Mr. Jose G. Cervantes

October 18, 1989 Mr. Jose G. Cervantes Manila Stock Exchange MSE Building, Prensa St. Corner Muelle De La Industria Binondo, Manila Sir : This refers to your letter dated October 5, 1989, requesting opinion on whether subscription to the increase of capital stock of Basic Petroleum and Minerals, Inc. from P300,000,000.00 to P500,000,000.00 may be paid through stock dividend declaration and if so, how will the payment be treated in the accounting books. The pertinent provision of the Corporation Code provides in part, as follows: "SECTION 62. Consideration for stock . ....Consideration for the issuance of stock may be any or a combination of any two or more of the following: xxx xxx xxx 5. Amounts transferred from the unrestricted retained earnings to stated capital ; llcd ...(emphasis supplied). It is explicit from the terms of the law above-quoted that issuance of stocks may be directly paid from amounts transferred from unrestricted retained earnings to the capital account (stock dividend declaration). Thus, pursuant to the aforequoted provision, the Commission, on June 27, 1989, approved the application of Basic Petroleum and Minerals, Inc. to increase its authorized capital stock from P300,000,000.00 to P500,000,000.00, out of which increase 25% or P50,000,000.00 was subscribed in two (2) sets, to wit: 1. P12,500,000 was fully paid in the form of stock dividend 2. P37,500,000 to be payable in cash upon call by the Board of Directors. Subsequently, said increase was duly registered under the provisions of the Revised Securities Act. The approval thereof by the Commission converts the retained earnings covering the payment to increase the capital of the corporation. Please be advised accordingly. Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner