Memorandum Order No. 266




MALACAÑAN PALACE MANILA BY THE PRESIDENT OF THE PHILIPPINES [ Memorandum Order No. 266, November 28, 1989 ] PROVIDING GUIDELINES GOVERNING MINORITY INVESTMENTS OF GOVERNMENT OWNED AND/OR CONTROLLED CORPORATIONS (GOCCs) IN PRIVATE CORPORATIONS OR JOINT VENTURE AGREEMENTS WITH PRIVATE INDIVIDUALS, PARTNERSHIPS OR CORPORATIONS I, CORAZON C. AQUINO, President of the Philippines, do hereby order the promulgation of the following guidelines and procedures governing minority equity investments of GOCCs in private corporations or joint venture agreements with private individuals, partnerships or corporations. This Memorandum Order is being issued in line with the general principle enunciated under Administrative Order No. 59, “Rationalizing The Government Corporate Sector” which seeks to rationalize the government corporate sector and provide the policy orientation therefor. Section 1. Coverage—(a) These guidelines shall cover all minority equity investments of GOCCs in private corporations, whether in common or preferred shares and regardless of whether such shares are voting or non-voting, and joint venture agreements with private individuals, partnerships or corporations. (b) GOCCs, in particular the government financial institutions namely the PNB, DBP, LBP, NDS, SSS and GSIS, which are engaged in the business of investing in private corporations as part of their normal portfolio management operations are exempted from the coverage of these guidelines. Section 2. Definition of Terms—For purposes of this Memorandum Order: (a) “Government owned and/or controlled corporation” is a corporation which is created by special law or incorporated and organized under the Corporation Code in which the Government, directly or indirectly, owns the majority of the capital of has voting control; Provided, That any subsidiary of a GOCC is also a GOCC. (b) “Minority investment” shall refer to equity investment of less than fifty (50%) percent of the total subscribed capitalization of a private corporation. (c) “Partnership” is a contract or agreement whereby two or more persons bind themselves to contribute money, property, or industry to a common fund, to pursue a particular business undertaking and with the intention of dividing the profits among themselves. (d) “Joint Venture Agreement” is an agreement between individuals, partnerships, corporations, governments or the combination of these four to undertake a business venture usually to accomplish a specific, limited or special goal or purpose. Section 3. General Guidelines—(a) As a matter of policy, the Government recognizes the primary role of the private sector in undertaking desirable economic activities. GOCCs are, therefore, expected to observe judicious restraint in initiating: investments in private entities. (b) In proposing equity investments in privately-held corporations or entering into joint venture agreements, the following shall be observed by GOCCs: i. Investments or joint venture agreements must be made only in activities directly and immediately related to the investing GOCC primary corporate purpose. ii. The investment or joint venture must not tend to crowd out private sector initiative in that particular industry. In this regard, the GOCC must demonstrate that the proposed investment cannot be adequately undertaken solely by the private sector by, for example, showing proof that the investment or joint venture was first offered to the private sector which declined the offer, and giving explicit reasons therefor. iii. The investment or joint venture must be made with a clear intent to assist the development of the industry concerned consistent with national goals and with the end-in-view of eventually withdrawing the said investment or joint venture agreement. in the event that the private “sector can fully take over. The investment agreement must also specify a fixed period for the government’s participation which shall be determined by the attainment of the GOCC’s objective in pursuing the investment; withdrawal of the GOCC’s capital contribution before the expiration of the said time period is encouraged. (c) The foregoing factors shall be accorded greater importance than the financial impact or benefit of the proposed investment to the GOCC concerned. (d) The GOCC shall net undertake or increase its investment in the said private corporation or increase its financial interest/ exposure under the joint venture agreement without prior clearance from the Office of the President upon the recommendation of the Government Corporate Monitcnng and Coordinating Committee (GGMCC). Any extension, of the investment period contemplated under Section 3-b (iii) above, shall also require prior Presidential approval. (e) The minority stockholdings in private corporations of a GOCC should be amply protected. The investing- GOCC should endeavor to be represented in the Board of the privately owned corporation. Section 4. Procedure—(a,) The Chief Executive Officer of the GOCC shall submit the request for clearance concerning minority equity investments in private corporations or joint venture agreement to the GCMCC together with the following documents: i. Description of the proposed investment, stating the justification, source of funding, extent of equity participation and other relevant terms of the undertaking or joint venture agreement. ii. Copy of the Board of Director’s Resolution approving the equity investment or joint venture agreement. iii. Copies of the Articles of Incorporation and By-Laws of the private cor-corporation or Joint Venture Agreement, if any. iv. Latest audited financial statements of the GOCC, the private corporation, individual or partnership. v. If the proposed investment venture is intended to undertake a new economic activity, as the formation of a new company and the like, a copy of the Project Feasibility Study, and an In-depth Industry Analysis of the covered industry shall also be submitted. vi. Proof that the proposed investment venture does not directly or indirectly compete with an existing activity or enterprise operated by a GOCC.1aшphi1 The proposed investment must substantially comply with the above requirements/procedures. (b) The GCMCC shall submit its review and endorsement to the Office of the president for its appropriate action. Section 5. Clarification—Cases for clarification shall be referred to the GOMCC which shall make the study/endorsement to the Office of the President. Section 6. Effectivity – This Memorandum Order shall take effect immediately. DONE in the City of Manila this 28th day of November, in the year of Our Lord, nineteen hundred and eighty-nine. (Sgd.) CORAZON C. AQUINO President of the Philippines By the President: (Sgd.) CATALINO MACARAIG, JR. Executive Secretary The Lawphil Project - Arellano Law Foundation