Amy Kazmin
Financial Times
10 Jan 07
The overseas business community was grappling on Tuesday with changes to foreign investment laws unveiled by Thailand’s military-installed government.
The changes, already endorsed by the cabinet, are intended to “clarify” previously ambiguous foreign investment rules and close loopholes that have for decades allowed multinational companies to operate local subsidiaries in businesses that were supposed to be reserved for Thais.
But the overarching purpose appears to be to force Temasek Holdings of Singapore to reduce drastically its estimated 96 per cent stake in Shin Corp, the telecommunications empire founded by Thaksin Shinawatra, the ousted prime minister, before he entered politics.
Telenor of Norway, which controls Total Access Communications, Thailand’s second largest mobile phone operator, could be the other significant casualty, as it owns 32 per cent of the phone company directly, but has financial exposure to about 73 per cent of the company through its indirect holdings.
Foreigners who have purchased holiday homes in Phuket or other Thai beach resorts in recent years might also be in for anxious times. The corporate structures that many of them used to circumvent the Thai restrictions on foreign land ownership have, in effect, been abolished.
However, many incumbent companies, which were considered Thai under the old law but will be considered foreign-owned under the new, more stringent definition, will be allowed to remain in operation in sectors ostensibly reserved for Thai businesses. The arrangement reinforces perceptions that the entire exercise has been primarily intended to target Temasek.
Tesco and Carrefour, the foreign hypermarket operators, might have escaped the spectre of a forced sell-off, though their size and their ownership of land for their stores could prove touchy, and the government is still drafting a new retail law that could have an impact on their businesses.
The Thai Stock Exchange – already battered by botched capital controls, a new year’s eve bombing and down another 2.7 per cent on Tuesday – tried to play down the impact of the measure. It said that no more than 15 listed companies would be forced to adjust their shareholding structure, though it did not specify which ones.
Krirk-krai Jirapaet, the commerce minister, said Tuesday that the revised law would boost investor confidence in Thailand by providing transparent guidelines in contrast to the ambiguity of the past.
“This law will help improve investor confidence in Thailand because it will show that Thailand has a clear policy,” said Mr Krirk-krai at a press conference after the Cabinet endorsed the proposal.
Analysts, however, say that the law will in effect restrict fresh foreign investment in a wide range of service sector businesses in which overseas companies could engage when the definition of what constituted a “foreign-owned company” was narrower.
Vikas Kawatra, head of institutional sales at Kim Eng Securities, wrote: “At a time when many nations are welcoming foreign investments, by tightening the rules in this manner the present government has sent a wrong signal to foreigners.”
Until now, Thailand has only looked at actual shareholdings to determine whether a company was Thai-owned or foreign-owned. The practice allowed many international companies to use preference shares in effect to control local businesses that were technically Thai-owned under the old law.
However, the new law requires Thais to have 51 per cent of the votes deemed Thai. Companies will be given two years to adjust their voting rights in line with the new rule, but only a year to sell down actual equity holdings that exceed 49 per cent.