The Philippine Deposit Receipts (PDRs) of ABS-CBN which are issued to foreign investors are completely compliant with the Constitution, and do not constitute a scheme to circumvent the constitutional requirement on 100% Filipino ownership and management of mass media enterprises.

The criticism that PDRs achieved indirectly what the Constitution directly prohibits, is utterly baseless speculation. 

PDR holders are not stockholders because they have no voting rights and full beneficial ownership of a mass media corporation like ABS-CBN, neither do they have title over the underlying shares.

The Supreme Court ruled in Gamboa vs. Teves (G.R. No. 179599, June 28, 2011), which was reiterated in Roy vs. Herbosa (G.R. No. 207246, November 22, 2016), that “control” with respect to nationalized businesses refers to “shares with voting rights, as well as with full beneficial ownership … precisely because the right to vote in the election of directors, coupled with full beneficial ownership of stocks, translates to effective control of a corporation.”

These Supreme Court decisions, although judicial interpretation of Section 11 of Article XII on the 60-40 Filipino ownership of public utilities, apply by parity of constitutional intent to the requirement of 100% Filipino ownership and management for mass media under Section 11(1) of Article XVI which mandates: “The ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations wholly owned and managed by such citizens.” (Emphasis supplied).

Without voting rights and title over the underlying shares, PDR holders do not have ownership and management of ABS-CBN Corporation. 

The practice of issuing PDRs to secure investments is not an innovation of ABS-CBN because almost 100 years ago in the United States, American Depository Receipts were already part of corporate practice to secure investments, not capital infusion, just like the European Depository Receipts of later vintage.

In fact, GMA-7 has its own PDRs similar to ABS-CBN which do not transfer control to the foreign holders of PDRs. 

The rights of PDR holders are limited to: (1) receiving cash distribution consequent to the declaration of dividends accruing to underlying shares of stock after the issuer (ABS-CBN Holdings Corporation) deducts cost of operation and tax payments; (2) option to convert PDRs to shares of stock if they are qualified to own shares as Filipinos; and (3) being ineligible, alien holders of PDRs can only receive the proceeds of the sale of shares in the stock exchange.

The stringent limitations on PDRs are stipulated in the: (1) PDR Certificate; (2) PDR Instrument; and (3) PDR Pledge Agreement wherein the pledgor-issuer retains ownership and voting rights over the underlying shares of stock.

The sale of ABS-CBN’s PDRs is authorized both by the Securities and Exchange Commission and the Philippine Stock Exchange.

No avalanche of adverse comments and speculative innuendoes will alter the operative fact that PDRs are not vested with voting rights, ownership entitlements, and management prerogatives, and cannot be converted into shares of stock in favor of alien PDR holders.

EDCEL C. LAGMAN