Will PNOC Exploration bid the market goodbye?

BUSINESS MIRROR

MONDAY, 11 JULY 2011 18:24 EMETERIO SD. PEREZ / BY THE RULE

PNOC Exploration Corp. (PEC) is a wholly owned subsidiary of the government-owned and -controlled Philippine National Oil Corp. (PNOC), an energy company formed in early ’70s during the regime of the late President Ferdinand E. Marcos. Then it became a “public” company whose shares—though few with PNOC still owning more than 99 percent—were traded on the Manila Stock Exchange and the Makati Stock Exchange—the two exchanges which were merged in 1993 into what is now the Philippine Stock Exchange. Its present outstanding capital stock consists of 1.522 billion A shares and 479.751 million B shares.

As the mother company, PNOC controls 99.79 percent of PEC’s entire outstanding A and B shares. That leaves the public with less than 1 percent, an ownership ratio which is still in compliance with the old law. But to continue to exist as a listed company with so small number of shares owned by the public would be in violation of PSE’s 10-percent minimum public ownership rule which is strictly being monitored by the Securities and Exchange Commission. PEC and others have been given two years to follow this rule.

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The question is why only a few PEC shares are held by the investors, an ownership profile which, as of now, is not a violation of the market’s listing rule. Many, many years ago, public ownership was not measured by the number of shares but more by the number of stockholders. This is why PEC still has about 300, or may be even less, individual stockholders. Today, the exchange and the SEC, during the administration of President Gloria Macapagal-Arroyo, deemed it necessary to expand the publics’ participation in the market by increasing the number of shares that should be sold by listed companies, which would, in a way, make all listed companies truly public. Today, a number of companies traded on the exchange fall under the category “listed” but not public and PNOC-EC was among those that do not meet the minimum public ownership although it is ready to obey the exchange. The company has reported that its board has approved the follow-up offering to meet the 10-percent public ownership target.

The PEC board approval of the offering was a welcome development among the investors who buy and sell shares in the open market. Finally, the administration of President Aquino was making good its thrust of attracting investors by using the increase in PEC’s public ownership to 10 percent of outstanding or a little more than 200.20 million shares including those already held by a few investors since 1970s. After all, this administration has been trying to attract foreign investors and the government compliance with the market’s minimum 10-percent-ownership rule would show these foreigners that the government is setting a good example in making PEC a model corporate citizen.

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As the government’s oil exploration arm, PEC owns 10 percent interest in the oil-producing Malampaya which makes it a very profitable state-owned corporation. It has been turning over its accumulated earnings to the national coffers in the form of dividend. As of March 31, it had more than P3 billion in dividends payable to the Treasury and still had P6.987 billion as retained earnings. As more than 99-percent-controlled by the government thru PNOC, the oil exploration firm distributes only a pittance to the public stockholders, the lucky few who were around when the Marcos government made it a publicly traded company in the 70s. The succeeding administrations— from that of the late President Corazon C. Aquino to President Fidel V. Ramos to President Joseph Ejercito Estrada—let PEC stay as a listed company. Only the board appointed by President Arroyo to chart the policy of the PNOC tried but failed to privatize PEC following the change in national leadership.

The results of the presidential elections installed an Aquino as president whose board, recent developments show according to information reaching the stock market, is against not only PEC’s privatization, which could be good for the country. The Aquino-anointed PNOC board does not even want to follow the law, and instead, is ready to defy the PSE’s 10-percent minimum public ownership rule covering companies that are listed but are not yet public.

This is a negative development for the Philippines’ capital market that is in need of a corporate model for foreign capital. Should PEC be delisted or taken out of the PSE board, the Aquino administration would earn the rare distinction of having a government-owned corporation driven out of the stock market for violating the market rule during its watch.

Will PEC bid the market goodbye after staying as a listed company for 35 years? The government’s next move may be worth watching. Foreigners should particularly be closely monitoring PNOC, whose board would decide the fate of PEC. If its unit has to leave the market, what an embarrassment to the present regime!