I prepared an analysis on the ABS-CBN problem, and am posting it here for the benefit of those who are interested – THE ABS-CBN PROBLEM By Juan Ponce Enrile The central figure of a contentious legal and political problem in our society today is ABS-CBN – the largest and, to me, the most powerful and influential media entity in the country. The ABS-CBN problem revolves principally around the validity and extension of its expiring congressional franchise. The problem threw Congress in a quandary and discord, and pushed the Government to file a quo warranto proceeding against ABS-CBN Corporation before the Supreme Court. It also aroused a cacophony of diverse opinions among businessmen, lawyers, and ordinary people in our general public. The problem of ABS-CBN actually started years ago. On March 30, 1999, a thinly capitalized corporation named Worldtech Holdings Corporation, was organized. The authorized capital stock of Worldtech Holdings then was only P1,000.00, divided into 1,000 common shares, and with a par value each of P1.00. The owners of 400 subscribed and issued shares of Worldtech Holdings were Lopez, Inc., 50%, and certain directors and officers of Lopez, Inc., 50%. All are admittedly Filipinos. The primary purpose of Worldtech Holdings was to invest, purchase and hold real and personal properties, shares of stock, bonds, debentures, notes, evidences of indebtedness, or other securities or obligations. On September 16, 1999, the name of Worldtech Holdings was changed to and became ABS-CBN Holdings Corporation. From March 30, 1999 until today, Worldtech Holdings, which is now ABS-CBN Holdings, never had any business of its own. It is more of a shell corporation created with no other business purpose of its own than as sole issuer of Philippine Deposit Receipts (PDRs), and as a receptacle and custodian of common shares of ABS-CBN Corporation transferred to it from Lopez, Inc. pursuant to a financial scheme devised by its Filipino owners. Clearly, the creation of ABS-CBN holdings was intended simply to circumvent and overcome the Filipino ownership requirement of the Constitution for mass media. These can be gleaned from its financial records in the Securities and Exchange Commission (SEC). These are what the financial records of ABS-CBN Holdings in the SEC disclosed: “On September 29, 1999, the Company offered 132,000,000 PDRs relating to 132,000,000 ABS-CBN shares. Each PDR was issued for a total consideration of P46.00, which consists of a deposit of P45.90 and a PDR option price of P0.10.” “Each PDR grants the holder, upon the payment of the exercise price . . . the delivery of one ABS-CBN share or the sale of and delivery of the proceeds of such sale of one ABS-CBN share. The Company remains to be the registered owner of the ABS-CBN shares covered by the PDRs. The Company also retains the voting rights over the ABS-CBN shares.” “Immediately prior to the closing of the PDR offering . . . Lopez, Inc. transferred 132,000,000 ABS-CBN shares to the Company in relation to which the PDRs were issued. For as long as the PDRs are not exercised, these shares underlying the PDRs are, and will continue, to be registered in the name of and owned by, and all rights pertaining to these shares, including voting rights, shall be exercised by the Company. The obligations of the Company to deliver the ABS-CBN shares on the exercise of the right contained in the PDRs are secured by the Pledge of Shares in favor of the Security Agent acting on behalf of each holder of a PDR over the ABS-CBN shares.” “The Company has not conducted any business other than in connection with the issuance of Philippine Depositary Receipts (PDRs), the performance of obligation under the PDRs and the acquisition and holding of shares of ABS-CBN Corporation (ABS-CBN) in respect of PDRs issued.” “Any cash dividend or other cash distribution distributed in respect of ABS-CBN shares received by the Company (or the Security Agent on its behalf) shall be applied towards the operating expenses then due of the Company (including but not limited to applicable taxes, fees, and maintenance costs charged by the Philippine Stock Exchange shown as ‘Operating Expenses’ in the statements of comprehensive income) for the current and preceding years. Any further amount equal to the Operating Expenses in the preceding year (the ‘Operating Fund’) shall be set aside to meet operating or other expenses for the succeeding years. Any amount in excess of the aggregate of the Operating Expense paid and the Operating Fund for such period (referred to as ‘interest’) shall be distributed to Holders pro-rata on the day after such cash dividends are received by the Company.” The word “Company” in those quoted words refers to ABS-CBN Holdings and the word “Holders” in the immediately preceding paragraph refers to the holders of PDRs. From those disclosures and admissions of ABS-CBN Holdings in its financial records in the SEC, it is clear that it is nothing but an alter ego of Lopez, Inc. Its corporate existence was an expedient measure to skirt something that was probably prohibited by law. Its corporate veil could, therefore, be pierced. Also, from those disclosures, my question is: What was the consideration, if any, received by Lopez, Inc. when it transferred to ABS-CBN Holdings 132,000,000 ABS-CBN shares before the closing of the PDRs offering? Was it the 132,000,000 PDRs with an issue value each of P46.00, or, in monetary terms, P6,072,000,000.00, which is the result of multiplying 132,000,000 PDRs by P46.00? This was not clearly disclosed and clarified in the financial records of ABS-CBN Holdings in the SEC. Another question is: Was the transfer of those 132,000,000 ABS-CBN shares from Lopez, Inc. to ABS-CBN Holdings free from income taxation? At the end of September, 2019, the financial records of ABS-CBN Holdings in the SEC shows the “movements of PDRs and the underlying ABS-CBN shares as follows: Number Investment of Shares in ABS-CBN PDRs ________________________________________________________________ Balance at December 324,843,700 P15,099,383,017 P15,066,898,647 31, 2017 Conversion of PDRs (4,951,600) (120,577,465) (120,082,305) Exchanges of ABS-CBN share with PDRs – – – ___________________________________________________________________ Balance at December 319,892,100 14,978,805,552 14,946,816,342 31, 2018 Conversion of PDRs (10,998,400) (208,943,818) (207,843,978) Exchanges of ABS-CBN shares with PDRs – – – ________________________________________________________________ Balance at September 308,893,700 P14,769,861,734 P14,738,972,364 30, 2019 ________________________________________________________________ From the above figures, it can be gleaned that the original 132,000,000 PDRs on September 29, 1999, grew to 327,541,274 in 2017, to 324,930,790 in 2018, and to 320,412,442 at the end of September 2019, with probably a corresponding growth of their counterpart and matching ABS-CBN shares. It is not farfetched to think that some, if not many, of those huge number of PDRs floating around have fallen into the hands of foreigners who have no right whatsoever to have any economic interest in mass media business in the country. It is also obvious from the financial records of ABS-CBN Holdings in the SEC that the PDRs are “securitization” of the 132,000,000 ABS-CBN shares that Lopez, Inc. transferred to its alter ego, ABS-CBN Holdings, before the closing of the PDR offering. Those PDRs of ABS-CBN Holdings are clones or virtual replications of the 132,000,000 ABS-CBN shares it acquired from Lopez, Inc. The PDRs have all the earmarks or attributes of ownership: possession, enjoyment, and disposition. The holders of PDRs have possession of their PDRs; they enjoy the fruits or dividends accruing to those 132,000,000 ABS-CBN shares; and they can trigger the disposition of any of those 132,000,000 ABS-CBN shares through the exercise of the option attached to each PDR. The only right denied to them is the voting rights of those 132,000,000 ABS-CBN shares. A good question to ask is: Can Lopez, Inc. or ABS-CBN Holdings, or both, trigger on their sole discretion the sale of any of those 132,000,000 ABS-CBN shares without any holder of a PDR exercising the option attached to a PDR? I doubt it because the power to trigger the disposition of those 132,000,000 ABS-CBN shares was removed from Lopez, Inc. and ABS-CBN Holdings, the registered owner, and transferred to the holders of PDRs. I think the Solicitor General is correct in raising the issue before the Supreme Court. Article XVI, Section 11(1) provides that “The ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or association, wholly owned and managed by such citizens.” It is about time for the Supreme Court to clarify this issue once and for all for the benefit of the nation.

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