Do you really want to know what is happening or what has
happened with the media giant ABS-CBN that led to this difficult and peculiar
situation it is in right now.
A lot has been going around news, opinions, and conclusions
have been made regarding the situation ABS-CBN has into it all depends who do
you want to listen - those in favor of the automatic renewal of its legislative
franchise or those who want to face the consequences for its alleged violations
as against its franchise as granted by the State which is now being pursued by
the Office of the Solicitor General (OSG) in the Supreme Court.
Here below, Daily Tribune was able to get hold of former
Senate President, Justice Secretary, and a legal titan in his own right Juan
Ponce Enrile where he scholarly presented the ABS-CBN situation to its barest core and has pinpointed
for us what could be the real problem that made the OSG file its petition asking
once and for all to settle the issue that would really be of value for the generation
of Filipinos in the future.
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| (photo credit to owner) |
Please see the full quote below for purposes of informing the
public, clarity and full understanding of former Senate President Enrile’s
article titled “ABS-CBN Conundrum” that was published in the Daily Tribune.
ABS-CBN conundrum
The ownership and management of mass media shall be limited to citizens
of the Philippines, or to corporations, cooperatives or association, wholly
owned and managed by such citizens.
The central figure of a contentious legal and political
problem in our society today is ABS-CBN — the largest and, to me, the most
powerful and influential media entity in the country.
The ABS-CBN problem revolves principally around
the validity and extension of its expiring congressional franchise. The problem
threw Congress in a quandary and discord, and pushed the government to file a
quo warranto proceeding against ABS-CBN Corporation before the Supreme Court.
It also aroused a cacophony of diverse opinions
among businessmen, lawyers and ordinary people in our general public.
The problem of ABS-CBN actually started years
ago. On 30 March 1999, a thinly capitalized corporation named Worldtech
Holdings Corporation, was organized. The authorized capital stock of Worldtech
Holdings then was only P1,000.00, divided into 1,000 common shares, and with a
par value each of P1. The owners of 400 subscribed and issued shares of
Worldtech Holdings were Lopez Inc., 50 percent, and certain directors and
officers of Lopez Inc., 50 percent. All are admittedly Filipinos. The primary
purpose of Worldtech Holdings was to invest, purchase and hold real and
personal properties, shares of stock, bonds, debentures, notes, evidence of
indebtedness, or other securities or obligations.
On 16 September 1999, the name of Worldtech Holdings
was changed to and became ABS-CBN Holdings Corporation.
From 30 March 1999 until today, Worldtech
Holdings (now ABS-CBN Holdings) never had any business of its own. It is more
of a shell corporation created with no other business purpose of its own than
as sole issuer of Philippine Deposit Receipts (PDR), and as a receptacle and
custodian of common shares of ABS-CBN Corporation transferred to it from Lopez
Inc. pursuant to a financial scheme devised by its Filipino owners.
Clearly, the creation of ABS-CBN Holdings was
intended simply to circumvent and overcome the Filipino ownership requirement
of the Constitution for mass media. These can be gleaned from its financial
records in the Securities and Exchange Commission (SEC).
These are what the financial records of ABS-CBN
Holdings in the SEC disclosed:
“On 29 September 1999, the Company offered
132,000,000 PDR relating to 132,000,000 ABS-CBN shares. Each PDR was issued for
a total consideration of P46.00, which consists of a deposit of P45.90 and a PDR
option price of P0.10.”
“Each PDR grants the holder, upon the payment of
the exercise price… the delivery of one ABS-CBN share or the sale of and
delivery of the proceeds of such sale of one ABS-CBN share. The Company remains
to be the registered owner of the ABS-CBN shares covered by the PDR. The
Company also retains the voting rights over the ABS-CBN shares.”
“Immediately prior to the closing of the PDR
offering… Lopez Inc. transferred 132,000,000 ABS-CBN shares to the company in
relation to which the PDR were issued. For as long as the PDR are not
exercised, these shares underlying the PDR are, and will continue, to be
registered in the name of and owned by, and all rights pertaining to these
shares, including voting rights, shall be exercised by the company. The
obligations of the company to deliver the ABS-CBN shares on the exercise of the
right contained in the PDR are secured by the pledge of shares in favor of the
security agent acting on behalf of each holder of a PDR over the ABS-CBN
shares.”
“The company has not conducted any business other
than in connection with the issuance of Philippine Depositary Receipts (PDR),
the performance of obligation under the PDR and the acquisition and holding of
shares of ABS-CBN Corporation (ABS-CBN) in respect of PDR issued.”
“Any cash dividend or other cash distribution
distributed in respect of ABS-CBN shares received by the company (or the
security agent on its behalf) shall be applied towards the operating expenses
then due of the company (including but not limited to applicable taxes, fees,
and maintenance costs charged by the Philippine Stock Exchange shown as
‘Operating Expenses’ in the statements of comprehensive income) for the current
and preceding years. Any further amount equal to the Operating Expenses in the
preceding year (the ‘Operating Fund’) shall be set aside to meet operating or
other expenses for the succeeding years. Any amount in excess of the aggregate
of the Operating Expense paid and the Operating Fund for such period (referred
to as ‘interest’) shall be distributed to holders pro-rata on the day after
such cash dividends are received by the company.”
The word “company” in those quoted words refers
to ABS-CBN Holdings and the word “holders” in the immediately preceding
paragraph refers to the holders of PDR.
From those disclosures and admissions of ABS-CBN
Holdings in its financial records in the SEC, it is clear that it is nothing
but an alter ego of Lopez Inc. Its corporate existence was an expedient measure
to skirt something that was probably prohibited by law. Its corporate veil
could, therefore, be pierced.
Also, from those disclosures, my question is:
What was the consideration, if any, received by Lopez Inc. when it transferred
to ABS-CBN Holdings 132,000,000 ABS-CBN shares before the closing of the PDR
offering?
Was it the 132,000,000 PDR with an issue value
each of P46.00, or, in monetary terms, P6,072,000,000, which is the result of
multiplying 132,000,000 PDR by P46.00? This was not clearly disclosed and
clarified in the financial records of ABS-CBN Holdings in the SEC.
Another question is: Was the transfer of those
132,000,000 ABS-CBN shares from Lopez, Inc. to ABS-CBN Holdings free from
income taxation?
At the end of September 2019, the financial
records of ABS-CBN Holdings in the SEC show the “movements of PDR and the
underlying ABS-CBN shares as follows:
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| (photo credit to Daily Tribune) |
From the above figures, it can be gleaned that
the original 132,000,000 PDR on 29 September 1999, grew to 327,541,274 in 2017;
to 324,930,790 in 2018; and to 320,412,442 at the end of September 2019, with
probably a corresponding growth of their counterpart and matching ABS-CBN
shares.
It is not farfetched to think that some, if not
many, of those huge number of PDR floating around have fallen into the hands of
foreigners who have no right whatsoever to have any economic interest in mass
media business in the country.
It is also obvious from the financial records of
ABS-CBN Holdings in the SEC that the PDR are “securitization” of the
132,000,000 ABS-CBN shares that Lopez, Inc. transferred to its alter ego,
ABS-CBN Holdings, before the closing of the PDR offering. Those PDR of ABS-CBN
Holdings are clones or virtual replications of the 132,000,000 ABS-CBN shares
it acquired from Lopez, Inc.
The PDR have all the earmarks or attributes of
ownership: possession, enjoyment, and disposition.
The holders of PDR have possession of their PDR;
they enjoy the fruits or dividends accruing to those 132,000,000 ABS-CBN
shares; and they can trigger the disposition of any of those 132,000,000
ABS-CBN shares through the exercise of the option attached to each PDR. The
only right denied to them is the voting rights of those 132,000,000 ABS-CBN
shares.
A good question to ask is: Can Lopez, Inc. or
ABS-CBN Holdings, or both, trigger on their sole discretion the sale of any of
those 132,000,000 ABS-CBN shares without any holder of a PDR exercising the
option attached to a PDR?
I doubt it because the power to trigger the
disposition of those 132,000,000 ABS-CBN shares was removed from Lopez, Inc.
and ABS-CBN Holdings, the registered owner, and transferred to the holders of
PDR.
I think the Solicitor General is correct in
raising the issue before the Supreme Court. Article XVI, Section 11(1) provides
that “The ownership and management of mass media shall be limited to citizens
of the Philippines, or to corporations, cooperatives or association, wholly
owned and managed by such citizens.” It is about time for the Supreme Court to
clarify this issue once and for all for the benefit of the nation.
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