SUBJECT : Issuance of Dollar Denominated Preferred Shares of Stock

July 8, 2003 SEC OPINION NO. 36-03 JP Morgan Chase Bank 31st Floor PhilamLife Tower 8767 Paseo de Roxas Makati City SUBJECT : Issuance of Dollar Denominated Preferred Shares of Stock Gentlemen : This pertains to your letter dated June 24, 2003 seeking the opinion of this Commission on the issue of whether or not a Philippine Bank can issue dollar denominated preferred shares of stock. The instant query apparently is triggered by the on-going drive of the Monetary Board to direct banking institutions to strengthen its capital base by adopting a risk-based capital adequacy framework pursuant to Section 34 of the Philippine General Banking Law of 2000 . In compliance with this, a Philippine Universal bank intends to issue US Dollar denominated preferred shares of stock as a tier one and tier two qualifying capital under Circular No. 280, Series of 2001 of the Bangko Sentral ng Pilipinas . It is your position that the requirement of Sections 14 and 16 of the Corporation Code requiring that the amount of authorized capital stock shall be expressed in the Articles of Incorporation in "lawful money" of the Philippines has been overtaken or mooted by the passage of Republic Act No. 8183 which repealed Republic Act No. 529, otherwise known as the Uniform Currency Law of 1950. Thus, you believe, there is no legal impediment to the issuance of dollar denominated preferred shares of stock. While Sections 14 and 16 of the Corporation Code require that shares to be issued by a company shall be expressed in legal currency of the Philippines, these provisions are mere formal rules and do not apply with pedantic rigor. In fact, the said provisions allow for exemptions from the requirements when so prescribed by the Corporation Code and by special laws. We also agree with your contention that with the repeal of the Uniform Currency Act, the public policy requiring all obligations including shares of stock which are obligations of the Corporation to be settled in legal currency of the Philippines has been relaxed. It goes without saying that once allowed, the total value of the dollar denominated preferred shares of stock to be issued shall not exceed the authorized capital stock of the company in the likely event of an exchange rate fluctuation. TaHDAS This interpretation seems to be bolstered by the provisions of the General Banking Law, the relevant special law on banking institutions which was passed into law after the repeal of the Uniform Currency Act. Section 9 thereof states that "The Monetary Board may prescribe rules and regulations on the type of stock a bank may issue, including the terms thereof and rights appurtenant thereto to determine compliance with laws and regulations governing capital and equity structure of banks: Provided, That banks shall issue par value stocks only."(Emphasis ours.) Clearly, Congress delegated to the Monetary Board the power to issue rules and regulations governing the type of stocks a bank may issue, including the terms thereof, e.g. whether preferred shares can be denominated in dollars. It is, thus, within the powers of the said Board to allow the issue contemplated by your bank. In view of the foregoing, we interpose no objection to the issuance of US Dollar denominated preferred shares of stock subject to the approval of the Monetary Board allowing the same. While the Commission has general supervisorial powers over all corporations, banking institutions are special corporations under the specialized regulatory powers of the Bangko Sentral ng Pilipinas. Very truly yours, (SGD.) VERNETTE UMALI-PACO General Counsel