Ministry readies contingency plans for Friday's decision on PTT

Business News - Tuesday December 11, 2007

PREPARING FOR THE WORST

Ministry readies contingency plans for Friday's decision on PTT

Story by WICHIT CHANTANUSORNSIRI

The Finance Ministry is quietly preparing a number of contingency plans for energy giant PTT Plc in anticipation of the court's ruling this Friday.

On Dec 14, the Supreme Administrative Court is expected to rule on whether PTT Plc, the country's largest listed company, should be delisted from the Stock Exchange of Thailand for allegedly violating the law during its initial public offering in 2001.

The Foundation for Consumers and other consumer activists filed a court challenge on Aug 31, 2006, against PTT's privatisation, arguing that the Thaksin Shinawatra government violated procedures governing the privatisation process for state enterprises.

Activists argue that members of a committee set up by the government to manage the privatisation held shares in the company, representing a conflict of interest. Rules requiring a public hearing prior to the privatisation were also violated, and PTT maintained control of assets that had been expropriated by the state even after it was transformed into a public company.

PTT executives insist that they have complied with all requirements set out under the law, with expropriated property since returned to state control.

But it remains uncertain how the court will rule in the case, particularly in light of the landmark ruling in November 2005 that halted the privatisation process for the Electricity Generating Authority of Thailand (Egat) one day before its scheduled initial public offering.

The Supreme Administrative Court ruled in the Egat case that the privatisation was unlawful because members appointed to oversee the process were unsuitable and the state enterprise maintained control over expropriated assets _ the same two issues that stand at the heart of the PTT challenge.

Egat's privatisation process largely followed that of PTT, which was first state enterprise to be privatised under the 1999 Corporatisation Act.

Two other issues that were highlighted in the Egat case could also be relevant to PTT. In the Egat case, the court noted that the government's move to advertise the privatisation in three newspapers for three days actually failed to comply with the law, as the advertisements were not made in the same newspapers for the stipulated period.

Another notable point from the Egat ruling concerns the definition of public lands. The court held that land that was used by the state, such as for electricity towers, was to be considered public land under the Treasury Department. This judgment clashed with a prior interpretation by the Council of State that said land whose use was unaffected by the government's use should be considered private land.

In any case, Finance Ministry officials said they were drafting a number of plans ahead of the ruling. PTT, with a market capitalisation of more than one trillion baht, is 52%-owned outright by the Finance Ministry and has another 15.5% controlled by the state-run Vayupak Fund.

''No matter how the court rules, we need to be prepared,'' one senior official said.

He said three possibilities were present. The first, in which the court rules that the privatisation was lawful, would be the easiest and require no action.

The second scenario, a judgment that the privatisation was unlawful, would be a victory for the plaintiffs and a potential disaster for the capital market.

''If the court rules that PTT must revert to its prior status as a state enterprise, the shares would have to be suspended and delisting procedures begun,'' the Finance Ministry official said.

Such a scenario would have huge ramifications for the country's image and public purse. Forcing the Finance Ministry to hold a tender offer for outstanding shares would cost more than 480 billion baht at current market prices and would likely send the SET into a tailspin.

A move to forcibly tender for shares at the original initial public offering price of 35 baht per share, or less than one-tenth current valuations, would save considerable public funds but risk a massive backlash against the government from local and foreign investors.

If indirect investors through pension, mutual and provident funds are included, then more than one million retail investors could be affected by the case.

Officials said a third scenario would see the court order specify remedies short of an outright re-nationalisation. These could include the return of ''national assets'' such as natural gas networks and properties gained from past state expropriation.

Indeed, the Energy Planning and Policy Office has already amended laws to deprive PTT of rights to more than 30 rai of land used for the company's pipelines and seized by expropriation, with a Royal Decree stipulating the change now awaiting Royal endorsement.

PTT has also already transferred the deeds to the land to the Treasury Ministry, and is expected to soon open talks for leasing the property back from the state.

By : Bangkok Post