Singapore’s troubled Shin Corp deal

Thitinan Pongsudhirak
Asia Times Online
13 Dec 06

No other country’s ruling family does it quite like the Lees of Singapore. National founder Lee Kuan Yew built a gleaming metropolis out of a swampy island in four quick decades of rapid economic growth. His son, current Prime Minister Lee Hsien Loong, has made a priority of carrying Singapore’s economic-development miracle forward through diversifying its investment in the region.

The younger Lee’s wife, Ho Ching, and brother, Lee Hsien Yang, spearhead Singapore’s interlocking state-owned investment vehicles, which are fortified and facilitated by a web of often-opaque cross-share holdings. Despite pockets of opposition disenchantment, few outsiders would dispute that Singapore is a place where things get done because of an enlightened consensus among its political elites, underpinned by the country’s geographically and historically peculiar strengths.

But Singapore’s state-engineered, elite-driven economic success at home has recently been embroiled in controversy and alleged scandal when venturing abroad. The most glaring example involves state-run Temasek Holdings’ purchase last January of Thailand’s Shin Corp, a communications conglomerate founded by recently deposed prime minister Thaksin Shinawatra and majority-owned by his family.

This year, Temasek’s US$1.9 billion buyout of the Shinawatra family’s 49.3% stake in Shin Corp added fuel to the fire of the popular protests that climaxed in the September 19 military coup that upended Thaksin’s government. The controversial transaction apparently surpassed legal limits on foreign ownership of crucial national infrastructure, including telecommunications frequencies, which Shin Corp operated through a government concession.

Questions surrounding the legality of the transaction energized what at the time was a limited Bangkok-based protest movement against Thaksin into a nationwide coalition bent on ousting him from power.

Notwithstanding their implicit role in Thaksin’s political demise and Thailand’s long and costly political crisis, Singapore’s Lees have remained remarkably defiant. Rather than owning up to Temasek’s apparent misjudgment, both Prime Minister Lee and his father Minister Mentor Lee have remained adamant that the government-owned holding company is a by-the-books business enterprise that made a sound investment decision through its purchase of Shin Corp – even as the conglomerate’s shares have nosedived amid the political furor sparked by the deal.

Ho Ching, Temasek’s executive director, has kept a low profile amid the loss-making deal and allowed her husband and father-in-law to take the lead in commenting on it. In a break from the region’s ethic of non-interference in other countries’ internal affairs, Prime Minister Lee said in a recent speech to the Asian-European Editors’ Forum that the September 19 putsch was a “setback” for Thailand’s democracy – a peculiar assertion from the leader of an authoritarian country that recently jailed a political opposition figure for merely speaking in public without a government permit.

Lee justified his assessment on Thaksin’s electoral successes, but his comments, like Temasek’s fateful acquisition decision, missed the essence of the Thai political crisis. It was the steady erosion of Thaksin’s political legitimacy through a long trail of constitutional violations, government corruption, and abuse of state power that finally triggered his downfall. His systematic undermining of independent institutions designed to check and balance elected governments threatened Thailand’s ambitious democratic-reform drive.

Thaksin was often lauded, and his tactics often mirrored Singapore’s soft authoritarian brand of governance. With similar bravado, the elder Lee followed his son’s remark at the recent conference with his insistence that the Temasek-Shin Corp transaction, which after a subsequent tender offer for outstanding shares took Temasek’s holding to 96% of the Thai conglomerate, was “completely above board”. Significantly, that assertion will be tested in Thai, not Singaporean, courts.

Dodgy deal

The circumstances surrounding the transaction are complicated, and seemingly constructed to obfuscate who held what and in what amount. To finalize the deal, Temasek set up a proxy company known as Kularb Kaew, nominally a majority Thai-owned company that bought a stake in Shin Corp with loans provided by Temasek. Critics contend that the shareholding structure could represent a violation of Thailand’s foreign-business law and its 49% foreign-shareholding limit for telecommunications ventures.

The scrutiny Temasek’s maneuvers have received has understandably sent ripples through other foreign ventures in Thailand, some of which have used similar shareholding structures. The Temasek deal and the recent leniency Thai authorities have demonstrated in enforcing the Foreign Business Act poses a conundrum for Thailand’s new government – one that if handled badly could affect broad investor confidence in the Thai economy.

A potential legal ruling against Temasek’s nominee shareholding structure, depending on the details of the decision, could set a legal precedent that unravels other established foreign investments. It may yet be argued that the Temasek-Shin Corp deal represents a peculiar case, because of the state concessions that Thaksin’s family ostensibly sold to a foreign entity.

A drawn-out legal battle would put Temasek back in the middle of the various conflict-of-interest allegations leveled against Thaksin’s government during anti-government protests, and would likely raise hard questions about the circumstances surrounding Shin Corp’s and its subsidiaries’ skyrocketing profits and share values during Thaksin’s five-year political tenure.

Temasek has belatedly established a corporate office in Bangkok, presumably to mount a public relations drive and to prepare a legal defense in protection of its financially damaged assets. Shin Corp’s share price has gone into a tailspin since the January transaction, and proposed massive fines against the company’s iTV subsidiary raise doubts about the conglomerate’s financial future under Temasek’s ownership.

Moreover, the Temasek-Shin Corp saga has put broad Thailand-Singapore relations at risk. Singapore is currently one of Thailand’s leading foreign investors, highlighted by big joint ventures in the banking sector. Despite Prime Minister Lee’s ironic remarks on the state of Thai democracy, he recently deemed it appropriate to raise the Temasek deal during his recent personal meeting with military-installed Prime Minister Surayud Chulanont.

Surayud, known for his efforts as army commander to push the military out of business, rightly confined the Temasek-Shin Corp case to the judicial process. That is, Thai courts, rather than the Prime Minister’s Office, will have the final say on the legality of Temasek’s investment decision.

If Singaporean leaders hope to repair the damage done to Singapore Inc’s reputation in Thailand and maintain cordial commercial ties, they could at least own up to the fact that the Temasek-Shin Corp deal had an unintended impact on Thailand’s political stability. A Teflon attitude that Singapore’s ruling elite can do no wrong, as regularly impressed upon the island republic’s own population, will unfortunately only exacerbate the damage done.

Thitinan Pongsudhirak is director of Chulalongkorn University’s Institute of Security and International Studies based in Bangkok, Thailand. The views expressed are his own.

%d bloggers like this: