Board of Investments

May 4, 1987 Board of Investments Industry & Investments Bldg. 385 Gil Puyat Ave., Makati Metro Manila Attention : Atty . Justiniano Ascao Gentlemen: This refers to your letter, dated February 18, 1987, requesting a ruling/opinion of this Commission on the applicability of the "grandfather rule" on the case related therein. LibLex It appears that Hotel Properties, Inc. (H.P.I.), was organized as a holding company, particularly for Silahis International Hotel, Inc. (S.I.H.), the equity of which (HPI) is owned 70% by Filipinos and 30% by foreigners. HPI was granted authority by the BOI under Book II of P.D. 1789, otherwise known as the Omnibus Investments Code, as amended, to accept the additional investments of two (2) Chinese nationals, amounting to a total of P10M, thereby increasing its foreign equity to 53.34%, subject to the condition that SIH will divest itself of the ownership over the land on which the hotel is situated. The deletion of this condition is now requested on the claim that SIH still meets the nationality requirement for land ownership by applying the "grandfather rule", considering that HPI owns 69% of the equity of SIH and the remaining 31% is further of Filipino investments. The issue posed for our resolution is: Is the "grandfather rule" applicable in the case of Silahis International Hotel to determine the effective percentage of Filipino stock ownership? The Silahis International Hotel was organized for the purpose of owning, maintaining, operating and/or managing hotels, restaurants, inns, apartments, and other allied business as may be necessary in connection therewith. Among the secondary purposes of SIH is to acquire lands and interest in land, and to own, hold, improve, develop and manage real estate so acquired. The corporation is, therefore, engaged in partly nationalized economic activities. Hence, the "Grandfather Rule" may be applied to determine the percentage of effective Filipino stock-ownership therein . In this connection, however, the Commission is not in possession of the stock and transfer book of SIH which may be used as a basis in reckoning the identities of its stockholders. However, assuming the percentage of Filipino and foreign equity in SIH, as presented in the letter of BPI, is correct, the Grandfather Rule may be applied as follows: Silahis International Hotel: Hotel Properties, Inc. 96% Filipino stockholders 31% 100% Hotel Properties, Inc. Foreign equity 53% Filipino equity 47% 100% Grandfather Rule: Filipino equity: 47 x 69 = 32.43% 100 Add: Percentage of individual Filipino stockholdings 31.00% 63.43% Foreign equity: 53 x 69 = 36.75% 100 Total: 100.00% Subject to the veracity of the above-assumption, it is resolved that the Filipino equity in Silahis International Hotel is 63.43%, while foreign equity is 36.5%. Please be guided accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman