has two seats and First Pacific has six seats for a total of eight seats, which is equivalent to the 60 percent of foreign holdings. In short, nominees of foreigner equity holders control the PLDT board to confirm foreign domination of the country’s largest telecommunications firm. PLDT had corroborated this report through its official website (www.pldt.com.ph)

For its part, PLDT, speaking through the law firm, Sycip, Salazar, and Gatmaitan, virtually confirmed the earlier Malaya report that foreign shareholdings have exceeded the 40 percent limit imposed by the 1987 Constitution. In a report published on the front page of the Sept. 15, 2006 issue of the Malaya newspaper (a photocopy of the PLDT disclosure report is herewith attached as Annex E), PLDT likewise confirmed the earlier Malaya report that foreign shareholdings in PLDT has reached 61.8 percent of the outstanding common stocks as of April, 2006.

What this admission proves is that PLDT has been in violation of the Philippine Constitution of 1987.

VI.

GROUNDS FOR THE ALLOWANCE OF THIS PETITION

A. THE CONSUMMATION OF THE IMPENDING SALE OF 111,415 PTIC SHARES TO FIRST PACIFIC IS A WANTON, BRAZEN AND OUTRIGHT VIOLATION OF THE CONSTITUTIONAL LIMITATION ON FOREIGN OWNERSHIP OF A PUBLIC UTILITY FIRM.

B. THE RESPONDENTS HAVE COMMITTED A GRAVE ABUSE OF DISCRETION BY ALLOWING AND INITIATING THE SALE OF PTIC SHARES TO FIRST PACIFIC, WHEN THEY KNOW THAT THE SALE IS VIOLATIVE OF THE PHILIPPINE CONSTITUTION OF 1987;

C. THE RESPONDENTS HAVE MADE A COMPLETE MISREPRESENTATION OF THE IMPENDING SALE , WHEN THEY HAVE KEPT ON SAYING THAT IT DOES NOT BREACH THE CONSTITUTIONAL REQUIREMENT ON FOREIGN OWNERSHIP OF A DOMESTIC PUBLIC UTILITY FIRM.

D. THAT THE SALE(S) OF COMMON SHARES TO FOREIGNERS IN EXCESS OF 40 PERCENT OF THE ENTIRE SUBSCRIBED COMMON CAPITAL STOCK ARE ALL IN VIOLATION OF THE PHILIPPINE CONSTITUTION OF 1987.

VII

DISCUSSION

The Philippine Constitution of 1987 is explicit on the magnitude and extent of foreign ownership in a domestic public utility firm. To their credit, the framers of the 1987 Constitution took every possible move to make sure that foreign investors could not own more than 40 percent of the capital, which, as hereby asserted in this petition, refers to common – or voting – equity of a public utility firm and not a combination of common and preferred shares, which the PLDT external counsel claimed. This constitutional limitation seeks to prevent foreign stockholders from controlling and owning local public utility firms. This is also to protect the Filipino public and businessmen from foreign incursions and market abuses.

Nothing could more lucidly establish the intent that foreign entities cannot own more than 40 percent of the common equity but the actual deliberations of the 1986 Constitutional Commission. A revisit to the deliberations is imperative because of the tendency of some quarters, including PLDT, to claim that the basis to determine foreign ownership in a public utility is the combined number of preferred and common stocks. This is absolutely false.

During the deliberations of the 1986 Constitutional Commission on those provisions related to the National Economy and Patrimony, the Con-Com members discussed the meaning and extent of allowable foreign equity participation in, among others, public utilities. The deliberations on 22 August 1986 are particularly pertinent, to wit:

“CONSIDERATION OF

“PROPOSED RESOLUTION NO. 496

“(Article on the National Economy and Patrimony)

“Continuation

“PERIOD OF AMENDMENTS

xxx xxx xxx

“THE PRESIDENT The session is resumed.

“The Floor Leader is recognized.

“MR. RAMA: Madam President, I ask that Commissioner Nolledo be recognized first.

“THE PRESIDENT: Commissioner Nolledo is recognized.

“MR. NOLLEDO: Thank you, Madam President.

“I would like to propound some questions to the chairman and members of the committee. I have here a copy of the approved provisions on the Article on the National Economy and Patrimony. On page 2, the first two lines are with respect to the Filipino and foreign equity and I said: ‘At least sixty percent of whose capital or controlling interest is owned by such citizens.’

“I notice that this provision was amended by Commissioner Davide by changing ‘voting stocks’ to ‘CAPITAL,’ but I still notice that there appears the term ‘controlling interest’ which seems to refer to associations other than corporations and it is merely 50 percent plus one percent which is less than 60 percent. Besides, the wordings may indicate that the 60 percent may be based not only on capital but also on controlling interest; it could mean 60 percent or 51 percent.

“Before I propound the final question, I would like to make a comment in relation to Section 15 since they are related to each other. I notice that in Section 15, there still appears the phrase ‘voting stock or controlling interest.’ The term ‘voting stocks’ as the basis of the Filipino equity means that if 60 percent of the voting stocks should belong to Filipinos, foreigners may own more than 40 percent of the capital as long as the 40 percent or the excess thereof will cover nonvoting stock. This is aside from the fact that under the Corporation Code, even nonvoting shares can vote on certain instances. Control over investments may cover aspects of management and participation in the fruits of production or exploitation.

“So, I hope the committee will consider favorably my recommendation that instead of using ‘controlling interests,’ we just use ‘CAPITAL’ uniformly in cases where foreign equity is permitted by law, because the purpose is to really help the Filipinos in the exploitation of natural resources and in the operation of public utilities. I know the committee, at its own instance, can make the amendment.

“What does the committee say?

“MR. VILLEGAS: We completely agree with the Commissioner’s views. Actually, it was really an oversight. We did decide on the word ‘CAPITAL.’ I think it was the opinion of the majority that the phrase ‘controlling interest’ is ambiguous.

“So, we do accept the Commissioner’s proposal to eliminate the phrase ‘or controlling interest’ in all the provisions that talk about foreign participation.

“MR. NOLLEDO: Not only in Section 3, but also with respect to Section 15.

“Thank you very much. (Emphasis supplied)

XXX

On the basis of the foregoing deliberations, the following conclusions could be deduced:

1. Foreigners can only own up to 40 percent of the voting stocks, which are common shares as defined by the Batas Pambansa Bldg 68, also known as the Corporation Code. There is no way for them to own more than 40 percent of the common or voting stocks, as the framers of the 1987 Constitution were absolutely explicit on this constitutional intent. In brief, the 40 percent cap applies only on voting stocks.

2. Foreigners, however, can own in excess of the 40 percent cap on common or voting stocks provided that such excess will cover preferred or non-voting stocks. This is to allow foreigners to invest and reap the benefits of their investments in the country

3. Active management and control of a public utility shall remain only in the hands of Filipino entrepreneurs. This is to provide the Filipinos the greatest latitude to run public utilities. This is what Section 11, Article XII of the Philippine Constitution mandates when it provides: “The participation of foreign investor in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital and that all the executives and managing officers of such corporation or association must be citizens of the Philippines .”

The governing body of a corporation is its board of directors.

4. The phrase “voting stocks” as the basis in determining foreign ownership was not in any way rejected, but it was simply substituted by the phrase “capital” to avoid the impression that the purpose of the provision is only for voting purposes.

5. The Constitutional Commission did not in any way say or mean – either explicit or implicit – that the basis to determine foreign ownership in a public utility will be the combined common and preferred shares. There was no reference whatsoever to this preposterous claim.

To reiterate, the reason for changing the term “controlling interest” to “capital” is to allow foreign investors to own 40 percent or the excess thereof of non-voting stocks. It was never the intention of the framers of the Constitution, in making the amendment, to allow foreign investors to own more than 40 percent of the voting stocks. To interpret otherwise would be a circumvention of the very protection, which the framers of the Constitution intended to provide.

Public utilities are “organizations for public service, or more commonly private and public organizations with public character.” Consistent with this legal definition, the Supreme Court said: “The business and operations