Identifier
Created
Classification
Origin
06BANGKOK538
2006-01-27 10:40:00
UNCLASSIFIED
Embassy Bangkok
Cable title:  

THAILAND'S DEAL OF THE CENTURY: TEMASEK BUYS OUT

Tags:  ETRD ECPS EINV ECON SN TH 
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VZCZCXRO4072
PP RUEHCHI RUEHDT RUEHHM
DE RUEHBK #0538/01 0271040
ZNR UUUUU ZZH
P 271040Z JAN 06
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 5976
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS PRIORITY
RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 1134
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
UNCLAS SECTION 01 OF 05 BANGKOK 000538 

SIPDIS

SIPDIS

STATE FOR EB/CIP, EAP/MLS
USTR FOR BARBARA WEISEL, JONATHAN MCHALE
COMMERCE FOR JEAN KELLY, JULIET BENDER, JEREMY MARCUS
JUSTICE FOR STUART CHEMTOB
TREASURY FOR OSIA
STATE PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: ETRD ECPS EINV ECON SN TH
SUBJECT: THAILAND'S DEAL OF THE CENTURY: TEMASEK BUYS OUT
PM'S SHIN CORP

REF: A. 04 BANGKOK 6901

B. 04 BANGKOK 7124

C. 05 BANGKOK 115

BANGKOK 00000538 001.2 OF 005


UNCLAS SECTION 01 OF 05 BANGKOK 000538

SIPDIS

SIPDIS

STATE FOR EB/CIP, EAP/MLS
USTR FOR BARBARA WEISEL, JONATHAN MCHALE
COMMERCE FOR JEAN KELLY, JULIET BENDER, JEREMY MARCUS
JUSTICE FOR STUART CHEMTOB
TREASURY FOR OSIA
STATE PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: ETRD ECPS EINV ECON SN TH
SUBJECT: THAILAND'S DEAL OF THE CENTURY: TEMASEK BUYS OUT
PM'S SHIN CORP

REF: A. 04 BANGKOK 6901

B. 04 BANGKOK 7124

C. 05 BANGKOK 115

BANGKOK 00000538 001.2 OF 005



1. (U) SUMMARY: On January 23, 2006, Singapore,s Temasek
Holdings announced the largest corporate takeover in
Thailand,s history: the 73.3 billion baht (USD 3 billion)
purchase of the 49.6 percent stake in Thailand,s Shin Corp
Plc (Shin) held by members of Prime Minister Thaksin
Shinawatra,s family. Structured through newly-created
holding companies to get around Thailand,s restrictions on
foreign ownership of telecommunications companies in a manner
similar to Telenor,s buyout of Total Access Communications
(TAC) and United Communications (UCOM) in October 2005, the
Temasek takeover of Shin gives the investment arm of the
Government of Singapore effective control of Thailand,s
leading mobile phone operator, Advanced Info Service Plc
(AIS),and a substantial stake in both Shin Satellite Plc and
Thai AirAsia, among other subsidiary companies. Shin Corp
comprises about 2.5 percent of the total capitalization of
the Stock Exchange of Thailand.


2. (U) The financial market has taken the deal in stride and
the Thai public appears not to care deeply despite opposition
politicans, criticism, particularly of the tax exemption on
the proceeds of the sale. The deal makes good business and
political sense for the Prime Minister and his family, and
indications are that it will likely hold in the absence of
significant legal challenge even if some participants may be
charged with wrongdoing. The Shin buyout also makes business
sense for Temasek and its subsidiary Singapore Telecom, while
at the same time reinforcing the Government of Singapore,s
strategy of strengthening ties with Thailand. The Prime
Minister,s exit from the telecom business removes a
significant barrier to sectoral liberalization. The fact
that the deal was structured to get around Thailand,s
restrictions on foreign investment nevertheless raises

serious questions about the investment climate in Thailand,
and shows the limits of liberalization to date. The outcome
to hope for going forward is that any domestic political
debate about policy issues such as foreign ownership of
telecom assets may put to rest some of the Thais fears of
market liberalization, and by extension a Free Trade
Agreement with the United States. End Summary.

THE DEAL OF THE CENTURY


3. (U) After weeks of speculation, Temasek, the investment
arm of the Government of Singapore, announced that it was
acquiring the Prime Minister,s family members, 49.6 percent
stake in Shin (1.488 billion shares) in a cash purchase of
73.3 billion baht effective on the same day that an amendment
to the Telecommunications Business Act (TBA) raising the cap
on foreign ownership of Thai telecom companies from 25
percent to 49 percent went into effect. The Governor of the
Bank of Thailand told the press earlier that the inflow of
currency (almost 50 billion baht) to conclude the deal caused
the Thai baht to appreciate. The Revenue Department
determined that because the Prime Minister,s son, daughter,
sister, brother-in-law, and sister-in-law sold their shares
as individuals (i.e., because it was not a company selling
the shares),the proceeds of the sale would be exempt from
income tax. The tender offer for the remaining shares of
Shin, as required by Thai law, was set at 49.25 baht/share,
the price paid for the Shinawatra family shares.


4. (U) Industry observers agree that the real object of the
deal is the mobile operator AIS, in which Singapore Telecom
(SingTel),already has a stake of about 20 percent. (Temasek
owns a 60 percent stake in SingTel.) Had SingTel simply
attempted to acquire AIS, however, it would have run afoul of
even the revised TBA, which provides for an upper limit of 49
percent foreign ownership of a Thai telecom firm, and it
would have triggered a tax event on the sale at a rate of 30
percent.


5. (U) In a carefully crafted transaction, worked out in
consultation with tax-law expert Suvarn Valaisathien, Wichit
Surapongchai, president of Siam Commercial Bank, and Shin
Corp CEO Boonklee Plangsiri, Temasek acquired the Shinawatra
family,s stake in Shin through several holding companies

BANGKOK 00000538 002.2 OF 005


newly established to effect the deal. As reported in the
press and explained to the public, Temasek,s 49 percent
stake in the joint venture Kularb Kaew (meaning Rose)
represents its point of entry in the deal, but the remaining
51 percent stake of that entity is nominally Thai investors
participating in the deal. The major Thai investor in Kularb
Kaew was lent his 20 billon baht capitalization contribution
by Siam Commercial Bank with the Kularb Kaew shares as
collateral. Kularb Kaew, in conjunction with Siam Commercial
Bank, and a holding company named Cypress Holdings control
another holding company, Cedar, which, together with still
another holding company, Aspen, now owns the Shin shares
purchased from the Shinawatra family members. A telecom
analyst who has reviewed the relevant corporate filings at
the Ministry of Commerce, however, explained that even this
complex structure oversimplifies the architecture of the
deal. Telenor,s buyout of Total Access Communications and
United Communications (REF A) is clearly the model for the
transaction, but even that complex deal now appears simple by
comparison.


6. (U) As a result of acquiring control of the holding
company created by Thaksin and his wife Khunying Pojaman
about 30 years ago to manage their many enterprises, Temasek
now has effective control of AIS, broadcaster iTV Plc (52.94
percent),Shenington Investments Pte (100 percent),consumer
finance firm Capital OK Co., Ltd. (60 percent),CS LoxInfo
Plc, and several other firms. Temasek has also acquired a
significant stake in Shin Satellite (41.34 percent),Lao
Telecom (49 percent),and budget carrier Thai AirAsia (50
percent, jointly owned with Malaysia,s AirAsia Berhad).


7. (U) Financial authorities have interpreted Thai law with
considerable latitude in determining the tender offer
required as part of the deal. Since ShinSat is less than 10
percent of Shin Corp's holdings, for example, a Securities
Exchange Commission (SEC) panel ruled that a tender offer
would not be necessary. They similarly exempted iTV from the
requirement to make a tender offer. The tender offer for
outstanding AIS shares proposed by Shin Corp's financial
advisor, based on conservative but justifiable assumptions,
is 72.31 baht, or about 30 percent below the 100-104 baht
range at which the company traded the previous week. Under
Thai law, the financial advisor of other shareholders may
comment but not change the terms of the offer. At such
price, few takers are expected, thus reducing the cost to
Temasek. Securities industry contacts have told the Embassy
that they do not expect shareholder lawsuits.

MOTIVES


8. (U) Temasek appears to be acting out of both business and
political concerns. On a strictly business level, the
acquisition of AIS makes sense because of the existing
relationship between AIS and SingTel, the relative saturation
of the Singapore telecom market, and the platform for
expansion that the Thai market affords. A former diplomat
who now works in the securities industry told the Embassy
that geopolitical concerns also loom large in Temasek's
thinking. The deal certainly had the blessing of the
Government of Singapore, and &Temasek likes to buy high in
Thailand. The government wants Singapore to be closer to
Thailand to guard against Malaysia to the North and chaos in
Indonesia to the South.8 Since prior to this transaction
Shin Corp typically traded at a 20 percent discount to NAV,
Temasek likely paid a 20 percent premium by buying at NAV.


9. (U) The Prime Minister has focused on his desire to put
to rest charges of conflict of interest. &The stock
transaction was not decided by Shin Corp,8 he said, &but by
my children who want their father to devote his attention to
serving the country.8 (Note: when he became Prime
Minister, Thaksin transferred his Shin shares to the five
family members who sold their Shin shares in the Temasek
deal. End note.) Few observers believe that Thaksin has put
business completely aside, and the question remains, why now?



10. (U) There is a solid case to be made that the Temasek
deal just makes good business sense for the Prime Minister's
family, particularly in view of the limited number of

BANGKOK 00000538 003.2 OF 005


potential buyers. AIS has succeeded beyond even Thaksin's
wildest ambitions, and he has said privately that he is tired
of the telecom business. According to one carefully
researched estimate prepared by an analyst covering AIS, at
the current share price the Prime Minister has made 100 times
his initial investment. While most observers expect AIS to
remain highly profitable, there is little doubt that the
liberalization of the telecom services in progress, the
extensive investment required to rollout third-generation
(3G) services, and heightened competition are reshaping the
telecom market. Selling makes sense, particularly if other
opportunities present themselves, and few doubt Thaksin's
ability to spot an opportunity.


11. (U) The most conspiratorial theory of the sale in
circulation in Bangkok says that by cashing out now the Prime
Minister Thaksin is purchasing a political insurance policy.
Converting the family,s telecom holdings into cash enables
Thaksin to safeguard his fortune should his political career
end in disgrace sooner rather than later. Dreams of a
&Bangkok-based movement to overthow8 the Prime Minister's
&tyranny8 imposed on the country by rural voters may rest
on the wishful thinking of a small minority, but there is no
question that liquid assets are easier to move, and harder
for the authorities to seize, particularly if located
overseas.

REACTIONS


12. (U) The Embassy,s telecom and finance contacts are
impressed by the execution of the Shin buyout. Everyone
recognizes the talent that both sides drew upon in
structuring and executing the deal. The SET closed up
slightly on Tuesday, and down slightly on Wednesday, which
suggests that the market is taking it in stride as a done
deal.


13. (U) With the possible exception of tax issues, the Thai
public is essentially indifferent to the Temasek deal. The
headline &Prime Minister rids himself of political thorn and
makes money too8 sums up the initial reaction. Although
criticized daily in the Bangkok newspapers, Prime Minister
Thaksin is much admired and highly popular nationally, in
part because of his business acumen and resulting financial
success. On the day the deal was officially announced he was
leading a reality TV show in Roi-Et province highlighting his
concern for the welfare of the poor. Although derided by
political sophisticates in Thailand in the same way as in the
United States, reality TV is highly popular in Thailand and
the Prime Minister is better able than most politicians,
especially the opposition, to turn it to political advantage.
Thaksin has predictably derided criticism as envy: &I'm a
big guy. How can I not be straighforward? I am not a
nobody.8


14. (U) Some opposition lawmakers have predictably
criticized various aspects of the Temasek deal, but such
criticism of the sale itself does not appear to be gaining
traction with a wider audience. Bangkok Senator Sophon
Supapong, among others, has criticized the amendment to the
TBA that raised the foreign investment cap from 25 to 49
percent as enabling the sale of precious national assets. Of
particular concern in this regard are satellite broadcasting
and television frequencies granted to Thai concessionaires.
Opposition MP Korn Chatikavanij, a former investment banker,
has questioned whether the Prime Minister,s family evaded
paying income tax by structuring the deal as they did.
Bangkok Senator Chirmsak Pinthong has likewise accused the
Finance Ministry of adopting double standards to protect the
Shinawatra family. The PM has pointed to the fact that there
is no capital gains tax on transactions made by individuals
on the Stock Exchange of Thailand.


15. (U) Significantly, the Opposition Democrat Party Leader
Abhisit Vejjajiva has not made protest against the Temasek
deal the focus of his public position. Abhisit has
criticized Thaksin's mention of setting up a charity fund to
alleviate poverty, saying that the Prime Minister would be
better just to ensure that his family pays its share of
taxes. The opposition can be expected to press on the theme
of tax fairness, particularly since it is income tax season

BANGKOK 00000538 004.2 OF 005


in Thailand. Fortuitously for the Prime Minister, however,
the opposition is currently mired in a widening corruption
scandal concerning bidding for Bangkok Metropolitan
Administration (BMA) road construction projects. Abhisit is
not involved, but his party is in charge of Bangkok, thereby
undercutting their ability to take the moral high ground on
issues of transparency and governance.

POSSIBLE CHALLENGES


16. (U) If the Temasek deal is to run into trouble, the most
likely setting will be court, particularly the Supreme
Administrative Court. Almost alone among independent
institutions, the administrative court has served as a check
on executive power, such as when it suspended the initial
public offering of state-owned power producer EGAT Plc (REF
B). In view of the various favorable determinations by
regulators that facilitated the buyout, it is possible that a
court challenge may emerge. The Law Society of Thailand and
the Press Council of Thailand announced on January 26 that
they are conducting a probe of the Shin buyout and said that
income tax must be paid on the deal. The probe will focus on
the legal aspects of the tax-free sale and the effects on
national security of selling national assets to foreigners.
Other telecom companies have given no indication that they
plan to challenge the deal in court.


17. (U) The challenges more likely to stick are those
concerning individual conduct rather than the overall
structure of the deal. The Stock Exchange of Thailand is
investigating five brokerage houses for possible insider
trading in connection with the deal. Journalists and
lawmakers have focused on the ironically titled Ample Rich
deal. The specific allegation is that Ample Rich Investment
Co. Ltd., a company owned by Thaksin and registered in the
British Virgin Islands, sold 329 million shares of Shin stock
to Thaksin,s children at 1 baht per share on January 20,
which they then sold to Cedar Holdings and Aspen Holdings on
January 23 at 49.25 baht per share. Whether these or other
allegations are true, or will lead to further allegations
against the Prime Minister himself, is unknown and will
likely take considerable time to ascertain.

EFFECT ON THE TELECOM MARKET AND COMMENT


18. (U) In the immediate-term, the Temasek deal will not
likely bring great change to the Thai telecom market.
Yingluck Shinawatra, the Prime Minister,s younger sister has
resigned as President of AIS, but Temasek has pledged &no
change at Shin8 including, for example, the merging of
SingTel and AIS. Indications are AIS will continue to go
forward with its rollout of 3G services.


19. (U) Longer-term, the Prime Minister,s exit from the
telecom market removes a significant barrier to
liberalization of the sector. A majority of the Thai mobile
services industry is now controlled by foreign firms. True
Corp, whose subsidiary TA Orange is the last major
wholly-Thai owned operator in the mobile services market has
seized on the deal as an opportunity to urge scrapping the
existing telecom concessions, described in detail in REF C,
so as to create a level playing field in the mobile market.
While it is not clear that the National Telecommunications
Commission (NTC) has the appetite to take on concession
conversion, a matter on which the state-owned enterprises TOT
Plc and CAT Telecom Plc may be expected to fight, there is
little doubt that having AIS out of the Prime Minister,s
hands lightens the political pressure*both real and
perceived*on the regulator. Since the NTC is inquiring into
the effect of the Telenor deal on competition in the market,
it may take up the same question with respect to the buyout
of AIS.


20. (U) Comment: While the recent entry of foreign firms
into the Thai telecom market may be welcome to foreign
investors, the form by which it has occurred raises
disturbing questions about the investment climate in
Thailand. Both Temasek,s buyout of Shin and Telenor,s
acquisition of TAC and UCOM were obviously structured to get
around the intent, if not the letter of existing laws
limiting foreign ownership of telecom companies. The fact

BANGKOK 00000538 005.2 OF 005


that large foreign firms were able to blatantly get around
the law at the invitation of leading Thai players suggests
that the law is quite malleable when insiders want it to be,
which raises the question of just how much protection the law
really affords. Similarly, the requirement for foreign
entities to establish such Byzantine legal structures to
enter the Thai market underlines just how halting Thailand,s
commitment to liberalization really is. Many foreign
companies simply don,t want to deal with the uncertainty of
Thai law which can be endlessly flexible or absolutely
unbending depending on the precise circumstances and
individuals involved.


21. (U) The Embassy agrees that the deal makes good business
sense for the Prime Minister and his family, and that it will
likely survive political criticism. The exceedingly
favorable timing and terms of the sale (such as the income
tax exemption) nevertheless render it vulnerable to
challenge, so it is unlikely to fade from the headlines any
time soon. Although the policy-relevant debates such as that
over the sale of so-called national assets (e.g.,
frequencies) to foreigners does not appear likely to have
broad political appeal, they are of concern to many of the
same political figures who are following closely developments
relating to the Thai-US FTA. We think that it is good for
this debate to be occurring independent of the FTA and
without reference to the United States or American companies.
With the Prime Minister out of the telecom business and the
Thai mobile phone market no worse off than before it was
dominated by foreign firms, the prospects have improved for
allaying Thai fears of market liberalization.
BOYCE