Why OSG did not explain the contents of PDRs: ABS-CBN debunks Calida’s claim of foreign ownership

ABS-CBN Corporation has told the Supreme Court (SC) that the Office of the Solicitor-General’s (OSG) claim of foreign ownership through Philippine Depositary Receipts (PDRs) was “inaccurate.”

In its 58-page answer to the OSG’s quo warranto petition, ABS-CBN said it was wrong to say the PDRs were “equivalent to shares,” because their holders were entitled only to cash distributions and not any right of ownership, such as voting power and control in the corporation.

It noted that OSG did not even elaborate on the “certain conditions” imposed on the right of a PDR holder to the delivery of an ABS-CBN share.

In this case, the OSG conveniently failed to disclose that Condition 5.3 of the instrument stated that “if the PDR holder is a foreigner and he exercises the PDR, the only right he has is to receive the net proceeds of the sale of the underlying ABS-CBN share after it is sold through an eligible broker in the ‘open market.'”

Put simply, foreign PDR holders were only entitled to the dividends of instruments sold in the Philippine Stock Exchange, but not any right of ownership.

ABS-CBN pointed out that the Constitution prohibited foreigners from owning any part of a media entity, but not “benefiting, in some way, even indirectly, from mass media corporations.”

It noted that the 2011 decision on Gamboa versus Teves stated that the Constitution prohibited foreigners from “assuming effective control” in certain industries with sensitive and vital roles in the economy and in national security.

“Effective control,” ABS-CBN argued, depended on the grant of the power to elect the Board of Directors or the right to full beneficial ownership of the shares.

ABS-CBN stressed that Condition 4 of the PDRs states that the shares deliverable on the instruments “shall be owned by and registered in the name” of ABS-CBN Holdings until they are validly transferred to a Filipino citizen.

It added that the condition explicitly states that “neither the Security Agent nor any Holder shall have voting rights with respect to the Shares.”

ABS-CBN noted that the SC’s 2017 decision in Roy versus Herbosa settled that the fact that the PDR holders were entitled to cash dividends “by itself, does not determine full beneficial ownership of shares.”

“Since the voting power of the ABS-CBN shares remains with Philippine stockholders, dividents accruing to investors, of whatever nationalist, is irrelevant,” the answer read.

ABS-CBN also argued against the OSG’s claim that the power to dispose of or direct the disposal of PDRs was part of beneficial ownership. It said a foreigner could only trigger, but not have any participation, in the transaction to sell the share.

ABS-CBN also pointed out that the Securities and Exchange Commission (SEC) approved the PDRs in 1999 and 2014 and never disavowed this.

It said “the Republic is now estopped from asserting that those same terms violatee the Constitutional restriction on foreign onwership.” Even if the SEC erred, the network said the traders and holders of the PDRs “relied in good faith” on the agency’s actions.

“It would be unfair to suddenly strip ABS-CBN of its franchise for a purported wrongdoing which arose only upon reliance on the imprimatur of the SEC,” the answer read.

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