Temasek wary of Shin

March 5, 2010
Singapore Democrats

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The Bangkok Post

Firm may sell shares for the right price

The Singapore investment giant Temasek could move to divest its shareholdings in Shin Corp amid growing business and regulatory risk in the wake of the Supreme Court’s ruling in the Shinawatra family’s assets case.

Temasek, the major shareholder of Shin, may sell if the right buyer emerged, said Somprasong Boonyachai, Shin’s executive chairman and acting president.

“If a buyer emerged today, they would probably sell. [Temasek] has never indicated that it wanted to hold its investment forever,” he told the Bangkok Post.

Mr Somprasong said he had spoken with Temasek executives earlier this week about the implications of last week’s ruling in the Thaksin assets seizure case and its potential impact on Shin and its associated companies.

He explained to Temasek that the court case did not directly involve Shin or its mobile flagship AIS, as the case related to the personal affairs of its former shareholder and founder.

But share prices for Shin and other telecom firms have plummeted in recent days amid fears that the government may seek damages from local operators.

The Supreme Court last Friday ordered 46 billion baht in assets confiscated from Mr Thaksin and his family for abusing his power while in office by enacting policies for personal benefit. The policies included imposing an excise tax on telecom services in 2003 and directing the Export-Import Bank to approve a loan to Burma to finance the use of satellite services from Thaicom, 41% held by Shin.

Prime Minister Abhisit Vejjajiva this week ordered an inquiry into the culpability of private operators in light of the ruling.

The Finance Ministry previously estimated that amendments to concession contracts between state-owned TOT Corp and CAT Telecom and private operators such as AIS, DTAC, True and TT&T have cost the state more than 138 billion baht.

Phatra Securities this week estimated that AIS, 42.65% held by Shin, could be subject to claims of up to 68 billion baht if the government demanded compensation for the excise tax policy as well as changes in revenue-sharing payments for pre-paid services approved in 2001 under the Thaksin government.

Shin, AIS and Thaicom this week all issued statements to the Stock Exchange of Thailand expressing confidence that they could clarify the “historical background, principles and rationale” of their past dealings with the state.

Mr Somprasong said he had reassured Temasek that Shin was in full compliance with Thai law.

But regulatory and political risk has certainly taken a toll on Temasek’s patience. Temasek, like any investor, needed to consider its shareholdings’ short- and long-term prospects.

“Say you buy a certain shirt for 1,000 baht. Today, you no longer like the shirt. But it’s not really a big concern, and you have lots of alternatives,” Mr Somprasong said.

“For Temasek, they have a very large, very diverse portfolio. They have suffered losses before, perhaps even larger than that of the Shin deal.”

Net portfolio assets for Temasek stood at S$172 billion (about 4 trillion baht) as of July 2009. The global crisis took a sharp toll on the fund’s holdings, with total shareholder returns down 30% for the year to March 2009. The fund has taken a hit from a series of ill-timed investments over the past few years, including a US$5.9-billion investment in the US investment bank Merrill Lynch in 2007, right before the US sub-prime mortgage crisis.

Mr Somprasong said over the past two years, Shin Corp had tried to divorce itself from politics, recent events notwithstanding. He said the company would co-operate fully with any official inquiries and asked for fair treatment.

He said the 2001 contract amendment cutting revenue-sharing payments to TOT to a flat 20%, from 25-30%, for prepaid services should be looked at fairly from both sides.

The concession change also committed AIS to reduce calling rates, Mr Somprasong said.

“We actually reduced rates much more than what was required under the amendment,” he said.

AIS was also obliged to invest more in its network – which was transferred to TOT – to help accommodate the increase in mobile customers, Mr Somprasong said.

A Temasek spokesman in Singapore declined to comment on its Thai investments or the political environment.

Temasek took control of Shin in January 2006 in a 73-billion-baht buyout of a 49% stake controlled by the Shinawatra family.

The investment was structured through a series of complicated holding vehicles to bypass foreign investment restrictions under the Foreign Business Act. Shin today is 54% owned by Cedar Holding and 41.68% by Aspen Holdings, which are both in turn held by Temasek.

The Singapore investment fund has lost a fortune on paper from its investment, considering that the shares are currently trading more than 44% down from the original purchase price of 49.25 baht each.

SHIN shares closed yesterday on the SET at 27.50 baht, up 50 satang, in trade worth 24 million baht.