Stay calm until FBA storm passes, say experts

INVESTING

Stay calm until FBA storm passes, say experts.

SRIWIPA SIRIPUNYAWIT

Sticking to a fundamental approach and taking a long-term view are the best strategies for investors concerned about listed companies that might be affected by changes to the Foreign Business Act (FBA), say fund managers.

While the initial panic has ebbed, corporate executives, stock analysts and investors are still not certain how many firms will need to make changes. In any case, the changes won't take effect until after the Council of State has reviewed them.

The cabinet last week approved the draft changes after nearly a year of debate over the widespread use of Thai nominees to hold shares in order to get around legal restrictions on foreign ownership.

At the heart of the FBA are three lists. List 1 consists of businesses barred to foreigners, mainly in the agriculture sector but also mass media. List 2 businesses are closed to foreigners for national security reasons. List 3 businesses, many in the services sector, are those in which Thais are not ready to compete with foreigners, so caps on foreign shareholdings apply.

According to the draft, companies on Lists 1 and 2 will have two years to reduce foreign voting rights to a minority. Those on List 3 can carry on without changing their structures but must report to the authorities within one year.

It had been estimated that as many as 14,000 companies may have FBA compliance problems. However, M.R. Pridiyathorn Devakula, the finance minister, said last week that only 1,337 companies would be directly affected by the reforms.

What does it mean for investors on the Stock Exchange of Thailand? Perhaps not as much as first feared. M.R. Pridiyathorn said 15 listed companies would need to adjust their shareholdings.

Trinity Securities has identified 13 listed firms with foreign shareholdings clearly over 49%: Advanced Info Service, Aapico Hitech, Bumrungrad, Charoong Thai Wire & Cable, Golden Land, iTV, LPN Development, LV Technology, Padaeng Industry, Precious Shipping, Raimon Land, Shin Corp, Singer and Ucom.

According to Adithep Vanabriksha, head of equities at Aberdeen Asset Management, listed companies that need to make changes will incur additional expenses and could face other impacts. "Particularly those in the property sector as they can no longer hold the assets."

Nasu Chunsom, the head of equities at Ayudhya Fund Management, says the choices for divesting excess foreign-held shares are limited. The holders could make private placements to Thai investors or sell down their shares in the market. The latter has him worried as he believes the market at the moment is not ready for capital raising or divestment.

"The thing is that the current local supply of money won't be enough for the new supply [of shares]. So, we need to wait and see how this will be solved."

Meanwhile, he suggests that investors stay away from companies being affected by FBA reforms. "Those holding the shares of these companies should take a very close look into their businesses to see whether they are affected by the changes. And, if there are negative impacts, perhaps they might want to shed some positions."

Mr Adithep notes that changes in shareholding structure may or may not affect company fundamentals. "And if they don't, it should still be all right."

Amid all the turmoil in the stock market over the past four weeks, Aberdeen's fund managers have been gradually and prudently purchasing stocks that are undervalued. "The stock market may or may not go down again but that doesn't matter since we need to stick with a long-term approach _ at least two to three years."

The FBA reforms are a double-edged sword, the two experts say. On the one hand, they bring welcome transparency to the market. On the other, they could discourage new foreign investment which will affect the real sectors.

Charin Satchayan, a partner in the law firm LS Horizon, has a different perspective. He sees the reforms benefiting those who have already violated the laws. It even looks like an "amnesty", he says.

"Those on List 1 and List 2 should be happy since they have two more years to make it right, while those on List 3 should be extremely happy since their businesses can go on as usual," he says, though he also believes new foreign investment will slow down because of an overall lack of confidence in local policymaking.

Your money
Bangkok Post
Monday January 15, 2007

http://www.bangkokpost.com/Yourmoney/15Jan2007_money04.php