More woes for Temasek’s Shin Corp

Temasek’s Folly: Alarm over AIS ‘bonus’of Bt 80 bn
The Nation
9 Nov 06

Questions raised as to why TOT cut revenue repayment of Shin’s cash-cow.

Temasek Holdings of Singapore will suffer a further setback to its inroads here if the Assets Examination Committee takes on leading cellular firm Advanced Info Service Plc (AIS) for allegedly benefiting from policy corruption by the state-owned TOT Plc that could cost Thailand more than Bt80 billion.

Korn Chatikavanij, deputy secretary-general of the Democrat Party, and Chienchuang Kalayanamit, executive director of Stern Stewart (Thailand) Co, have separately assessed the loss to TOT which it would sustain through to 2015 when the concession to AIS ends.

AIS is the money-spinner in the Shin Group, founded by ousted prime minister Thaksin Shinawatra and his family.

On Tuesday, Chienchuang submitted a statement to Kaewsan Atibodhi, secretary of the Assets Examination Committee (AEC), asking for a full investigation into the AIS concession, as revised under the Thaksin government. The appeal claimed that the relaxed payment terms would cost TOT more than Bt80 billion in lost revenue.

Korn called for the AEC to focus on the benefits that companies related to those in power in the previous government enjoyed as a result of policy corruption. In an article written for The Nation, Korn said AIS negotiated a change in its revenue-sharing arrangement with TOT that gave it big profits at TOT’s expense.

He said the revised revenue-sharing formula allows AIS to continue to pay TOT a flat rate of 20 per cent of revenue from pre-paid mobile phone services for the rest of its concession, instead of later being forced to pay 25 per cent and finally 30 per cent.

“It was never known why TOT deemed it necessary or beneficial to favour AIS in this regard. What is known, however, is that, to date, it has resulted in a revenue loss to TOT of around Bt13 billion,” he said.

“Future losses are even worse as the revenue-sharing was due to go up to 30 per cent on October 25. A conservative estimate indicates that future revenue loss to the end of the concession will be Bt70.5 billion.”

While it is hard to predict the outcome of the AEC probe into TOT’s reduction of the prepaid phone concession fee for AIS, an analyst at a foreign brokerage expects the development to cloud AIS’s stock.

The analyst estimates the reduction in the concession fee for AIS is worth Bt5.8 billion to Bt6 billion per year for next year and 2008.

AIS is also expected to enjoy cost savings of Bt14.5 billion from 2001 through to this year, while the total loss in revenue to TOT from 2001 to the concession’s end is Bt70 billion, according to the analyst’s calculations.

AIS yesterday dropped to Bt91 from Bt93.50 on Tuesday.

Temasek is facing a potential double whammy from its Bt140-billion takeover of Shin Corp early this year. Police are investigating whether it relied on nominees to acquire Shin Corp in violation of the foreign business law.

Temasek now controls 96 per cent of Shin through Cedar Holdings and Aspen Holdings. However, if found guilty, it would be ordered by the court to reduce its stake in Shin to 49 per cent.

Even worse, the value of Shin’s subsidiaries could plunge as they run into legal tangles, making it highly likely that Temasek will swallow more losses. iTV, a Shin subsidiary, is being sued by the state for about Bt90 billion in damages incurred from its programming changes. AIS, Shin’s cash cow, might also have to take a similar hit.

What the authorities can do now is change the revenue-sharing formula between AIS and TOT back to the original agreement in order to prevent further shortfalls at TOT, Korn said.

The deficits already suffered by TOT could be recovered by ordering the Shinawatra clan to pay back the Bt17 billion, or ordering AIS to fork up, he said.

The story of AIS and TOT began in 2000 when the second largest cellular operator, Total Access Communication (DTAC), which holds a cellular concession from CAT Telecom Plc, asked TOT to change the access charge on its prepaid phone revenue to 18 per cent per month from Bt200 per user.

The access charge is what all holders of CAT cellular concessions, including DTAC and True Move, have paid to TOT for accessing other networks via TOT’s facilities.

Shortly after that, AIS asked TOT to change its revenue-sharing formula for prepaid revenue to a flat rate of 20 per cent per month throughout the remaining concession period.

Under the original 25-year cellular concession accorded by TOT in 1990, AIS had to share its prepaid revenue with TOT in steps, starting at 20 per cent, then moving to 25 per cent and later 30 per cent.

TOT decided to grant the requests of DTAC and AIS in April 2001.

Shin Corp’s profits slide to four-year low
11 Nov 06

Shin Corp reported yesterday that its third-quarter earnings slumped to a four-year low, as all core businesses performed weakly.

Thailand’s top telecommunications group, which is controlled by Temasek Holdings, posted a July to September net profit of 855.43 million baht (S$36.78 million). This was the lowest since mid-2002, down 54 per cent from 1.9 billion baht a year earlier and 47 per cent below the previous quarter’s 1.6 billion baht.

Total expenses, including sales and services costs, rose 20 per cent to 2.18 billion baht from 1.82 billion baht a year ago. Revenue from sales and services rose 6.3 per cent to 3.21 billion baht from 3.02 billion baht.

Temasek has controlled Shin Corp since January, when it led a group of investors to buy 49.6 per cent of the company from the family of former Thai prime minister Thaksin Shinawatra for US$1.9 billion (S$2.98 billion). The group subsequently raised its stake to more than 96 per cent through a tender offer.

Most of Shin’s earnings come from Advanced Info Service (AIS), Thailand’s biggest mobile phone company, and Shin Satellite, Asia’s third-biggest commercial satellite operator.