Pridiyathorn warns against use of NVDRs to skirt law

Pridiyathorn warns against use of NVDRs to skirt law.

UMESH PANDEY

Foreigners holding shares in local companies through non-voting depository receipts (NVDRs) can continue to do so, but abusing the system to circumvent the Foreign Business Act (FBA) could land them in trouble, says the finance minister. ''Foreigners who hold shares through NVDRs can continue to hold them as the NVDRs have no voting rights. Therefore they are not violating the rules,'' M.R. Pridiyathorn Devakula said yesterday.

''By saying this I do not mean that companies can misuse this structure to hold more shares than what is allowed by law, because if they breach the shareholding then they would have to comply with the law by lowering their holding, but if they have excess voting [rights] via NVDRs then they would fall under the grandfather clause.''

The investment community has observed that NVDRs could be used as a loophole in the structuring of companies once the changes in the FBA take effect.

The cabinet this week approved amendments to the FBA intended to curb the use of local nominees to hold shares on behalf of foreign investors. The Council of State, the government's legal advisory body, is now reviewing the draft.

NVDR holders are entitled to full economic rights, including dividends and rights issues, but are not allowed to vote, except on motions involving delisting. Shares held under NVDRs gain voting rights once they are sold back to Thai investors.

One broker raised the example of a company in which Thai citizens held 48% of the shares while foreigners held 49%, plus another 3%, the latter without voting rights, through NVDRs. ''Will this mean that the company is breaching the law?'' he asked.

The use of nominees and violations of foreign shareholding limits have been in the spotlight since last January when Temasek Holdings of Singapore acquired control of Shin Corp, the telecommunications company founded by deposed Prime Minister Thaksin Shinawatra. Temasek has denied that it used nominees to gain majority control of Shin.

However, the broker asked whether a company such as Temasek could convert or hold excess shares in NVDRs under one or two names in order to comply with the law.

M.R. Pridiyathorn said that in such a case the company would be considered in breach of the law by using nominees.

''In case companies do that then they could be prosecuted as they are deliberately breaching the law,'' he said. ''The NVDR is meant for shareholders who want to buy shares but are unable to do so because of the laws that limit foreign participation.

''If a major shareholder in a firm sets up ways to hold more shares via NVDRs then it would be a breach, and therefore they are liable for the consequences.''

In fact, he said, no major shareholder is allowed to hold shares via NVDRs.

Brokers have said that if the proportion of voting rights is to be determined by excluding NVDRs, then some large listed companies would be affected. They include Advanced Info Service, L.P.N. Development, Raimon Land, Golden Land Property Development, Ticon Industrial Connection Plc and True Corp.

Others already in need of restructuring their shareholdings are Shin Corp and its mobile flagship AIS, as well as United Communication Industry and its mobile arm, Total Access Communications Plc.

M.R. Pridiyathorn did not say what authorities might do in case companies use nominees based in jurisdictions such as the British Virgin Islands (BVI) to hold shares via NVDRs. He said only that the laws were in place to be followed and breaches would be dealt with sternly.

Bangkok Post
Sunday January 14, 2007