Related Party Transaction Policy



(As approved by the Board of Directors on August 9, 2019)

1. Introduction

The Company, being part of an economic controlling group, inevitably conducts some of its business activities with Related Parties in the Group. This Policy sets out the guidelines, categories and thresholds requiring review, approval and ratification by the Company’s Board of Directors or Shareholders, and disclosure requirements for Related Party Transactions (RPTs).

This Policy shall be applied in conjunction with SMPC Material Related Party Transaction Policy and in compliance with the Securities and Exchange Commission (SEC) Memorandum Circular No. 10 of 2019, Rules on Material Related Party Transactions for Publicly-Listed Companies (PLCs) pursuant to the Revised Corporation Code of the Philippines.

2. Policy

It is the Company’s policy that any transaction with a Related Party be conducted at arms’ length and on terms generally available to an unaffiliated third party under the same or similar circumstances. There must be a compelling business reason to enter into such a related party transaction, taking into account such factors as expertise of related party, cost efficiency, among others. The Audit Committee as per its Board-approved Charter is tasked to oversee and review the propriety of RPTs and their required reporting disclosures.

3. Definitions

3.1 Related Parties cover the following:

i. SMPC’s Directors,
ii. Officers,
iii. Substantial Shareholders, and
iv. their (nos. i-iii) spouses and relatives within the fourth civil degree of consanguinity or affinity, legitimate or common-law of SMPC’s Directors, Officers and Substantial Shareholders, if these persons have control, joint control or significant influence over SMPC.

SMPC’s Officers – include but not limited to the President, C-level officers, Compliance Officer, Corporate Secretary, and all other officers provided in the company’s by-laws.

SMPC’s Substantial Shareholder - any person who is directly or indirectly the beneficial owner of more than ten percent (10%) of SCC shares. (Rule 38 of the IRR of the SRC)

A person shall be deemed to have an indirect beneficial ownership interest in any security which is:

1. held by members of his immediate family sharing the same household;
2. held by a partnership in which he is a general partner;
3. held by a corporation in which he is a controlling shareholder’
4. subject to any contract, arrangement or understanding which gives him voting power or investment power with respect to such securities.
(Rule 3 of the IRR of the SRC)

3.2 Related Parties also cover the following:

i. SMPC's Parent Company,
ii. Subsidiaries,
iii. Fellow Subsidiaries,
iv. Associate, Affiliate, Joint Venture, or
v. An Entity that is controlled, jointly controlled or significantly influenced or managed by a person who is a related party.

SMPC’s Parent – an Entity that controls SMPC. This includes the ultimate parent of SMPC. A Person or an Entity controls SMPC if and only if the Person or Entity has all of the following:

• Power over SMPC;
• Exposure or rights, to variable returns from its involvement with SMPC; and
• The ability to use its power over SMPC to affect the amount of SMPC’s returns.

SMPC’s Subsidiaries – Entities that are controlled, directly or indirectly, by SMPC.

Fellow Subsidiaries of SMPC – includes Entities under the control of SMPC’s Parent company.

Associate includes:

• An Entity over which SMPC has significant influence.
• Where SMPC holds twenty percent (20%) or more of the voting power of an Entity, it will be presumed that SMPC has significant influence unless it can be clearly demonstrated that this is not the case. (IAS 28)

Affiliate - an Entity linked directly or indirectly to SMPC through any one or a combination of any of the following:

• Ownership, control or power to vote, whether by permanent or temporary proxy or voting trust, or other similar contracts, by a company of at least ten percent (10%) or more of the outstanding voting stock of SMPC, or vice-versa;
• Interlocking directorship or officership, except in cases involving Independent Directors as defined under existing regulations;
• Common stockholders owning at least ten percent (10%) of the outstanding voting stock of the SMPC and the Entity; or
• Management contract or any arrangement granting power to SMPC to direct or cause the direction of management and policies of the Entity, or vice-versa.

Significant Influence - the power to participate in the financial and operating policy decisions of the company but has no control or joint control of those policies. This may be gained by share ownership, statute or agreement.  

Control - the power to govern the financial and operating policies of SMPC or its Subsidiary.

A person or an Entity controls SMPC if and only if the person or Entity has all of the following:

i. Power over SMPC;
ii. Exposure, or rights, to variable returns from its involvement with SMPC; and
iii. The ability to use its power over SMPC to affect the amount of the SMPC's returns.

3.3 Post-employment benefit plan, and sponsoring employers of such a plan, of either the Company or an entity that is a related party of the Company.

3.4  Related Party Transactions cover the following:

 i. A transfer of resources, services or obligations between SMPC & a Related Party, regardless of whether a price is charged.
ii. Outstanding transactions that are entered into with an unrelated party that subsequently becomes a related party.

Examples of RPTs are:

 • Guarantees or commitments to do something if a particular event occurs or does not occur in the future, including executory contracts (i.e. neither party has performed any obligation or both parties have partially performed their obligations to an equal extent)
• Loans to directors
• Sale or purchase of goods
• Sale, purchase or lease of property and/or assets
• Provision or receipt of services or leases
• Assumption of financial/operating obligations
• Subscription for debt or equity issuances
• Establishment of joint venture entities
• Settlement of liabilities on behalf of the Company or its Subsidiary or by the Company or its Subsidiary on behalf of a related party
• Compensation, benefits (monetary and non-monetary), post-employment benefits, termination benefits and share-based payment of current employees

4. Identification, Review and Approval of Related Party Transactions

4.1 Generally, Management promptly reports to the Board of Directors (Board) on the terms, business purpose, benefits and other details of each new, existing or proposed RPT for review and approval. The Board shall approve any RPT before its commencement. However, if the same is not identified beforehand, it must be subsequently reviewed and ratified by the Board.

4.2 The Audit Committee shall review RPTs as part of its oversight responsibilities. The Audit Committee’s Independent Directors are required to review material/significant RPTs to determine whether they are in the best interests of the Company and Shareholders. They are tasked to review RPTs that meet the threshold level requiring approval of the entity’s Board of Directors or Shareholders as defined in item 6 of this Policy.

The Independent Directors shall consider whether the terms of the RPT are arms’ length, fair to the Company and such factors as the following :

• Materiality
• Commercial reasonableness of the terms
• Extent of the Related Party’s interest in the RPT; and
• Conflict of interest, actual or apparent, of the Related Party participating in the transaction.

4.3 The Audit Committee may establish guidelines to oversee conflicts of interest of Management, Board Directors and shareholders, including misuse of corporate assets and abuse in RPTs.

4.4 A Director, officer or key management personnel shall promptly notify the Audit Committee or the Company’s Corporate Counsel of any interest he or his immediate family member had, has or may have in a RPT. He shall disclose all material information concerning the RPT. 

5. Pre-Approved RPTs

The following shall be deemed to be pre-approved by the Board in accordance with the Company’s Table of Authorities:

1. Compensation and employment of executive officers and directors approved by the Compensation & Remuneration Committee;
2. Transactions  with similar terms available to all employees generally;
3. Charitable contributions by the Company where the Related Party is an employee or director, if the aggregate amount involved does not exceed P 1M;
4. Banking-related services and transactions with a Related Party, if the terms are generally the same as or similar to offers of other banks in the ordinary course of business;
5. Share transactions such as dividends, repurchase, rights offerings, available to all shareholders on a pro-rata ownership basis. 

6. Thresholds and Approvals

The Company shall set thresholds and categories for Disclosure and Approval of RPTs. The aggregate amount of RPTs within any twelve (12) month period shall be considered for purposes of applying these thresholds.

• De minimis transaction, or aggregate of similar connected RPTs

o Less than One percent (1%) of Total Assets of Parent or Subsidiary requires approval of the CEO or President;
o One percent (1%) of Total Assets and above of Parent or Subsidiary requires approval of entity’s Board of Directors.

• Disclosure

o Ten percent (10%) of Total Assets and above of Parent (SEC’s prescribed threshold level for materiality in financial statements reporting or disclosure)

• Prior Shareholder Approval

o Fifteen percent (15%) of Total Assets and above of Parent or Subsidiary.
o Exception: Sale or purchase of coal in the ordinary course of business between Parent and its Subsidiaries.

• Material Related Party Transaction, individual or aggregate covering the same related party, within a twelve (12)-month period

o Ten percent (10%) of SMPC’s Consolidated Assets (based on latest audited financial statements) require approval by at least two-thirds (2/3) vote of the Board of Directors, with at least a majority of the Independent Directors to approve the Material RPT.
o In case that a majority of the Independent Directors’ vote is not secured, the Material RPT may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock.
o Subject to compliance with SMPC Material Related Party Transaction Policy and SEC Memorandum Circular No. 10 of 2019, Rules on Material Related Party Transactions for Publicly-Listed Companies (PLCs) pursuant to the Revised Corporation Code of the Philippines.

7. Disclosure

7.1 RPTs that are required to be disclosed and reported in the Company’s filings with the Securities and Exchange Commission (SEC) shall be disclosed in accordance with laws, rules, regulations, Philippine Financial Reporting & Accounting Standards.

7.2 All RPTs shall be disclosed to the Audit Committee.  

7.3 Material RPTs shall be disclosed to the Board and subject to SEC regulatory reporting Memorandum Circular No. 10 of 2019, Rules on Material Related Party Transactions for Publicly-Listed Companies (PLCs) pursuant to the Revised Corporation Code of the Philippines.

8. Review

This Policy will be reviewed as needed or at least annually by the Audit Committee.