New kick in the Shin for Thaksin
Peter Alford, Tokyo correspondent
October 25, 2006
OF the slew of actions now afoot over the sale of Thailand's Shin Corp to Temasek Holdings, the one that could most hurt the already bruised Singaporeans is an action initiated by a junior academic at Bangkok's Rangsit University.
The Central Administrative Court has agreed to try an action by Sattra Toa-on, a 28-year-old law lecturer, against state regulators over their alleged failure to enforce rules that would have prevented then prime minister Thaksin Shinawatra's family from selling control of the Shin Corp communications group for 73.2 billion baht ($2.6 billion) to the Singapore government investment company.
After initially buying 49.6 per cent of Thailand's biggest telecoms group from Thaksin's children and relatives in January, the Temasek-led consortium now owns 96 per cent of Shin Corp equity. Temasek itself claims an "economic interest" in 76 per cent of the group.
Thaksin is exiled in London, having been overthrown five weeks ago by a coup that culminated in a series of explosive events sparked by the initial Shin Corp purchase.
This deal was already turning into a stinker for the Singaporeans. They're currently down about Bt23 billion on the market value of the investment and, though they insist they behaved with perfect propriety, Singapore Inc's reputation for fastidiousness has hardly been burnished.
Sattra's legal action is further bad news because it calls into question the fundamental legality of the Shin Corp deal. It alleges the use of nominally Thai-owned but Singapore-controlled front companies to flout the country's 49 per cent limit on foreign ownership of strategic assets was clearly in breach of the law but that the state regulatory agencies refused even to investigate.
That's a bad thing by implication too for the 13,000 or so foreign investors in Thai corporations and property who use nominee structures to dodge foreign investment restrictions. Already 16 other large takeovers that employed apparent nominee companies have been singled out for retrospective investigation.
Sattra's suit makes more difficult Temasek's attempts to produce what might be described as an administrative resolution to the foreign ownership problems it created by grabbing for Shin Corp when Thaksin's family offered it on a plate.
The case will delay any attempt to dilute Temasek's stake below the legal foreign ownership ceiling before other adverse findings arise. (The alleged use of a suspected nominee company, Kularb Kaew, is under police investigation and a report is expected by the end of November.)
Several Thai investment funds have indicated tentative interest in helping Temasek lighten its holdings at "reasonable" prices - that is, considerably less than the unprecedented Bt49.25 per share Temasek's consortium paid Thaksin's kin in January (the shares are trading around Bt34 this week). But there's little apparent interest from the big corporate investors Temasek would need to bed down much of what, even at current depressed prices, would amount to almost Bt50 billion of stock.
In any case it's hard to envisage anyone taking a share placement large or small until Sattra's action is settled.
If he succeeded in proving to the court that the regulators, under Thaksin's thumb, refused even to investigate foreign ownership breaches, the state licences for Thailand's largest mobile phone, the iTV television network and the country's only commercial satellite operator, among other assets, would be at considerable risk.
Most foreign investors in Bangkok blame the system for the Shin Corp fiasco. It's certainly undeniable that for three decades, Thai governments and bureaucrats have winked at increasingly barefaced abuses of foreign ownership rules, arguing, when pressed, the country's need for imported capital.
Rather than address that need and confront the naive economic nationalism that still prevails in Thai public discussion, successive governments have allowed the use of nominee companies and other devices to create the legal fiction of Thai ownership of assets that have in fact passed into foreign control.
In doing so they have allowed a whole class of fixers and rent-seekers to line their pockets - among them some of the kingdom's wealthier people - because what better circumstantial evidence is there that you are not a foreign corporation's puppet if you have the means to own what you say you own? In the current case, the funding and ownership entitlements of the Thai partners in Temasek's consortium become a crucial issue.
No prime minister should have been more aware than Thaksin, a billionaire former businessman on intimate terms with international investment flows, of the distortions and corrupt possibilities in his country's defacto foreign investment regime. And no previous prime minister had Thaksin's opportunities to fix the problem - two clear terms in office during which he thoroughly dominated the government, the parliament and the bureaucracy.
Instead, Thaksin sat on his hands until, in what turned out to be his final months in office, his family and Temasek conspired to exploit the system's shortcomings in the most spectacular fashion. One consequence was that the Thaksin family was able to cash-out of Shin Corp at a price never seen before or since.
Now foreign business people in Bangkok, the law firms who facilitated exploitation of the current system and the Board of Trade, which mediates between foreign investors and the government, are quietly urging General Surayud Chulanont's interim administration to let Temasek off the hook, on condition it divests to below the 49 per cent ceiling.
Then let's start again with clear, realistic foreign ownership rules, say some, warning that the alternative is a permanent loss of confidence in Thailand as an investment destination.
Almost incredibly, however, others urge a cooling-off period, then a quiet return to the old "pragmatic" system. Prominent among them are property developers and lawyers who know the ways they've been marketing land titles to foreigners would not survive scrutiny even under more enlightened and transparent foreign ownership regimes.
In the meantime, however, Bangkok lawyers and corporate advisers are telling foreign investors they need to expect their investment structures to be carefully scrutinised by Thai regulators. Everyone now awaits developments in the Temasek case.
Note: using today's exchange rate, the paper loss of 23 billion Baht is equivalent to S$968,735,546.40, or US$616,126,398.90.