Ruling on PTT will make or break Thailand

General news - Thursday December 13, 2007

ANCHORMAN

Ruling on PTT will make or break Thailand

M.L. NATTAKORN DEVAKULA

This is a respectful critique of the potential economic impact of delisting PTT Plc from the Stock Exchange of Thailand (SET).

With great respect to all judges ruling on the case, this article is meant purely for academic and thought-provoking consumption, and is not in any way intended to pressure those involved in the case.

Reader discretion is advised.

Believe me, this case is not just about whether the process of privatising and enlisting the Petroleum Authority of Thailand was all legal. This case has a much higher calling than that. Although people within the legal community, in general, may like to think only of minute details consequently placing priority on whether or not a governing administration, a sitting prime minister, or an energy minister, would always act in compliance with the law.

Begging to differ, whether or not the defendants in the case here comply - to the fullest extent of the rule book application - may not necessarily be a cause of the highest priority.

The stakes here, from macroeconomic and macro-political perspectives, are much larger.

PTT Public Limited Company (Plc) is Thailand's flagship conglomerate. It has replaced Siam Cement Plc as the most profitable business organisation in the country. Its market capitalisation, if calculated from last week's closing market price of 356 baht and taking into consideration that there are 2,816,975,625 outstanding shares, reaches over 1 trillion baht. The market would effectively lack a monumental cornerstone without PTT Plc.

Not counting other companies under its umbrella, the company normally accounts for 1/20 of the average total SET daily turnover. The award-winning company's earnings improved during 2003 to 2006, from 39.4 to 95.2 billion baht. It is arguably the most successful business, entity-size and profit-wise - ever since the formation of this kingdom.

There is no need to lecture any of the eminent Supreme Administrative Court judges on the legal requirements needed to have been set in place for privatising PTT correctly.

- urther, it can unequivocally be said that these judges will make their decisions based upon a correct interpretation of the law.

What is missing, though, is an understanding, at least among leftist-leaning consumer groups within society, that the delisting of PTT and its consequences will devastate the country's financial markets beyond repair.

The following signals would be heard loud and clear in the global investment community when it comes to Thailand, if consumer groups represented by the likes of Rossana Tositrakul and Sari Ongsomwang have things their way.

- We have a strategic policy ambiguity when it comes to privatisation of state-owned enterprises. A government administration may decide to pursue something only to have the judiciary branch reverse the process down the road when everything has already been completed.

- We don't give a care in the world to investors who legally possess equity holdings that they had paid money for and that as an economy we have no respect for the protection of private property rights.

- We discourage any and all future privatisations of inefficiently performing state-owned enterprises on the grounds that few government administrations would have the guts to push through the process, knowing fully well that consumer groups' petitions could derail the final success ex-post.

Where were the consumer groups back in 2001? Why is it that when there is an emerging and thriving capitalist economy, socialist-leaning non-governmental organisations attempt to channel their ideas through apparently existing legal loopholes to force their ideals on others?

Make no mistake about it: the privatisation and enlistment of PTT was not without its flaws.

The separation of the gas pipelines has already been completed as promised. They are now under the control of a central energy regulatory board. The divvying up of the initially offered publicly traded shares may have gone to those who ingratiated themselves to some cabinet members at the time of the allotment.

Mysterious Singaporean-based nominees do currently hold PTT shares.

Be that as it may, the delisting of PTT Plc and then reversing the seven-year-old privatisation of what has become the shining national champion that is this world-renowned company will send out reverberations the likes of which have never been felt before.

Even if the process of privatisation was not legally perfect and even if the way that the IPO shares were divided up was politically meddled with, the damage dealt by nullifying the existence of this publicly traded energy company may simply be impossible for markets and investors to shoulder.

No investor would buy another share of companies formerly run by the state, and no sensible government would push through monumental policy changes of a similar kind.

Gridlock in the domestic financial markets and in the formation of policies for capital markets and economic development would instantly result.

The expropriation-equivalent act may prompt downgrades of the Thai economy and several key SET-traded companies. Prices of all former state-owned enterprises will drastically plunge on the added expropriation risks.

This would range from massive price falls for all companies under the PTT umbrella, i.e. Thai Oil Plc, PTT Chemical Plc, Aromatics Thailand Plc, PTT Exploration and Production Plc, and IRPC Plc.

It would drag down other former enterprises of the state too, i.e. Airports of Thailand Plc, Thai Airways International Plc, etc.

The market would be in a state of shock, a shock that will embarrass the country once again the world over.

Is the goal of conformation to a set of principles, assuming that these principles have been violated, worth destroying the reputation of an economy?

If the Sept 19, 2006 coup was a giant step back for Thailand's democratic evolution, and if the Dec 19, 2006 stock plunge was a giant step back for the SET and domestic bond markets, the end of PTT Plc could potentially prompt the global business community to be convinced that our economy is not open for business.

The indisputable fate-determining day of decision this year is not Dec 23 when all of us head to the polls. The relevance of that decision will pale in comparison to the one made today at the Supreme Administrative Court. The election results may not alter the course of history, but the PTT ruling incontrovertibly will.

The writer is a news analyst.

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