Investors in a pickle over new foreign business law

Investors in a pickle over new foreign business law.

Confusion was the order of the day yesterday as international clients phoned their law firms in Bangkok asking for clarification and advice on how they should restructure their businesses in the wake of the Cabinet's approval of the draft amendment to the Foreign Business Act.

A lawyer from Johnson Strokes & Master, who asked not to be named, said he received more than 100 calls from foreign businesses in a day.

"The phone has kept on ringing since Tuesday after the Cabinet's approval of the draft law," he said.

"Most of them are not sure if they have to reduce their shares to below 50 per cent to comply with the new rules."

The foreign businesses were concerned with the decision made by Prime Minister Surayud Chulanont's Cabinet to approve the draft, which will require companies in some sectors to revise their foreign shares or voting rights to below 50 per cent.

A flurry of calls reflected the confusion among business communities over the interpretation of the new law, even though the Commerce Ministry said the law would spell out clearer definition of the sectors subject to protection.

The lawyer from Johnson Strokes & Master said: "Some of the customers are not aware of what sectors would be subject to protective measures. They don't know what are the sectors under Annex 1, 2 or 3. They need advice."

The law includes three lists of sectors subject to different degrees of protection. Annex 1 is the most protective one, followed by Annex 2. Annex 3 covers sectors opened up for foreigners with certain conditions.

Kittipong Urapeepatanapong, a partner at Baker & McKenzie, was also busy answering the concerns raised by clients. "Around 50 to 60 companies called us in a day, asking us to check their shareholding structure. Some of them were made from overseas," he said.

He said clients kept asking him about the rationale behind the law. "They don't understand why the government has to introduce the law because the government barely changed anything in Annex 3."

Kittipong said investors were concerned over what they had to do. "The government will be asking foreign companies who hold more than 50 per cent of shares to report to the Commerce Ministry. And then what would happen after that? The problem is a lack of communication," he said.

The lawyer said listed companies should not be adversely affected. "The only affected listed firm that I can tell now is Siam City Cement. The other non-listed firm is Asia Cement, which may be asked to revise its shares because the company engages in the mining business, which is subject to protection under Annex 2," he said.

Kittipong urged the government to lift all restrictions imposed in the Annex 3 category.

Another source at a legal firm said a number of law firms have been contacted by investment bankers offering to provide a list of Thais who are interested in buying shares from foreigners who might have to sell.

The amendments will give foreigners two years to sell their shares to Thai partners to reduce their stakes below half.

Legal experts also noted that as the draft law was likely to take at least three to four months to become effective, some companies had asked lawyers to take pre-emptive action to restructure companies before the law was active. They don't want to face legal wrangling in the same fashion as Kularb Kaew.

Chaturong Chaisang, leader of the Thai Rak Thai Party, criticised the government's decision to amend the law, saying it would discourage foreigners from investing in Thailand.

"The decision was made without considering the overall impact on the country's investment atmosphere," he said.

Somluck Srimalee

The Nation
Thursday January 11, 2007