By Emetrio Perez (By The Rule), BusinessMirror

WITH the Department of Finance and the Bureau of Internal Revenue incorporating in the implementing rules and regulations of the Real Estate Investment Trust (REIT) drafted by the Securities and Exchange Commission (SEC) for minimum public ownership and tax provisions, the Philippine Stock Exchange (PSE) is now ready to accept applications for REIT stock listing.

But wait. The tax imposition may be eventually become acceptable among the conglomerates intending to go into this new investment field. But as for the ownership, the Zobel de Ayalas, the Sys and the Gokongweis may find the 67-percent public ownership of the companies too big to give up. In fact, the number may not be that easily attainable.

Consider this: Today, companies which are already listed but are not yet public have less than two years to sell at least 10 percent of their outstanding shares to investors outside the families or groups of companies that control them. With less than two years for these nominally public entities to comply with the rule, there are reports a few of them would prefer to get out of the PSE board than sell more shares. If this is so, how much more difficult will it be for the present majority stockholders of companies to give up 67-percent control of their businesses in favor of strangers? With this ownership imposition, the REIT’s rules may remain only a posting on the SEC website while the PSE salesmen try to make a sales pitch that will make the rules attractive despite the unpalatable ownership provision.

How about the 12-percent value-added tax (VAT) to be levied on the value of the property to be transferred to a REIT company? Well, the present majority stockholders may be able to evade this by factoring in the tax charges to investors. As in any other taxable goods, the producers will always pass on any additional expense to the consumers who are mostly wage earners and whose salaries are already subject to withholding tax of up to 32 percent and the remaining amount still subject to VAT as they continue spending their take-home pay.


As has been tackled in By the Rule in the past, it is time the officials of the SEC and the PSE review the rules on tender. As presently crafted, a buyer of at least 35 percent of outstanding shares in a listed company is required to buyout all the remaining shares held by the public at the same price it has acquired a selling stockholder or group of stockholders. After the tender, if this is attractive, the public company ends up a rarely traded commodity in the stock market.

One only has to take a look at how Petron Corp. has ceased to be public. After the tender to buy out the public, Petron ended up with two big stockholders. San Miguel Corp. now controls 68 percent of the oil company while Petron Corp. Employees Retirement Plans owns 24.282 percent. PCD Nominee Corp. holds 1.604 percent for Filipinos and 0.339 percent for foreigners. Chances are some of PCD-held shares may even be owned by Petron insiders. Flashback: When Petron went public, it had two significant stockholders in Philippine National Oil Co. and Saudi Aramco with 40 percent each. Petron became a public company when it sold the remaining 20 percent were sold in a public offering.


By the Rule can name more listed but not public companies if only to emphasize the impossibility of making a REIT company 67-percent owned by the public. Remember Pilipino Telephone Corp. (Piltel)? The First Pacific Co. Ltd., which is based in Hong Kong, acquired Philippine Long Distance Telephone Corp. (PLDT) using its Philippine corporate vehicle which was Metro Pacific group.

As Piltel was a PLDT subsidiary, naturally, it was an asset acquired by Metro Pacific. Unluckily, Piltel was on a deficit and had liabilities that topped P30 billion, a huge financial burden which Manuel V. Pangilinan, First Pacific’s top man in the Philippines, has turned around.  After the successful rehabilitation—of course it took some time to effect the recovery—Piltel was even able to declare cash dividend.

When it was still selling mobile phone lines, its majority stockholder was Smart Communications Inc., which held 10.847 billion shares, or 92.51 percent. When it underwent corporate restructuring, Piltel became PLDT Communications and Energy Ventures Inc. with Smart still the majority owner and which is listed as holder of 11.625 billion shares, or 99.51 percent. Latest word was that this new company may be taken private again, meaning it would be out of the PSE board.

Let us see if with Petron and Piltel as examples, the government-imposed minimum public ownership of 67 percent in a REIT company would be a reality.