THAILAND: Thai about-turn on foreign ownership laws

Finance minister says telecom firms will be exempt from new laws

Straits Times
Thursday, January 11, 2007

By Leslie Lopez

Thailand reversed course on new rules governing foreign ownership in the country yesterday, just two weeks after another major policy reversal.

A day after accepting proposed limits on foreign ownership of Thai companies, the country's finance minister said yesterday that many sectors of the economy, including telecommunications companies currently operating in the country, would be exempt from the regulations.

The announcement confounded analysts, who had earlier assumed that telecommunications companies -- particularly Shin Corp -- were the actual target of the new rules.

Yesterday, Finance Minister Pridiyathorn Devakula, in a reversal from comments made on Tuesday, was quoted by wire agencies as saying that existing telecommunications companies would still be allowed to operate under foreign control, although new entrants would be subject to the proposed restrictions. He admitted that he had mistakenly included telecommunications companies the previous day.

He also said authorities would be flexible in applying the planned law, which still needs parliamentary approval.

The reversal yesterday was the second major turnaround in Thai policy in just over two weeks.

Late last month, the country imposed new capital controls requiring foreigners to deposit 30per cent of all the money they invest in the country in a non-interest bearing account at the central bank.

But the very next day, investments destined for the stock market were exempted after the stock market plunged by 14per cent.

The announcement on Tuesday of the plans to restrict foreign ownership of local companies sent Thai stocks to their lowest close in two years.

Under amendments to the country's Foreign Business Act, the government said overseas investors operating in Thailand would be given one year to disclose their exact holdings in their local operations and another two years to reduce their holdings to less than 50per cent.

Foreign companies which have voting rights exceeding 50per cent in their Thai operations would also have to surrender control of those privileges to their local partners.

The new rules have been widely perceived as a reaction to the controversial Shin Corp deal in January last year, in which then-prime minister Thaksin Shinawatra's family sold a majority stake in the telecommunications company to Temasek.

The sale drew widespread protests in Thailand because it placed strategic assets, including communications satellites, in the hands of foreigners, and because the deal was structured so that Mr Thaksin's family did not have to pay capital gains taxes on it.

Bangkok-based analysts said earlier that they saw the new amendments as being aimed at diluting Temasek's dominant position in Shin Corp.

Temasek and its Thai partners own a combined 96per cent of the conglomerate, which in turn controls Advanced Info Service, Thailand's biggest mobile phone company.

But the impact of yesterday's reversal on Shin Corp is unclear.

Temasek, which has repeatedly denied violating any Thai law in the purchase of Shin Corp, said yesterday that it was still awaiting details of the new amendments.

"We await details and we'll then consult our legal counsel on the implications of the recent changes," Temasek managing director for corporate affairs Myrna Thomas said in a brief telephone interview.

Earlier yesterday, before the apparent reversal, Thai policymakers scrambled to calm investors spooked by the new ownership rules.

The stock market recovered slightly as Mr Pridiyathorn stressed to investors that the new rules were not as sweeping as previously feared.

"There are altogether 2,428 foreign businesses (in Thailand). Of these, only 1,337 businesses will be affected," he said.

But investors were not soothed.

"In a situation like this, we need confidence-building news. This will erode the confidence further," Mr Peter Van Haren, chairman of the foreign chamber of commerce, said of the new rules.

He told the Associated Press that he did not find the minister's speech reassuring.

"Our stance is the same as before, that the amendment will make it more difficult for existing companies and future foreign investors in Thailand," he told AP.

Mr Van Haren said that, although there will be a grace period, the retroactive nature of the law makes it appear that "the playing rules are changed after the game has started".

"If you are going to change the ability to do business by changing business laws, that's fine. But if it's done arbitrarily, it increases the risk of doing business there," he said.