Government shares in the North Luzon Expressway (NLEX) Corporation cannot be sold to other investors without offering them first to existing shareholders, the Department of Justice (DOJ) said. 

In a legal opinion, the DOJ also reminded that 10 percent of the government shares in NLEX should be allotted to small local investors.

The opinion, issued by Justice Secretary Jesus Crispin C. Remulla, was addressed to Privatization Management Office (PMO) Chief Privatization Officer Maan Vanessa L. Doctor.

Remulla pointed out that NLEX Corporation's Amended and Restated Shareholders’ Agreement dated Sept. 30, 2004 provides a “right of first refusal” clause.

 “Considering that there exists in favor of the other shareholders of NLEX Corporation a Right of First Refusal, then the procedure provided in the Amended Articles orf Incorporation, Amended By-Laws, and Amended and Restated Shareholders’ Agreement dated 30 September 2004, must strictly be observed,” he said. 

 “Only after the other shareholders of NLEX Corporation have declined/failed to exercise their Right of First Refusal, may the company proceed to offer the NLEX Shares to other interested buyers, bearing in mind the requirement that 10 percent thereof must be set aside to small local investors, as per Executive Order No. 323, s. 2000,” he stressed.

EO 323 created the PMO, an agency under the Department of Finance (DoF) tasked with “the continuing privatization of government assets and corporations.”

 The PMO sought the legal opinion from the DOJ, which serves as its and the Privatization Council’s (PrC) “ex-officio legal counsel”, following the PrC’s approval of the PMO’s recommendation to dispose the Republic of the Philippines (RoP) shares at NLEX via negotiated sale.

The DOJ was asked to resolve the conflict between the provisions of EO 323 and the NLEX Amended Articles of Incorporation and By-Laws.

The PMO said EO 323 requires the PMO “to reserve a minimum of ten percent (10%) of the sale of assets in corporate form to small local investors,” however, NLEX articles of incorporation and by-laws provides for the “Right of First Refusal.”

Remulla advised PMO that “a mere offer of sale of assets in corporate form to small local local investors will not suffice.”

 He then said any of the following shall be deemed as compliance on the sale to small local investors:

a) Initial Public Offering (IPO)

b) Employee Stock Option/Ownership Plans (ESOPs). Provided, that the Social Security System (SSS) and Government Service Insurance System (GSIS) shall grant loans to qualified employees of the firms under privatization who would like to avail the ten percent (10%) stock offering as provided in this Executive Order

c) Sale to private and government employees, overseas workers, small farmers/fisherfolks and cooperatives through Government Financial Institutions (GFIs) such as GSIS, Land Bank of the Philippines (LBP), Development Bank of the Philippines (DBP), and Home Development Mutual Funds (HDMF)

d) Sale of retirement funds, pension funds and other funds managed on behalf of employees and other individuals

e) Sale of privatization bonds issued by the Republic of Philippines provided that the terms of such privatization bonds give the option to holders thereof to exercise the exchange option contained in such bonds either into shares in corporate assets privatized through the IPO or into a cash amount where the privatized corporate assets is being sold to one or more block investors

 Remulla said “the participation of the GFIs in transactions contemplated by EO No. 323 is only limited to being a vehicle through which assets in corporate form are acquired by private and government employees, overseas workers, small farmers/fisherfolks, and cooperatives.”

 “In other words, the NLEX Shares may not be sold to GFIs directly, but only through them,” he pointed out.