THAILAND: Thaksin's family sells Shin stake to Temasek

$3 billion deal between Shin Corp and Singapore's Temasek Holding ends Thakin's association with telecoms-based conglomerate

Straits Times
Tuesday, January 24, 2006

By Nirmal Ghosh

Bangkok --- Thai Prime Minister Thaksin Shinawatra's family has sold its 49.6 per cent controlling stake in Shin Corp to Singapore's Temasek Holdings.

Ending days of intense speculation, senior executives from both companies yesterday released details of the deal, which at 73.3 billion baht (S$3 billion) is the biggest in Thailand's history.

The transaction ends the Shinawatra family's association with Shin Corp, the sprawling telecoms-based conglomerate founded by Prime Minister Thaksin Shinawatra and his wife Pojamarn Damapong 22 years ago.

"The deal is finished," Mr Thaksin told reporters minutes before yesterday's press conference where details of the transaction were released. "My children made the decision because they want their father to focus on politics and to avoid public criticism about conflicts of interest," he said.

The Thai Prime Minister has often come under fire from critics who allege that his political policies have helped build his family's corporate empire.

Shin Corp shares have tripled in value since he took office five years ago, and while the telecom sector still accounts for 90 per cent of its business it has recently diversified into a low-cost airline -- Thai Air Asia -- and consumer financing. It also owns broadcaster iTV.

Shin Corp's net income in the third quarter of last year was 1.98 billion baht.

Temasek's managing director of investments S. Iswaran said yesterday that "Temasek is a committed long-term investor in Shin Corp" and would leverage its own strengths to grow the company regionally and globally.

Mr Iswaran told The Straits Times later: "We have done this deal on a purely commercial basis. Our focus has only been on the value proposition and whether it makes sense for Temasek."

He said political issues did not arise. "For us ultimately the important question was what is our view of the country, the sector, and specifically this company and its team of people running it," Mr Iswaran said.

"And our assessment was the combination of factors was right, and we were prepared to take the risk because the returns are there to justify it."

In a statement, Temasek said: "Upon completion of the transaction, Shin Corp will remain a majority-owned Thai company."

The acquisition was carried out by Temasek along with Siam Commercial Bank and a group of unidentified individual Thai investors through a company called Kularb Kaew. Kularb Kaew means crystal rose in Thai.

A total of about 1.49 billion shares changed hands at 49.25 baht a piece.

Shin Corp's executive chairman Boonklee Plangsiri said: "This is another day that will be recorded in history for the country's stock exchange and another historic day for Shin Corp."

Dr Suvarn Valaisathien, a spokesman for the Shinawatra and Damapong families, said: "This transaction represents a win-win proposition.

"It allows the Shinawatra and Damapong families to exit completely from the business while providing Shin Corp with experienced, reputable and committed long-term shareholders who can support the company's regional growth aspirations and further strengthen Thailand's communications sector."

He added that the Shinawatra and Damapong families would donate some of the proceeds from the sale to social and educational work in Thailand.

Advanced Info Service the crown jewel of Shin empire

The key attraction of Shin Corporation for Temasek Holdings lies in its "crown jewel" Advanced Info Service (AIS), the most profitable business among the conglomerate's 20-odd companies, according to analysts.

Temasek yesterday bought a 49.6 per cent stake in Shin Corp from Thai Prime Minister Thaksin Shinawatra's family. Shin Corp, with five core businesses ranging from wireless telecommunications to consumer finance, holds 42.9 per cent of AIS, the No. 1 telco.

AIS commands 55 per cent of the Thai market and chalked up net profit of 4.4 billion baht (S$185.2 million) for the quarter ended Sept 30 last year, down from 5.26 billion baht a year ago.

"Although AIS' mobile service revenues fell about 6 per cent year-on-year for the September 2005 quarter as market competition intensified, the telco continues to generate the most cash flow for Shin Corp," noted a telecoms consultant. The performance of Shin Corp's other units such as Thai TV station ITV, Shin Satellite, Capital OK -- a joint venture between Shin Corp and DBS -- and budget airline Thai AirAsia "are probably less interesting" to Temasek, he said.

ITV's new programming structure is expected to generate more advertising revenue and may pump up its profits if cost controls bear fruit, he noted.

Another unit Shin Satellite, which launched iPStar -- the world's largest broadband satellite -- last year, projects revenues this year to double to 10 billion baht but its investment may still "take quite a while to break even."

But Temasek's keen interest in grabbing Shin's AIS stake is not motivated by its financial performance as much as strategy.

A local analyst said Temasek's move could be a way of protecting subsidiary SingTel's position in AIS from any foreign players eyeing a stake in the Thai firm. SingTel owns 21.4 per cent of AIS.

"SingTel would not want a repeat in Thailand of what happened to its stake in Bharti Telecom in India, when Vodafone recently raised its stake in the telco and appears to want more dominant control," he said.

Foreign telcos, including Japan's NTT DoCoMo and China Telecom, had made offers for the Shinawatra family's AIS stake last year, but the deals were scuttled because the original shareholders, particularly SingTel, exercised their first right of refusal.

SingTel itself is keen to raise its stake in AIS as well as in another Shin associate, CS Loxinfo, a licensed Internet service provider in which it now holds 13.45 per cent.

SingTel spokesman Peter Heng said: "We're pleased to welcome Temasek as our partner to further develop and create value in the Shin associates such as AIS and CS Loxinfo... We would like to increase our stake in the associates at the right price and terms, and we will continue to explore all options."

One local analyst said SingTel could pump up its stake by buying AIS shares on the market or consolidate its stake by gradually buying Temasek's shares after the Shin deal is completed.

All executives of Shin and its associates are likely to retain their posts, but Mr Thaksin's youngest sister Yingluck Shinawatra, AIS' president, is expected to resign.

A Thai newspaper claimed that SingTel chairman Chumpol NaLamlieng has been approached by Temasek to head Shin.

Shin Corp will remain a majority Thai-owned company

The Shinawatra clan's exit from Shin Corp, founded 22 years ago by former policeman and computer salesman Thaksin Shinawatra and his wife Pojamarn Damapong, is seen as a lucrative business deal, on the face of it, with positive political implications for Thai Prime Minister Thaksin.

But there remains potential for controversy. Addressing one aspect that has caused concern in Thailand, a Temasek Holdings statement yesterday said: "This is an outright sale and the (Shinawatra and Damapong) families have no buy-back rights."

It also specified: "Upon completion of the transaction, Shin Corp will remain a majority Thai-owned company."

The distinction is important because there has been criticism from political quarters and commentators as to why Mr Thaksin is selling to foreigners a business that is seen as critical to the economy.

The deal has also considerably raised Singapore's profile in Thailand, where it is seen as an aggressive investor -- and there may be some backlash.

"While as a business deal there is no moral dimension, Singapore may be portrayed negatively as collaborating with Mr Thaksin," one analyst who declined to be named, told The Straits Times.

Temasek completed the deal through Cypress Holdings and Aspen Holdings, Thai subsidiaries of Temasek; and Cedar Holdings, 49 per cent owned by Temasek and 51 per cent owned by Siam Commercial Bank and Kularb Kaew, described as a group of individual Thai investors.

But the process is not over because the acquisition activated a trigger under law, which obliges Temasek to make a mandatory general offer for the whole company. It must be completed in 37 days.

Temasek said it would offer 72 baht a share for shares of Advanced Info Service, which makes up 90 per cent of Shin Corp's business.

Temasek's managing director for investments, Mr S. Iswaran, citing the views of the investor community, analysts and Temasek's advisers, said yesterday: "We think this is fair value. Our offer is not based on market price. It is based on fundamental value."

But opposition Democrat Party MP Korn Chatikavanij told The Straits Times: "I don't think Temasek is being sufficiently responsible in protecting minority rights. It is making use of a Thai Securities and Exchange Commission loophole in getting away with not offering a fair price; 72 baht a share is well below the market price of 104 baht."

The Shinawatra and Damapong families came away from the deal with 73.3 billion baht (S$3.09 billion), some of which they will invest in social and education projects in Thailand. That will, in turn, bring political dividends.

Mr Thaksin has often made it clear he intends to stay in power for several more years. To do this he has to distance himself from allegations of conflict of interest and remain engaged with the Thai people, impressing them with his hands-on approach to governance demonstrated as recently as last week during his televised poverty-busting camp in the north-east.

Distancing his family from Shin Corp "could represent Thaksin's commitment to being in the forefront of Thai politics over the long haul," said Phatra Securities research head Supavud Saicheua.