The #ABSCBN Problem (by Juan Ponce Enrile)

NB: The following was lifted from a Facebook note posted by former Senate President Juan Ponce Enrile.

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I prepared an analysis of ABS-CBN problem, and am posting it here for the benefit of those interested –

THE ABS-CBN PROBLEM

By Juan Ponce Enrile

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 March 30, 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 P1.00. The owners of 400 subscribed and issued shares of Worldtech Holdings were Lopez, Inc., 50%, and certain directors and officers of Lopez, Inc., 50%. 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, evidences of indebtedness, or other securities or obligations.

On September 16, 1999, the name of Worldtech Holdings was changed to and became ABS-CBN Holdings Corporation.

From March 30, 1999 until today, Worldtech Holdings, which is 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 (PDRs), 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 September 29, 1999, the Company offered 132,000,000 PDRs 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 PDRs. 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 PDRs were issued. For as long as the PDRs are not exercised, these shares underlying the PDRs 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 PDRs 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 (PDRs), the performance of obligation under the PDRs and the acquisition and holding of shares of ABS-CBN Corporation (ABS-CBN) in respect of PDRs 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 PDRs.

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 PDRs offering?

Was it the 132,000,000 PDRs with an issue value each of P46.00, or, in monetary terms, P6,072,000,000.00, which is the result of multiplying 132,000,000 PDRs 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 shows the “movements of PDRs and the underlying ABS-CBN shares as follows:

Number Investment
of Shares in ABS-CBN PDRs
__________________________________________________________________________
Balance at December 31, 2017 324,843,700 P15,099,383,017 P15,066,898,647
Conversion of PDRs (4,951,600) (120,577,465) (120,082,305)
Exchanges of ABS-CBN shares
with PDRs – – –
___________________________________________________________________
Balance at December 31, 2018 319,892,100 14,978,805,552 14,946,816,342
Conversion of PDRs (10,998,400) (208,943,818) (207,843,978)
Exchanges of ABS-CBN shares
with PDRs – – –
___________________________________________________________________________
Balance at September 30, 2019 308,893,700 P14,769,861,734 P14,738,972,364

From the above figures, it can be gleaned that the original 132,000,000 PDRs on September 29, 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 PDRs 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 PDRs 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 PDRs of ABS-CBN Holdings are clones or virtual replications of the 132,000,000 ABS-CBN shares it acquired from Lopez, Inc.

The PDRs have all the earmarks or attributes of ownership: possession, enjoyment, and disposition.

The holders of PDRs have possession of their PDRs; 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 PDRs.

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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Refer to the original Facebook post here.

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15 Comments on “The #ABSCBN Problem (by Juan Ponce Enrile)”

    1. And speaking of that building which is also know as ELJ Center (and I went there before) in Mother Ignacia St. corner Eugenio Lopez, Jr. St. in Quezon City is actually it was used it on the construction from the public donation of ABS-CBN Foundation as what their former employee & veteran journalist, Jay Sonza had said on his radio interview at DZRJ & here’s the video to watch it: https://youtu.be/zJ2QWWg0EZY

  1. the enrile group has a jaka investments firm whose only purpose is to own stocks of the rest of the jaka group. whats the problem?

    1. is jaka group a media company?

      If you read JPE’s post, he seems to be saying that the issue is with the PDRs for a media company since they should only be Filipino owned when it comes to such types of businesses. As the law prohibits them. So, maybe after the SC rules on the validity of PDRs for such entities (which should only be filipino owned by law), then you’d see cases being filed left and right for lots of companies, even for telecom and power companies as SC would have decided on the matter, if they deemed such an act as illegal.

      Right now, as JPE states, the PDRs is trying to circumvent the issue. So, Solgen filed the case to try get a final decision from SC about it to clear it up once and for all.

    2. The Philippine Stock Exchange affirms that “a Philippine Depositary Receipt (PDR) is a security which grants the holder the right to the delivery of sale of the underlying share (as cited in the Bedan Review, op. cit.). A PDR consists of a deposit price and an option price, which is considered as payment when the buyer opts to convert said PDRs to a corporation’s share. PDRs are not evidences or statements nor certificates of ownership of a corporation. However, each PDR represents a share, even in a restricted company, and when bought by a foreign entity, gives the buyer the right to all the dividends due the shares of stock acquired (Ibid.).

      and the truth shall set you free…. hehehe

      1. Yup. I have come across that. And I think SEC even issued their decision about PDRs in general. However, there has been no legal precedent that actually declared with finality that they are legal with regards to media/broadcast companies, telecom etc.

        I do believe this is the main issue. In this case, ABS CBN is actually not the first case, but I would say it is Rappler.

        For ABSCBN, PDR was used by Solgen as part of his argument why the case was filed, along with other points.

        But since the franchise has expired/not renewed, the case might be deemed moot already and SC will not decide on the case since there is no franchise to be discussed.

        I do believe a bulk of the blame still lies with congress here as they never tackled it properly.

        I would also say that just because NTC did the “extensions before” doesn’t make it legal. You could also say they are just course correcting now, albeit with an agenda. I am well aware of that.

        But, it still stands the constitution does prohibit foreign ownership on specific businesses/trades. I would prefer a final SC decision on the matter so their is jurisprudence and no more he said/she said, since the SC does have the final say when it comes to interpretation of Philippine laws.

        For the previous paragraph, I know Tiglao is making an issue with Smart about First Pacific but I don’t understand why the same issue is not being brought up with the proposed Ditto Telecom of Dennis Uy and China Telecom then by the same author. Is the case very different in the regard of this 3rd telecom?

      2. Right now, the NTC action for the Cease and Desist is simply because of the franchise expiring. It can’t be connected to the Solgen case or even a specific violation. No franchise, you can not operate on the airwaves of the Philippines. But, ABSCBN “programs” can still be shown on Cable and via the internet.

        The inaction of 3 terms of Congress with regards to the renewal is the main culprit of what’s happening.

        If say the NTC did release a permit to operate for ABSCBN, the next administration could file a case against them for doing something outside the law. By then, ABSCBN would most likely have their new franchise already so they won’t stop broadcasting as they already have a valid franchise.

        The NTC resource person who gave incorrect testimony during the Februrary 2020 hearing about them having the power to give extension, they can cite him in contempt. But that still does’t absolve Congress’ inaction on the matter.

      3. @greengrin So do you want to investigate his company which is known as the maker of Delimondo Corned Beef because there’s an anomalies on his company?

        Well good luck if you can do that just hire a GOOD investigators like an accountant or a lawyer not coming from the journalists from Crappler & ABias-CBEnd.

        And here’s the fun fact, his autobiographical book was actually published by ABS-CBN Publishing Group and you could check it out. It is also the same publishing company who’d published the best selling books of the 2 last books of the late Sen. Miriam Defensor Santiago namely Stupid is Forever & Stupid is Forevermore. They’d earned those money from the 3 books they’d published before.

  2. The Lopezes did some “stocks HOCUS PCOS” to make themselves extremely wealthy, violating laws of the Philippines, at the expense of the Filipinos. This was under the blessings and cooperation of Cory Aquino and the Aquino Cojuangco political axis.

    In return to the allowed “HOCUS PCOS” of stocks….Cory Aquino and the Aquino Cojuangco political axis, used the ABS CBN, as their propaganda machine network. It was the ultimate political symbiotic system…..Only in the Philippines !

  3. Ah Rappler issue too. Allowing foreign entities ownership of stock of the company and funding it, when the Philippine constitution prohibits it. A workaround that ABS-CBN was the pioneer of, and Rappler tried to copy? So this could be the real reason for the cease and desist?

  4. Even if a company does not have foreign ownership the fact that it is a corporation with a responsibility to maximize profits, it will always act in its stockholders interest. Why do we bother with this foreign ownership ban? can anyone enlighten me please. do we really expect patriotic behavior from these businessmen

    1. @greengrin Unfortunately under our current 1987 Constitution aka the Dilawan Constitution, the media industry in our country doesn’t allow foreign ownership so that’s why the 1987 Constitution sucks!

      Better to change our constitution from unitary/presidential form of government into a federal/parliamentary one and who knows, if the new constitution would allow the foreign ownership on media industries in our country just like Singapore, South Korea, Taiwan & Japan then ABias-CBEnd would allow that but they’ll have to follow the current Dilawan Constitution. Blame on to the Aquino-Cojuangco clans about this mess. 🤣

      1. And a follow up on this one, I’d watched this video from Erwin Tulfo just a few minutes ago and he said that ABias-CBEnd had filed for a renewable permit to operate in their company to the Congress in the year 2014 at the time of former President ABnoy Aquino: https://youtu.be/9MqIpeEL7IE

        And you know what happened on why his [ABnoy] administration couldn’t took his immediate action in 2014 to gave a go signal or an urgent action to the Congress on the renewing the ABias-CBEnd’s franchise at that time and there was no good reasons why he didn’t do that in the first place. Was it there was a violation of labor laws to the former employees of ABias-CBEnd as what it was mentioned on the video link above? Or was there a violation of the ownership of ABias-CBEnd where there was a minor ownership from a foreign company outside our country or something? Clearly he didn’t told these reasons to the public & to ABias-CBEnd on why there was a delay of renewing the franchise of that company & instead of he’d tried to save ABias-CBEnd, in the end he’d betrayed it for the past 6 years in spite that ABias-CBEnd is a pro-Aquino/Dilawan company!

  5. On the issue of ABias-CBEnd’s Philippine Deposit Receipts (PDRs), I’d watched this video last night about their two sister companies namely Big Dipper & ABS-CBN Global Hungary Kft. had dodged the bullet on paying their taxes & how’d they cheated it for the past years! And there’s one reason on why they did that is because of the laxed tax laws in our country. No wonder the Presidential Son & Davao City Mayor Paolo Duterte wants to investigate on the anomalies of that company and if there’s some time, he might create a resolution on changing the tax laws in our country so that those crooked Lopez clans will never do their bad schemes in our country again.

    https://youtu.be/LT_2Qujq0tw

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