The implications of the “test” case, as former Senate President Juan Ponce Enrile termed it, which is the use of Philippine Depository Receipts (PDR) to acquire foreign capital, may go beyond the media sector and even encompass utility firms that are limited to 40 percent non-Filipino ownership under the Constitution.
Solicitor General (SolGen) Jose Calida has filed a quo warranto case before the Supreme Court (SC) against television giant ABS-CBN, which, if favored by the High Court, would invalidate its existing franchise.
Enrile, who is a top-notch corporate lawyer, among other attributes of the political legend, said the SC ruling in favor of Calida could be “lethal” even to other media outlets having PDR owned by foreigners.
On the same token, the biggest utility firms in the country have resorted to issuing PDR to go around the foreign ownership restrictions.
Enrile told Daily Tribune in a recent interview that the quo warranto petition versus ABS-CBN will have a wide impact if favored by the SC since it will establish a precedent.
Article XVI, Section 11 of the 1987 Constitution provided, “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.”
In media, three major entities — ABS-CBN, GMA and Rappler — are known to have PDR issued to foreign investors.
The financial instrument was copied from the American Depository Receipt, which has been in use since the 1920s, which are negotiable and transferable certificates with an underlying security, usually a stock certificate. In the case of media companies, which are restricted under the Constitution to be exclusively owned by Filipinos, foreign PDR holders have no option but to encash their certificates.
Under the definition of the Philippine Stock Exchange, a PDR “is a security which grants the holder the right to the delivery of sale of the underlying share.” PDR are not evidence or statements nor certificates of ownership of a corporation.
The Securities and Exchange Commission (SEC) regarding the ownership question on online news outfit Rappler Inc. (RI) and Rappler Holdings (RH) found both violated the constitutional limits on foreign ownership in media.
The Omidyar PDR were declared null and void as a result despite their earlier acceptance as a financial instrument and the certificates of registration of RI and RH were both revoked for selling control to foreigners.
Calida, for his part, argued that the use of PDR is not only prohibited by the Constitution, but a “criminal liability is also imposed on those who violate foreign equity restrictions and evade nationalization laws of the Philippines through various modes of proxy arrangement, making it appear as legal, but the entirety of the arrangement is to accomplish a transaction not allowed under Philippine laws.”
Enrile, who is a lawyer and a former Justice secretary, supported Calida’s stand that the use of PDR by ABS-CBN is unlawful, stressing the constitutional prohibition for foreigners to own any stake in media companies.
“It is a violation of the Constitution. Under the Constitution, all media outlets must be wholly, fully owned by Filipinos,” Enrile said.
According to Calida, while the actual ownership of the underlying shares of ABS-CBN Corp. is maintained by ABS Holdings, the PDR issued to non-Filipino citizens give foreigners a right to the cash flow of mass media corporations such as ABS-CBN Corp., which is a leverage to bargain for far greater control through the various enhancing mechanisms or proportionality-limiting measures available in the business world, the petition said.
In a nutshell, the instrument was used to circumvent a firm prohibition in the Charter against foreign capital in media ownership that in itself is an abomination.