FOREIGN BUSINESS ACT : Doubts over concessions 'would shrink Shin prices'

FOREIGN BUSINESS ACT : Doubts over concessions 'would shrink Shin prices'

Uncertainty would force group's shares down if Kularb Kaew is ruled as nominee and foreign stakes have to be sold: broker. Uncertainty about the concessions held by the Shin Corp group will be a major obstacle for its major foreign shareholders when selling their stock if Kularb Kaew is ruled to be a nominee company.

A source from a local brokerage house said the risk factor in the group's concessions was likely to make any forced sell-off of stock take place at low prices.

For example, Shin's cellular flagship Advanced Info Service (AIS) is among the telecom operators being investigated by the Council of State to ascertain whether the amendments in its concession contracts in the past complied with the relevant laws.

The probe was initiated by the Information and Communications Technology Ministry as part of its policy to promote fair competition.

Last November, Chianchuang Kalayanamitr - an adviser to the former House telecommunications committee - also requested the government's Assets Examination Committee to investigate TOT's reduction of its concession fee for AIS's prepaid phone service, which he claimed cost the country Bt83.5 billion.

The source said that besides such regulatory problems, the telecom sector was no longer high growth, which would put pressure on AIS's price if Shin had to sell its shares.

Shin's share price closed at Bt23.40 yesterday, down from Bt23.50. It owns 42 per cent of AIS, which has 18 million subscribers and market capitalisation of more than Bt221.5 billion. Singapore Telecom secured 19.24 per cent of AIS.

AIS's share price closed at Bt75.50 yesterday, up from Bt75.

The group led by Singapore's state investment arm Temasek Holdings acquired 49.6 per cent of Shin on January 23 from the family of ousted prime minister Thaksin Shinawatra and the sibling Damapong family in a deal worth Bt73 billion.

Cedar Holdings owns 54.5 per cent of Shin, while Aspen Holdings has 41.8 per cent.

The government is investigating whether Kularb Kaew, part of the Temasek-linked group in the deal, is a nominee for Temasek in taking over Shin.

If Kularb Kaew is ruled to be a nominee, Shin would automatically become a foreign firm as it would have a foreign holding of 96.3 per cent. As a consequence, AIS and broadcaster iTV would also become foreign firms.

One option for solving this problem is that Temasek might sell Shin shares to reduce its foreign holding to less than 50 per cent to comply with the current Foreign Business Act.

It is estimated that if Temasek has to reduce its stake in Shin to 49 per cent to keep Shin as a Thai company - and if it sells Shin at the market price of around Bt23.50 - it will receive US$995 million (Bt35.8 billion) in cash and incur $1.09 billion in losses. Temasek bought Shin in January at Bt49.25 per share.

However, with a one- to two-year grace period, if Shin is forced to sell its shares or those of its subsidiaries, its major shareholders may consider to sell them gradually via the stock market. However, the prices would not very impressive either, the source said.

A source from Siam City Securities agreed that the risk in AIS's concessions would negatively affect the group's attempt to sell shares in the future. However, the Shin Corp share price is currently lower than its fundamentals.

"But they have time to sell shares," the source said. "It depends on whether major shareholders would like to sell shares in the stock market or to strategic investors. Shin's share price is currently quite attractive. But it would be attractive only when its group concessions do not face regulatory change."

According to a report of Ayudhya Securities, if Temasek had to reduce its shares in Shin, the company would need to sell at least 1.4 billion shares, valued at Bt32.9 billion according to the current market price.

"But there may be a problem as to whether any Thai corporation or local individual would buy Shin shares worth such a large amount. There may be more than one buyer. This may include selling shares back to retail investors in order to add free-floating [stock] from the current 3.7 per cent to the requirement of 15 per cent," the brokerage source said.

One industrialist added that Shin might not have to reduce its share in iTV if Shin is ruled as wholly foreign owned, believing that nobody would buy iTV's shares and that its case will end in Shin's returning the iTV concession to the government.

Shin owns 52.92 per cent of iTV, which is facing a fine of around Bt100 billion from its concession owner, the PM's Office, for adjusting the news and entertainment programme ratio and reducing the concession fee without its consent.

iTV's share price closed yesterday at Bt1.06, against Bt1.02 the previous day.

A source close to Temasek said that Temasek was interested only in AIS and could divest the other businesses in the group if need be.

In a related matter, the Thai Chamber of Commerce (TCC) will propose a joint private committee to support its plan to ask the government to add the voting-right issue in telecom law, in order to create more transparency and prevent a possible nominee case in the future.

A source in the telecommunications committee of the TCC said it needed support from influential private bodies - including the Board of Trade of Thailand, the Federation of Thai Industries and the Thai Bankers Association - to push forward the proposal to the government.

The current telecom law caps foreign shareholding at 49 per cent in local telecom operators, but it has no clause about the voting-right issue. The National Telecommunications Commission said the law would refer to the Foreign Business Act, for which the Commerce Ministry has responsibility, if cases of nominees or voting rights arise in the telecom industry.

"Voting-right restrictions in the telecommunication law will create more transparency for foreign companies operating in the Kingdom," the source said.

The Cabinet recently approved an amendment of the Foreign Business Act, which will allow companies with more than 50 per cent of foreign shareholding and voting rights to readjust the two structures within a certain time frame.

In addition, the telecommunications business has been defined under the draft Act's Annex III, which means that even if voting rights of foreign shareholders exceed 49.99 per cent, they only report to the Commerce Ministry. They can then continue operating their business, with no need to reduce the foreign voting rights.

Business Reporters

The Nation
Friday January 12, 2007