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Philippines: Foreign equity restrictions

The Philippine supreme court has finalised the validity of Securities and Exchange Commission Memorandum Circular number 8 of 2013 (SEC MC No 8-2013) prescribing the guidelines for compliance with Filipino-foreign ownership requirements in partially-nationalised activities. The supreme court recently dismissed the motion for reconsideration filed by the petitioner in the case of Roy vs Herbosa (Roy), thereby confirming the validity of SEC MC No. 8-2013.

Under SEC MC No 8-2013, for the purposes of determining compliance with constitutional or statutory ownership requirements, the required minimum percentage of Filipino ownership will be applied to both: (a) the total number of outstanding shares of stock entitled to vote in the election of directors, and, (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors.

The finality of the ruling in the Roy case effectively removes any doubt concerning whether or not the required minimum percentage of Filipino ownership has to be applied separately to each class of shares. This was an additional test cited by the supreme court in its 2012 resolution of the motion for reconsideration in the landmark case of Gamboa vs Teves and which the majority of the supreme court in Roy has confirmed to be merely obiter dictum.

With the much-anticipated clarity provided by the Roy case, the moment is now ripe for foreign investors involved in partially-nationalised activities in the Philippines to assess and review their investment structures for compliance with SEC MC No 8-2013.

More importantly, this is a welcome development for prospective investors who are looking to participate in partially-nationalised industries in the Philippines, such as telecommunications, transportation, gaming, renewable energy, mining, infrastructure/development projects, and other public utilities and businesses involving land/condominium ownership. Under the two-pronged test provided by SEC MC No 8-2013, it becomes legally defensible to structure foreign investments into these industries in a way that the economic interests of foreigners may exceed the allowed percentage of foreign ownership.

Raoul R AngangcoKristin Charisse C Siao

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