#QuoWarranto: Enrile’s elegant analysis of ABS-CBN’s foreign ownership issue 

Published March 6, 2020, 12:00 AM

by manilabulletin_admin

THINKING PINOY

By RJ NIETO

nieto
RJ Nieto

Solicitor General Jose Calida’s Quo Warranto case filed against broadcast giant ABS-CBN contains four main issues: one involving its broadcast franchise, two against its telecoms franchise, and one about its use of exotic financial instruments. And this column will talk about that last one.

As explained in my February 15th column, the Constitution bans foreign ownership and management of mass media. To get more funding, ABS-CBN issued Philippine Depositary Receipts (PDRs), a financial instrument that entitles the bearer to the dividends of its corresponding stocks minus voting rights.

ABS-CBN sold some PDRs to foreigners like Prudential Singapore Holdings and the US-based Capital International Private Equity, and that’s where the problem arises.

Calida argues that foreign PDR holders’ investment power, derived from its entitlement to dividends of ABS-CBN shares, enable them to exercise some degree of control over ABS-CBN, and any degree of foreign control is unconstitutional.

Many compare this issue to Rappler PDRs, which the Securities and Exchange Commission (SEC) in 2018 declared unconstitutional. In this case, SEC cited a clause in Rappler PDR contracts that gave US-based PDR holder Omidyar Network control over Rappler’s corporate matters.

SEC said the Rappler PDR contract requires Rappler to get Omidyar’s approval before Rappler can alter its Articles of Incorporation of By-Laws, among other things.

Both cases involve PDRs, but Calida took it a step further when he essentially argued that PDRs inherently grant owners some control, regardless of the presence of clauses like those in Rappler PDRs.

And then came Enrile.

In a recent social media statement, former Senate President Juan Ponce Enrile provided a more elegant argumentation for this ABS-CBN PDR issue as he substantially reduced the ABS-CBN PDR case into something eerily similar to Rappler’s.

FIRST, Enrile said ABS-CBN Holdings’ corporate disclosures show it does nothing other than managing PDRs with underlying ABS-CBN Corporation shares. Enrile said the holding firm “is nothing but an alter ego of the Lopez (Holdings, Inc),” adding that its seemingly superfluous existence is “an expedient measure to skirt something that was probably prohibited by law.” That is, Enrile argued that piercing the veil of corporate fiction applies.

In a nutshell, Enrile showed that the relationship between ABS-CBN Corporation (the mass media firm) and ABS-CBN Holdings (the alter ego) is not very different from that between Rappler Inc (the mass media firm) and Rappler Holdings (the alter ego).

SECOND, Enrile said ABS-CBN PDRs “are clones of the ABS-CBN shares.”

Enrile said non-Filipino PDR owners get the dividends of ABS-CBN shares and have the option to dispose of (sell) the same stocks so that these non-Filipinos enjoy all the signs of ownership (possession, enjoyment, and disposition) except voting rights.

In a nutshell, Enrile demonstrated that basically, ABS-CBN PDRs are de facto ABS-CBN Corporation shares. Hence, foreign ownership of these PDRs raises a gigantic red flag in light of the ban on foreign ownership of mass media.

THIRD, Enrile then went to ask whether Lopez, Inc., or ABS-CBN Holdings can sell the underlying shares without being prevented by the PDR holders, which he doubts because “the power to trigger to the disposition of ABS-CBN shares [were] transferred to the holders of the PDRs.”

In a nutshell, Enrile explained that whoever claims to own the underlying ABS-CBN shares can sell these shares only if PDR Holders agree.

And this is where I saw the elegance in Enrile’s line of argument.

Recall that in the Rappler PDR case, SEC said US-based Omidyar had control over Rappler Inc. because Rappler Inc. can change its corporate by-laws only if PDR Holders allow it.

On the other hand, Enrile demonstrated that non-Filipino ABS-CBN PDR holders had control over ABS-CBN Corporation because the underlying ABS-CBN shares can be disposed of (sold) only if PDR holders allow it.

In a nutshell, Enrile argued that ABS-CBN PDRs give holders some degree of control over ABS-CBN shares, which effectively grants them some degree of control over ABS-CBN Corporation.

And because some non-Filipinos own these ABS-CBN PDRs, then ABS-CBN violates the ban on foreign ownership of mass media.

Enrile elegantly argued that the Rappler PDR case is very similar to the ABS-CBN PDR issue, and we all know what happened to Rappler, right?

Now, I wonder what ABS-CB’s legal team has to say about this, in case something similar is raised during the oral arguments for the Quo Warranto Case.

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