21 Sep 2006

Thai-Singapore axis set to unravel

John Burton of the Financial Times
21 Sep 06

Singapore could suffer the most among countries in the region from the military coup against Thaksin Shinawatra, the Thai prime minister, who forged close ties with the city-state and sold his telecommunications group to Singapore's state investment company.

It was the $1.9bn sale of a 49 per cent in Shin Corp by Mr Thaksin's family to Temasek Holdings in January that triggered the political crisis that led to the coup after it was revealed the family paid no taxes on profits from the deal.

Mr Thaksin was seen by Singapore as its strongest supporter for closer economic integration of the Association of South-east Nations, which provoked talk of a Singapore-Bangkok axis within the group.

The ousted Thai leader also expressed admiration for Singapore's political system, telling Singapore officials that he wanted to model his Thai Rak Thai party on the long-ruling People's Action party.

Mr Thaksin decided to sell Shin Corp to Temasek to dispel allegations of conflicts of interest between his family's corporate holdings and his government duties as he prepared to stand for a third term as prime minister.

The deal turned out to be the most controversial conducted by Temasek since Ho Ching, the wife of Singapore's prime minister, became the group's chief executive in 2002 and launched an ambitious global acquisition strategy.

Public protests in Thailand over the deal have led to a nearly 40 per cent fall in Shin Corp's share price since then. In April, Lee Hsien Loong, Ms Ho's husband, told parliament that "Temasek invested in Shin Corp because it saw value in the investment" but added it was not government policy "to second guess Temasek's risk assessments".

A former senior Singapore official, however, criticised Temasek's handling of the deal in light of Mr Thaksin's growing unpopularity at the time. "Temasek did financial due diligence, but not political due diligence," he told the Financial Times. Temasek said it had considered all aspects in concluding the deal.

A Temasek-led consortium increased its stake to 96 per cent in Shin Corp under a mandatory offer, but the takeover has been investigated by Thai regulators over whether Temasek used proxy companies to avoid a 49 per cent ceiling on foreign ownership in strategic industries. Temasek said it fully complied with Thai law.

Michael Montesano, a Thai specialist at the National University of Singapore, believed it was unlikely a new government would nullify the Shin Corp deal, but Temasek might have to reduce its stake if it was found in breach of foreign shareholding limits. Temasek said it was premature to comment on the coup's impact.

Most regional governments expressed concerns about the coup and called for a restoration of democracy in Thailand.

Indonesia's defence minister, Juwono Sudarsono, said the Thai coup illustrated one of the pressures facing south-east Asia's civilian democratic governments. "If there's a lesson it is this: politicians and parliamentarians must get their act together and consolidate party building and deliver on performance," he said. "Otherwise people turn to the military for decisiveness and stability."

In the Philippines, Gloria Macapagal Arroyo, the president who declared a brief state of emergency to crush an alleged coup attempt early this year, was keen to quell speculation the Thai coup might encourage the military to attempt a similar takeover.

Additional reporting by Shawn Donnan in Jakarta and Roel Landingin in Manila





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