Atty. Rene G. Bañez

February 6, 1991 Atty. Rene G. Baez Joaquin Cunanan & Co. 8th Floor, BA Lepanto Bldg. 8747 Paseo de Roxas Makati, Metro Manila S i r : This refers to your letter of October 25, 1990 requesting for rulings on the issues raised therein given the following facts: As stated, Akimoto International (Cebu),Inc.,a domestic corporation with a 60%-40% Filipino-Foreign equity, presently owns and operates Corral Reef Hotel, a beach resort located at Mactan Island, Cebu. A new company or subsidiary will be formed to develop and manage condominium and golf course projects to be constructed on certain portions of the beach resort of said corporation which will be leased on a long term basis. The Condominium units and membership shares in the golf club will be sold to both Filipinos and foreigners. However, considering the expected high cost and substantial investments required for the projects, the company plans to pre-sell the membership shares in the golf club abroad as the price thereof is affordable mostly by foreigners. Ownership of such membership shares in the golf club will be purely on a non-proprietary basis or primarily limited to playing rights only and are limited to the following amenities: (a) Discount at Corral Reef Hotel for room and restaurant, (b) priority bookings, (c) free transportation to/from hotel airport and/or (d) free use of golf cart. The issues you raised are as follows: 1. Whether the ownership of the units of the condominium to be constructed on the leased land is subject to the 40% foreign ownership limitation; 2. Whether the ownership of non-proprietary membership shares in the golf club to be established by the same subsidiary are likewise subject to the 40% foreign ownership limitation; and 3. Whether prior registration with the SEC of the membership shares in the golf club to aliens is necessary before the same could be pre-sold to foreigners outside the Philippines only, and if in the affirmative, the requirements for such prior registration. Anent the first query, considering that the issue raised falls within the jurisdiction of the Housing and Land Use Regulatory Board and/or Land Registration Commission, it is suggested that you refer the matter to said Offices. Relative to the second issue, since the ownership of the membership shares in the proposed golf course project is limited only to playing rights and shall not extend to the legal title or ownership of the land, the same may be offered to foreigners even to the extent of more than 40%. However, should the holders of the membership shares are at the same time stockholders of the golf course, the same shall be subject to the provisions of Section 47 of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987 which provides that if the investments of non-Philippine nationals exceed 40% of the outstanding capital stock, the corporation must obtain prior authority from the Board of Investments. Regarding your third query, while the securities are to be offered outside the Philippines, the same are to be issued by a domestic corporation and the funds to be generated or solicited abroad are intended for the development of the golf course which is located in the Philippines. The investments therefore are considered investments in the Philippines. Likewise, under the facts given, the securities will be sold to both Filipinos and foreigners, hence the same may also be offered within the Philippines. Considering that membership certificates issued by a domestic golf course are securities which are required to be registered under the Revised Securities Act and since in the present case there is no distinction between the securities to be offered outside and those to be sold within the Philippines, registration thereof under the Revised Securities Act should be made to cover all the securities regardless of where they are going to be offered or sold. Otherwise, it would be difficult to monitor the issuance of said securities once they are sold to the public. Said process of registration shall place the securities sold outside and within the Philippines in equal footing with each other. The phrase "distribution to the public within the Philippines" under Section 4 of the Revised Securities Act should not be interpreted literally. The cardinal rule of construction is to ascertain the meaning and intention of the legislature for the purpose of giving effect thereto. The application of the law according to the spirit and intent of the legislative body is the principal objective of judicial interpretation. Where the literal import and language of a statute is not consistent with the legislative intent or where a literal construction would lead to absurd results, the words of the statute will be modified by the legislative intent. (Martin, Handbook on Statutory Construction, citing several authorities). The basic philosophy of the Revised Securities Act is to protect the investing public .Accordingly, the interpretation of the meaning of the provisions of the law should be pursuant to the general legislative intent which is to protect the investing public. Whether an offering requires registration does not depend only on how and where the shares are offered or to be offered but also on whether the buyers stand in need of protection of the law. Accordingly, as investors in the Philippines, foreigners, regardless of whether they are residents or non-residents, are also entitled to the protection under the Revised Securities Act. Moreover, the registration of the securities offered outside the Philippines where the funds to be generated are to be invested in the Philippines would strengthen the confidence of foreign investors and thus encourage more foreign investments in the Philippines. In the light of the foregoing, your last query is answered in the affirmative. In this regard, the "SEC Rules on Registration and Sale of Proprietary Rights in Golf Courses and Clubs, Resort Facilities and Similar Projects" should be complied with. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman