Temasek-Shin Corp transaction ‘professional and proper’?

The Nation Multimedia
12 Oct 06

I think it is fair to say that there are many questions that need to be answered before we can conclude, as Singapore’s Prime Minister Lee Hsien Loong did on Friday, that the Shin Corp transaction was “professional and proper”.

Indeed, I would be surprised if, in spite of his rhetoric, Lee would be genuinely satisfied that the deal’s due diligence process was of the quality that he has the right to expect from Temasek, a lead investor for Singapore Inc.

If we were to accept statements by Khun Boonklee Plangsiri, Shin’s chairman at the time of the deal, then the management of the underlying companies was not involved in due diligence. Khun Boonklee declared right up to the announcement of the transaction that management was not aware of any discussions taking place regarding a sale.

Either way, Temasek is at fault. Conducting due diligence on the senior management of a target firm is usually the top priority in a friendly takeover deal, as it is the easiest and least costly way of finding out how a company is being run and what its prospects are. This is a no-brainer in any M&A practitioner rulebook.

Assuming Khun Boonklee was telling the truth about the lack of due diligence involving Shin and its subsidiaries, the implications for Temasek’s investment procedures must surely be a cause for concern for Lee. The Singaporean public, whose money has been entrusted to Temasek to manage, must also be worried. This can only mean that Temasek went into this deal with no idea about the internal affairs or the financial health of Shin and its subsidiaries. Temasek may not even be aware of the legal case pending in the Administrative Court regarding ITV’s concession payments. Simple, legal due diligence would surely have led to potential liabilities at least being shared with the prospective sellers. Information that is publicly available could be inaccurate and out-of-date. Temasek also completely missed the Thai Air Asia ownership requirement.

Those are issues that call into question claims that the deal was “professionally” handled. But there are even bigger questions relating to whether the deal was “proper”. The word “proper” can mean “correct according to procedures” or, more commonly, it is taken to mean “decent or ethical”. This definition raises some issues:

1 Lee has himself acknowledged that in the months leading up to the share purchase, Thaksin’s dirty laundry was already being hung out for all to see. Temasek should therefore have been aware that many people would perceive the deal as the acquisition of “tainted goods”. Singaporeans should certainly be asking Temasek whether it is proper for their national reserves to be used in that way.

2 In setting up convoluted structures to buy shares, Temasek would have been fully aware that they were relying on legal advice to take advantage of what at best were loopholes in the Thai Alien Business Law and in the Thai definition of “foreign”. Again, would Lee confirm that taking advantage of loopholes that are clearly against the spirit of the law in Temasek’s modus operandi?

3 Having made the purchases, Temasek was obliged by Thai law – which is not dissimilar to Singapore law in any respect – to treat minority shareholders fairly by buying shares from them at the same price Temasek paid to the major holders in what is known as the General Tender Offer. Again Temasek failed to do that. Temasek asked Thailand’s SEC for a waiver against having to tender for shares from minority holders of two of Shin’s listed subsidiaries, Shinsat and ITV. Temasek’s reason was that these companies were not the “real” targets of the acquisition.

Subsequent to that, Temasek made an offer to minority holders of AIS – the declared target – that was a full 30 per cent below the market price of AIS’s share on the day of the original transaction. That Thailand’s SEC allowed Temasek to do this is a separate issue that I hope will soon be dealt with. The fact that Temasek clearly offered a price far below the implied price paid to the Shinawatra family clearly cannot be considered “proper”. Indeed, when JP Morgan was asked to give independent advice to minority shareholders in AIS, it said Temasek’s offer was “unfair”.

Moreover, it should be pointed out that though Shinsat and ITV were not the “real” targets, control has nevertheless changed hands and minority shareholders were deprived of their right to exit. The new owners have been entirely silent as to their intentions towards the companies they “unintentionally” acquired. It has been more than nine months, and ITV has lost more than 70 per cent of its market value since the beginning of the year. Many minority shareholders who were cheated by the process are still waiting for an answer.

4 Last but not least, Temasek is aware that neither Thaksin Shinawatra nor his wife Pojaman had any right to act on behalf of Shin as decision makers. We are led to believe by Thaksin that all decisions and negotiations were made by his children – something that is entirely unbelievable.

Thaksin’s eldest son has gone on record to say that the decision to sell Shin was made by his “elders”. If Thaksin or his wife were those “elders”, then there will be serious repercussions. It is a serious crime for the prime minister and his spouse to engage in undeclared private business.

The premier’s role is to uphold the interest of the general public, not the interest of his purse. It cannot by any stretch be considered proper for Temasek to have knowingly negotiated a transaction in a way that was unconstitutional. More importantly, such a deal would be improper, if not illegal, given the controversy surrounding the deal, for Temasek to remain silent on the issue.

In my perhaps naive opinion, I think the best course of action for Temasek would be to come clean on all issues relating to the deal and the true nature of its Thai “partners”.

This would be the start of a more transparent relationship between our two countries. In Thailand, our willingness to forgive and compromise knows no bounds.

One reason why the situation has gone from bad to worse for Temasek is the company’s reluctance to be up-front. Coming clean would be the most “professional” response to mistakes made, and certainly the most “proper” one under such circumstances.

It would also help ameliorate any misunderstanding arising from the Shin deal, and serve as a gesture of goodwill between the two countries. After all, Singapore and Thailand have been and will continue to be major partners in the world economy.


Korn Chatikavanij is deputy secretary general of the Democrat Party and can be reached at:

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