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Scrutinizing the ABS-CBN PDR issue

“It very difficult to believe that those foreign investors do not have a say in the management of the broadcast network.

Victor Avecilla

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The 1935 Constitution had no provision prohibiting aliens from owning and managing mass media in the Philippines. As a result, at least two television networks in the country were owned and managed by foreigners.

All that changed when the 1973 Constitution provided that ownership and management of mass media in the country shall be limited to citizens of the Philippines or to corporations or associations wholly owned and managed by such citizens.

That prohibition continues through Section 11, Article XVI of the 1987 Constitution which mandates that “the ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such citizens.”

As everyone knows by now, Solicitor General Jose Calida filed a petition for quo warranto in the Supreme Court seeking the cancellation of the legislative franchise of the ABS-CBN broadcast network.

Calida asserts that ABS-CBN violated the constitutional ban against alien ownership and management of mass media in the country by allowing aliens to buy rights of ownership and management in ABS-CBN through so-called Philippine Depositary Receipts (PDR).

The documentary trail starts with the ABS-CBN Holdings Corporation, which owns shares of stock of ABS-CBN. With prior clearance from the Securities and Exchange Commission (SEC), ABS-CBN Holdings Corporation sold PDR to foreign investors, who eventually get a proportionate share of the profits realized by the ABS-CBN broadcast network.

Calida argues that the PDR arrangement is tantamount to allowing foreigners to own the ABS-CBN broadcast network, through a clever, elaborate and layered investment scheme by an obviously affiliated holdings company — which violates the constitutional ban against alien ownership of mass media in the Philippines.

From what ABS-CBN says, however, the aliens who own the PDR sold by ABS-CBN Holdings Corporation do not own the ABS-CBN broadcast network, and that the sale of the PDR was authorized by the SEC.

Actually, the issue is all about the legal nature of the PDR sold to aliens by ABS-CBN Holdings Corporation.

Under Philippine law, the owners of the shares of stock of a corporation are the owners of the corporation. Although the PDR sold to foreign investors by ABS-CBN Holdings Corporation are not shares of stock, they are nonetheless investments in ABS-CBN Holdings Corporation and, ultimately, in the ABS-CBN broadcast network, because the foreign investors receive their proportionate shares in the profits earned from the operations of the ABS-CBN broadcast network.

That arrangement is essentially no different from a stockholder receiving dividends for his investment in a corporation.

Evidently, the foreign investors who bought PDR from ABS-CBN Holdings Corporation are essentially stockholders of the ABS-CBN broadcast network because, by reason of their PDR, they will be paid dividends for buying those PDR, and those dividends inevitably emanate from, among others, the profits realized by the ABS-CBN broadcast network.

It is also worth emphasizing that receiving dividends is a right arising from one’s ownership of a corporation.

From the foregoing observations, Calida is correct in asserting that the ABS-CBN broadcast network violated the Constitution by allowing aliens to exercise rights of ownership in the broadcast network.

Even if the purchase of the PDR were made to appear as a loan, the arrangement still suffers from constitutional infirmity.

No person in his right mind will lend money, especially big money, to a business enterprise, without demanding a say in the management of that enterprise. A creditor’s desire for a say in the management of a corporation becomes more pronounced when that corporation is merely a holding corporation, like ABS-CBN Holdings Corporation, which means that the corporation’s business is investing in other affiliated corporations.

At any rate, jurisprudence posits that what may not be done directly, cannot be done indirectly.

Assuming, therefore, that foreign investors who bought PDR from ABS-CBN Holdings Corporation merely “lent” their money to a holdings corporation that owns part of the ABS-CBN broadcast network, it is very difficult to believe that those foreign investors do not have a say in the management of the broadcast network.

Thus, Calida should consider arguing likewise that the ABS-CBN broadcast network violated the Constitution by allowing aliens a management role in the broadcast network.

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