The SEC decision repeatedly mentions PDRs. What are those?
The assertion of the Office of the Solicitor General (OSG) that broadcast network ABS-CBN breached the constitutional prohibition on foreign ownership by issuing Philippine Deposit Receipts (PDRs) to foreigners needs context.
In a press release about its filing of a quo warranto petition against the media company before the Supreme Court on Feb. 10, the OSG said:
“[L]ike Rappler, ABS-CBN had issued [PDRs] through ABS-CBN Holdings Corporation to foreigners, in violation of the foreign ownership restriction on mass media in the Constitution.”
Source: Philippine Information Agency, OSG files petition for quo warranto vs ABS-CBN; asks SC to forfeit legislative franchise, Feb. 10, 2020
It cited Section 11, Article XVI of the Constitution, which limits the ownership and management of mass media to citizens of the Philippines, or to corporations, cooperatives, or associations owned by such.
The statement then quoted Solicitor General Jose Calida:
“This simply means that mass media companies operating in the Philippines must be 100 percent Filipino owned because they play an integral role in a nation’s economic, political, and socio-cultural landscape.”
Issuing PDRs to foreigners does not mean foreign ownership.
In an interview with VERA Files in 2017, lawyer Romel Bagares described PDRs as “investment tools” devised by businesses and lawyers to factor in foreign investors without violating the Constitution. (See VERA FILES FACT CHECK: Three things Duterte got wrong about Rappler)
They are “not [pieces of] evidence or statements nor certificates of ownership of a corporation,” according to the Philippine Stock Exchange (PSE). (See VERA FILES FACT CHECK: SEC revocation of Rappler’s registration explained)
By investing, PDR holders get a share in the profits of the company but they have “no control” in the day-to-day operations, no representation in the board, nor can they decide on policy, Bagares said.
The Securities and Exchange Commission (SEC), in its 2018 decision voiding Rappler’s certificate of incorporation, emphasized that “every security, including derivatives, must be evaluated on its unique terms.”
Securities are “shares, participation, or interests in a corporation or in a commercial enterprise,” according to the PSE.
For this reason, the SEC zeroed in on Rappler’s PDRs issued to Omidyar Network (ON), a philanthropic investment firm put up by eBay founder Pierre Omidyar, and not on its PDRs issued to North Based Media, another foreign entity. The SEC said the ON PDRs contained a “repugnant provision” that required the company to “seek the approval” of PDR holders on corporate matters, thus violating the foreign equity restriction.
“Anything less than One Hundred Percent (100%) Filipino control is a violation. Conversely, anything more than exactly Zero Percent (0%) foreign control is a violation,” it said.
In a January 2018 statement, Rappler said the commission “focused” only on one clause in its contracts “which [it] submitted to -- and was accepted by -- the SEC in 2015.” It said it had “dutifully complied with all SEC regulations and submitted all requirements” since it was incorporated in 2012.
The company first challenged the SEC decision at the Court of Appeals (CA) on Jan. 29, 2018. A month later, ON donated its PDRs to Rappler managers. On July 26 that same year, the CA upheld the SEC decision, saying the ON PDRs constituted “some foreign control,” but it also directed the SEC to review the subsequent ON donation.
Rappler again filed a partial motion for reconsideration before the CA in August 2018, asking the court to “revoke” the SEC order. The CA denied the motion in March 2019.
On the OSG’s filing of the quo warranto petition, ABS-CBN, in a statement, said:
“ABS-CBN Holdings’ [PDRs] were evaluated and approved by the [SEC] and the [PSE] prior to its public offering.”
Source: READ: Statement of ABS-CBN on OSG’s Quo Warranto petition: We did not violate the law, Feb. 10, 2020
ABS-CBN PDRs are listed on the PSE, since it is a publicly listed company, which makes them “subject to more scrutiny,” Bagares told VERA Files in a Feb. 11 text message. He added that ABS-CBN PDRs “don’t give voting rights but only cash or stock dividends.”
Other broadcast companies, such as GMA Network, Inc., make use of PDRs to raise capital for the improvement of their services.
ABS-CBN is owned by ABS-CBN Corporation, the country’s biggest media conglomerate, which is part of Lopez, Incorporated, an investment company owned by the Lopez family, according to a 2016 study by Reporters Without Borders and VERA Files.
Philippine Information Agency, OSG files petition for quo warranto vs ABS-CBN; asks SC to forfeit legislative franchise, Feb. 10, 2020
Official Gazette, 1987 Constitution
Romel Bagares, Interview, August 2017
Philippine Stock Exchange, Glossary, Philippine Deposit Receipts (PDR), Accessed Feb. 11, 2020
Securities and Exchange Commission, Decision on Rappler, p. 12, Jan. 11, 2018
Rappler, Stand with Rappler, defend press freedom, Jan. 15, 2018
Rappler, TIMELINE: The case of Rappler’s SEC registration, updated March 11, 2019
Omidyar Network, Omidyar Network Donates Philippine Depositary Receipts to Rappler Staff, Feb. 28, 2018
Securities and Exchange Commission, SEC LAUDS COURT OF APPEALS AFFIRMATION OF DECISION ON RAPPLER INC. AND RAPPLER HOLDINGS CORPORATION, Aug. 3, 2018
READ: Statement of ABS-CBN on OSG’s Quo Warranto petition: We did not violate the law, Feb. 10, 2020
Reporters Without Borders and VERA Files, Media Ownership Monitor Philippines: