Re : Non-application of the "Control Test" in the Determination of a Qualified Domestic Borrower under the Foreign Borrowings Act

September 28, 2004 SEC OPINION NO. 41-04 Re : Non-application of the "Control Test" in the Determination of a Qualified Domestic Borrower under the Foreign Borrowings A c t Development Bank of the Philippines c/o Denis Gary Ma. B. Ditching, Compliance Officer Makati City, Metro Manila, Philippines Gentlemen : This refers to your letter, dated July 30, 2004 requesting clarification on whether the "control test" in determining ownership of corporations can be applied in lieu of the 70% Filipino equity requirement under Sec. 3-A of RA 4860, as amended, otherwise known as the Foreign Borrowings Act, which we, quote: "Sec. 3-A. Only Filipino citizens, partnerships, cooperatives, associations or private corporations organized under the laws of the Philippines, at least seventy per centum of the outstanding and paid-up capital of which is owned and held by citizens of the Philippines ,such proportion to be maintained until such time as the loan is fully paid and whose capital structure is open to public participation, are qualified to borrow from government financial institutions the proceeds of loans, credits or indebtedness incurred under authority of this Act. Failure of the private borrower to maintain the capital ownership requirement stipulated herein, throughout the period that any part of a loan remains outstanding, shall render the entire loan immediately due and demandable, together with all interests and penalties, plus an additional special penalty of two per centum of the total amount due for every month or fraction thereof that the violation of the capital ownership requirement continues to subsist." (emphasis ours) Please be advised that based solely on the facts disclosed in your letter, Petron Corporation, International Container Terminal Services, Inc. and Asian Terminals, Inc. are not qualified to borrow under Section 3-A of RA 4860, as amended considering that these corporations do not meet the seventy percent (70%) Filipino equity requirement. The control test which is used under the Foreign Investments Act to determine Filipino nationality cannot be applied in a situation where the law requires a greater percentage of Filipino ownership. cTDIaC For your information and guidance. Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel