Thailand To Limit Foreign Stake In Firms To 50 Per Cent

[Dupont]

Lead Item on BBC Business News Asia.

Guy interviewed critisied lack of vision and said these proposals are set to cause two years of uncertainty at least.

[tamaique]

Watch the baht in the coming days and months............

It is about time that the Thai politics, do a little more to weaken the Baht. The loss of around 7 per cent since April 2005 is a shame for the country. Lets go back to 50 Baht per Euro. That is even easier to calculate for everybody and a little "Thank you" for those farangs who permanently spending their money in Thailand.

Would suit me too, BUT it would make millions of Thai Nationals who are much poorer than most Farangs in Thailand POORER as many items would be more expensive. If more expensive then firms may lay off employees if they cannot sell so well in Thailand or overseas.

I hope the Baht does weaken for a day or two for my sake when I finally manage to sell my Spanish house and wish to move the money here to buy a car and house for me and my family BUT I am under no illusion that I and most Farangs here can afford to deal with a strong Baht than most Thais can.

Dave

An overvalued Baht such as it stands does more to damage Thailand and Thais than an undervalued currency.

Why do you think China is holding on with all it's might to its undervalued currency?

It makes them more competitive therefore increasing exports. Also, foreign articles become more expensive if the baht devalues (i.e. imports), therefore poorer Thais will switch most imports to local brands, INCREASING consumption (and therefore production) of products made in Thailand, by Thais, so they wouldn't lose their jobs.

So lets hope the Baht weakens for everyone's sake.

[Japhrodisiac]

Thais never acknowledge the fact that the "successful" members of the business community have generally gotten to where they are by buying degrees, the practice of graft, corruption, cronyism, nepotism, deciept, murder, intimidation and so on. They wont even try to compete on a level playing field, which is getting larger and more competitive as the markets are increasingly global, so a mid-game rule change which benefits them only (short term) should not be a surprise. Unfortunate.

[blaze]

Lead Item on BBC Business News Asia.

Guy interviewed critisied lack of vision and said these proposals are set to cause two years of uncertainty at least.

In this morning's Post, a representative of a large foreign firm said that this is 'an attempt to punish Taksin'. Which of course is no secret- but it does beg the question- does this government have any vision at all- aside from vindictiveness? And how much are they prepared to sacrifice in that quest?

(OK_ it's not vindictiveness- perhaps reflects a desparate need to justify the coup: it must be shown that Taksin broke laws- even if the laws have to be interpreted (invented?) after the fact.)

Edited January 10, 2007 by blaze

[punisher]

As many posters have mentioned there are a wide range of options available for minority shareholders to exercise absolute effective control. The use of various proxies is generally the weakest (these are often not enforceable, subject to challenge or are revocable). Restrictions over actual voting rights was one of the better strategies under the current laws, especially if used in conjunction with the more robust and enforcible proxies such as share transfers linked to loan agreements. Many companies set up by farangs over the last few years have been done in such an improper and haphazard way that they have failed to take advantage of the protections afforded by the current laws - but still it's a more restrictive law even if too many people didn't make use of such protections.

The impact of the changes will be felt mainly at the extreme ends of the business chain - multinationals will find the new environment less flexible and the really small operations will now understand the complexities of the legislation and hopefully seek out better quality advice. Ironically this could lead to the overall quality of farang SME structures improving.

There seems to be little doubt that this spotlight on share structures is related to the fallout from the Temasek acquisition of AIS. It would appear to have become a political football that is being kicked over that particular battleground by everyone in Thailand right now.

In terms of the currency question, this relates more to Dollar weakness than to Baht strength right now. Baht has benefitted from solid economic fundamentals relative to the US (just about everywhere has attractive economic fundamentals relative to teh US right now) but has not significantly strnegthened against Sterling, Euro, Swiss Franc, AUD etc during this time. Stock valuations are discounted estimates of the future cash flows of individual businesses which in the short term are subject to more whimsical capital flows than most other asset classes (especially in many parts of Asia where stock is generally held for relativelly short terms). The correlation between currencies and stocks frequently breaks down because these are driven by different considerations.

Hmmm,helloooo,what are u talking about the euro is down from over 50 to 46today and is losing everyday,but euro is strengthen against the us dollar,eieiei

[bkkandrew]

Where can I find real time stock market reports?

http://www.settrade.com/login.jsp?txtBrokerId=IPO

[gdhm]

An overvalued Baht such as it stands does more to damage Thailand and Thais than an undervalued currency.

Why do you think China is holding on with all it's might to its undervalued currency?

It makes them more competitive therefore increasing exports. Also, foreign articles become more expensive if the baht devalues (i.e. imports), therefore poorer Thais will switch most imports to local brands, INCREASING consumption (and therefore production) of products made in Thailand, by Thais, so they wouldn't lose their jobs.

So lets hope the Baht weakens for everyone's sake.

Thanks for this analysis Tamaique . I live and learn every day and appreciate input like this.

Regards, Dave

[johnnyk]

What most people here are failing to understand is that shareholding votes isn't the only way to control businesses or extract value from them. I've tried to explain this in simple terms (the concepts are simple - you can specify what can or can't be decided by shareholder majority votes and what needs to be decided by other mechanisms, the documentation and structures just need to be prepared quite carefully). The particular measures will vary from situation to situation and therefore personalised, professional advice is absolutely neccessary but anyone who has set up their company in a robust manner and has access to good legal and corporate advice shouldn't lose any sleep but should merely amend their corporate documentation over the next couple of years to reflect the chanegs that may have to be made in shareholding structures. At the risk of repeating myself ad nauseum, this would involve a review of M&A, shareholder agreements, covenants, director's employment contracts and the like.

My previous response, which has been deleted, wasn't an advert (although the full extract did carry the tagline of our corporate solutions division "Nobody knows more about business" which should have been removed, it was a response to a request to post our advisory issued yesterday. Apologies for any offence that the inclusion of that 5 word tagline may have caused to sensitive readers

Anyway, we expect professional operators to be able to carry on largely unaffected and if you're hearing any differently...well, that's your problem, but it's not a general problem.

Thanks for a nice clear post free of panic and rumour.

I'm not a lawyer or accountant but this occurred to me:

Structure your company so you own 49%. Fine, no pompem.

The remaining 51% among:

One Thai whom you know and trust with 11%

Four others with 10% each.

This makes 51% Thai ownership.

Make sure the five Thais don't know each other.

In the articles of association make it so a 60% vote is required for any decision/transaction to be made.

You and the one you trust have the 60% to effectively control.

If he balks, you have his signed resignation in the safe, just date it and get a new guy.

Opinions anyone?

[tamaique]

In this morning's Post, a representative of a large foreign firm said that this is 'an attempt to punish Taksin'. Which of course is no secret- but it does beg the question- does this government have any vision at all- aside from vindictiveness? And how much are they prepared to sacrifice in that quest?

(OK_ it's not vindictiveness- perhaps reflects a desparate need to justify the coup: it must be shown that Taksin broke laws- even if the laws have to be interpreted (invented?) after the fact.)

I wouldn't throw away everyone's interpretation that the reasoning for these ammendments may be stupid. However, it seems to me that this is always a simplistic way of looking at things.

I would rather try to understand if there are deeper implications to the change in laws. Let me paint a scenario. Please understand I'm INVENTING all of this as I go along and have no proof of anything. I just want to give a somewhat viable scenario of how the ammendments could have deeper rooted concerns at stake than harming small foreign company owners....

After Taksin was ousted lets imagine two different possibilities:

1) He said "such is life", accepted his loss of power, and is now enjoying himself elsewhere in the world, in complete disregard for Thailand.

2) He immediately started a "war" to regain power in Thailand because of his vested interests in the country.

I assume possibility #2. Then, none of us know exactly how he is waging this power war. He has many allies in Thailand (many powerful people) and elsewhere in the world. He has more than enough money to finance his schemes. Perhaps he has been doing better in this "war" than anyone suspects.

Again, I'm just making this all up, but...imagine when he sold Shin corporation somewhere in the sale contracts there was a clause stating that something in the deal could change if the Thai laws changed and foreigners could no longer control a company, such as a penalty, etc.

Just an example. What I'm trying to say is that I don't believe that this is either just a vindictive act or a xenophobic policy or just something one of the generals thought of while drinking his morning coffee. In fact, I imagine it will have little effect on small foreign controlled companies as there is bound to be another loophole or another way to keep controlling these companies.

The political struggles at the highest places of power are not obvious to those who look at them from the outside, but there is generally much more than meets the eye. I'm guessing we're only able to see the tip of the iceberg here.

Just an idea.

[george]

Most companies not affected by amended foreign business laws

BANGKOK: -- Finance Minister Pridiyathorn Devakula said Wednesday that most foreign companies will not be affected by draft legal amendments of foreign business laws.

The amendment expected to force some owners in the telecommunications and other sectors to sell down majority holdings and give up majority voting rights.

The minister said the law will apply mainly to service industries, while most foreign companies in the country are in export and industrial sectors.

He said there could possibly be minor revisions to the draft, but that the principles of the law couldn't be sacrificed and the loophole of using voting rights to maintain majority control in sensitive sectors would be closed.

"Some minor adjustments are possible in implementation, but if they ask for us to call off the voting rights rules, we can't do that. It is because it's the main principle which they have used to avoid Thai laws all along," he said.

He added that we have to talk reasonably. "We are an independent country. We have our own laws and we want businesses to respect our laws."

--The Nation 2007-01-10

[gudy]

Hi Guys. All very interesting. I have been holding back moving a large amount of cash from the U K. Watching:

Bad polotics, Bombs, Army take overs, bad stock market management by the Gov, The south going up in smoke.

But no! still the baht strong. Any thoughts on this latest crap, will it weaken the baht and let me move my cash!

Happy new year from France

pip

The BATH is not strong.....its the usd which is weak..... compare the euro dollar rate and the euro bath rate....euro bath rate no difference....but euro usd rate has gone from 1.17 to 1.3 in less then a year

[KRNN]

What most people here are failing to understand is that shareholding votes isn't the only way to control businesses or extract value from them. I've tried to explain this in simple terms (the concepts are simple - you can specify what can or can't be decided by shareholder majority votes and what needs to be decided by other mechanisms, the documentation and structures just need to be prepared quite carefully). The particular measures will vary from situation to situation and therefore personalised, professional advice is absolutely neccessary but anyone who has set up their company in a robust manner and has access to good legal and corporate advice shouldn't lose any sleep but should merely amend their corporate documentation over the next couple of years to reflect the chanegs that may have to be made in shareholding structures. At the risk of repeating myself ad nauseum, this would involve a review of M&A, shareholder agreements, covenants, director's employment contracts and the like.

My previous response, which has been deleted, wasn't an advert (although the full extract did carry the tagline of our corporate solutions division "Nobody knows more about business" which should have been removed, it was a response to a request to post our advisory issued yesterday. Apologies for any offence that the inclusion of that 5 word tagline may have caused to sensitive readers

Anyway, we expect professional operators to be able to carry on largely unaffected and if you're hearing any differently...well, that's your problem, but it's not a general problem.

Then I would like to ask and you can tell me how all this will effect me.

My company has been set up according to Thai-American Treaty of Amity.

I hold 99.9% ordinary shares of the company while 9 other Thai shareholders hold 1 prefered share each.

Now, what will my company be?

Still Thai company? Or is it now American company because I have majority shareholding votes?

[Mid]

The minister said the law will apply mainly to service industries,

here's the thin end of the wedge .................

[Paul MBMG]

Then I would like to ask and you can tell me how all this will effect me.

My company has been set up according to Thai-American Treaty of Amity.

I hold 99.9% ordinary shares of the company while 9 other Thai shareholders hold 1 prefered share each.

Now, what will my company be?

Still Thai company? Or is it now American company because I have majority shareholding votes?

Good question - while the answer is that no-one knows for sure until the final version is passed into law, we have no reason at this stage to believe that the exsting Treaty of Amity will not be fully respected and therefore any companies set up under that treaty will be unaffected. This is based partly on the comments that have been made about the intention of the changes which would be at odds with any variation in the operation of the terms of ToA

[Jai Dee]

DPM Kosit believes that the amendment of Foreign Business Act will not affect industrial sector

Deputy Prime Minister and Industry Minister Kosit Panpiemras (โฆษิต ปั้นเปี่ยมรัษฏ์) has affirmed that the amendment of Foreign Business Act will not have much effect on the industrial sector.

In regards to yesterday\s resolution of the Cabinet meeting to amend Foreign Business Act, Mr. Kosit said that the resolution has pronounced a clearer definition of foreign businesses in Thailand. However, at 11.00 hours today, Deputy Prime Minister and Minister of Finance, M.R. Pridiyathorn Devakul (์ปรีดิยาธร เทวกุล) and Commerce Minister Krirkkrai Jirapaet (เกริกไกร จีระแพทย์) will clarify the details again and hear views from agencies in general at the Government House.

Mr. Kosit is confident that the matter will not lead to long-term problems to the industrial sector.

Source: Thai National News Bureau Public Relations Department - 10 January 2007

[george]

Thai bourse says 'foreigner' definition changes will not have a major effect

BANGKOK: -- "The adjustment of definition of "foreigner" in applying the Foreign BusinessAct B.E. 2542 (1999) will not affect most listed firms, SET President Patareeya Benjapolchai said after a preliminary study of public companies.

This is because most listed firms are in the Act's List 3, which will not be

affected. About 15 businesses classified as being in Lists 1 and 2 of the Act may have to adjust their shareholdings to meet the revised definition.

Companies are advised to study the change in the "foreigner" definition to determine the extent to which it relates to them. Public firms seeking to clarify their situation to investors are welcome to use the SET information system to do so.

--The Nation 2007-10-10

[Paul MBMG]

Thanks for a nice clear post free of panic and rumour.

I'm not a lawyer or accountant but this occurred to me:

Structure your company so you own 49%. Fine, no pompem.

The remaining 51% among:

One Thai whom you know and trust with 11%

Four others with 10% each.

This makes 51% Thai ownership.

Make sure the five Thais don't know each other.

In the articles of association make it so a 60% vote is required for any decision/transaction to be made.

You and the one you trust have the 60% to effectively control.

If he balks, you have his signed resignation in the safe, just date it and get a new guy.

Opinions anyone?

Johnny, you're welcome (although I can understand that to some folks panic and rumour is more exciting )

The kind of ideas that you outline are the basics of what can be done (the first steps). You can then make this more elaborate with quoracy rules, ascribing specific powers (signing or otherwise) to certain individuals, defining powers of appointments etc etc. The key here is to both respect the new law and to create a robust framework at the same time. It may appear to be a reconciliation of opposites but it is possible and if handled correctly can be extremely secure, above board and viable. Did you want a job as an account or lawyer?

[blaze]

In this morning's Post, a representative of a large foreign firm said that this is 'an attempt to punish Taksin'. Which of course is no secret- but it does beg the question- does this government have any vision at all- aside from vindictiveness? And how much are they prepared to sacrifice in that quest?

(OK_ it's not vindictiveness- perhaps reflects a desparate need to justify the coup: it must be shown that Taksin broke laws- even if the laws have to be interpreted (invented?) after the fact.)

I wouldn't throw away everyone's interpretation that the reasoning for these ammendments may be stupid. However, it seems to me that this is always a simplistic way of looking at things.

The motiviation is not stupid. It is perfectly practical and if the case against the Shin sale is going to progress, it had to happen:

"....But after acquiring Shin Corp that way Temasek was accused of violating Thai foreign ownership laws, a controversy whipped up by Mr Thaksin’s political enemies. Prodded to investigate, commerce ministry bureaucrats concluded the deal was illegal, forwarding the case to police. Separately, a court is considering whether three Shin subsidiaries should lose their licences for exceeding foreign ownership limits.

The messy, still unresolved episode has left Thailand’s foreign investment framework in tatters, shattering confidence in what had long been seemingly acceptable local practices facilitated by legal ambiguity, and regulatory forbearance.

Source: The Financial Times - 4 November 2006

On the same day, (Nov 4th) the gov't announced that clarification of the rules would be forthcoming.

[Mid]

Thanks for a nice clear post free of panic and rumour.

I'm not a lawyer or accountant but this occurred to me:

Structure your company so you own 49%. Fine, no pompem.

The remaining 51% among:

One Thai whom you know and trust with 11%

Four others with 10% each.

This makes 51% Thai ownership.

Make sure the five Thais don't know each other.

In the articles of association make it so a 60% vote is required for any decision/transaction to be made.

You and the one you trust have the 60% to effectively control.

If he balks, you have his signed resignation in the safe, just date it and get a new guy.

Opinions anyone?

Johnny, you're welcome (although I can understand that to some folks panic and rumour is more exciting )

The kind of ideas that you outline are the basics of what can be done (the first steps). You can then make this more elaborate with quoracy rules, ascribing specific powers (signing or otherwise) to certain individuals, defining powers of appointments etc etc. The key here is to both respect the new law and to create a robust framework at the same time. It may appear to be a reconciliation of opposites but it is possible and if handled correctly can be extremely secure, above board and viable. Did you want a job as an account or lawyer?

perhaps you'd like to explain how you can have more than 50% of the voting rights under the new regs ............

given that they have stated clearly that foreigners will be not entitled to more ,

[johnnyk]

Thanks for the offer but I don't wanna work anymore.

I thought about this because I have a company for home ownership and it looks like I may have to rejig it. I currently own 39% but have a preference/ordinary share setup whereby I have the control.

The scheme I mentioned seemed reasonably safe to me on the surface as the 60% majority required for decisions would not permit the others to control my fate.

I unnastan your reply except 'quoracy'... something to do with quorum perhaps?

[Chopperboy]

So much for investment in Thailand, I know major players already planning the pull out.

The people making up these laws need to put down their crack pipes.

It's beginning to feel more and more like Burma everyday.

As a friend of mine said "The difference between the Thais and Burmese is that the Burmese don't hate us"

[Barney_the_Dinosaur]

Not that I wish to switch fact for hysterical speculation and ceasless recantation of member's own private circumstances, but the listed companies affected are....

ITV

ADVANC

SHIN

UCOM

PDI

BIGC

MAKRO

[johnnyk]

perhaps you'd like to explain how you can have more than 50% of the voting rights under the new regs ............

given that they have stated clearly that foreigners will be not entitled to more ,

My idea says you don't have to have more than 50%.

You and your accomplice: 49 + 11 = 60

Edited January 10, 2007 by johnnyk

[LivinLOS]

Thanks for the offer but I don't wanna work anymore.

I thought about this because I have a company for home ownership and it looks like I may have to rejig it. I currently own 39% but have a preference/ordinary share setup whereby I have the control.

The scheme I mentioned seemed reasonably safe to me on the surface as the 60% majority required for decisions would not permit the others to control my fate.

I unnastan your reply except 'quoracy'... something to do with quorum perhaps?

Your also neglecting to look at the fact that Thailand may choose to examine and audit very hard those 10% shareholders.. where did they earn thier assets to put 10% into your company, when did they pay tax on that money, when were the payments made etc etc etc..

As those are not easy questions for many Thais to answer, and as those Thais will be greatly inconvenienced by being under the tax office microscope it will not be as easy to find them, they also may need more payment for such hardships..

All just more obstacles..

[BKK90210]

The minister said the law will apply mainly to service industries,

here's the thin end of the wedge .................

No the minister didn't say that.

Actually what he said was (just in a general statement)..."In list #3 - most companies are in service industries, and approx 30,000 of them have foriegn shareholding of no more than 49.99% "

Here's his exact sentence in thai (source Thairath news)

"ธุรกิจที่อยู่ในบัญชี 3 ซึ่งส่วนใหญ่เป็นธุรกิจบริการ และมีการจดทะเบียน โดยมีคนต่างด้าวถือหุ้นไม่เกิน 49.99% ประมาณ 30,000 ราย "

Edited January 10, 2007 by BKK90210

[johnnyk]

LivinLOS,

True, but they have always had the power to look closely at nominees.

The 10 percenters can always be lent the money one way or another. The law currently allows this (he said, whistling past the graveyard).

Certainly one would not enlist the noddle lady downstairs as a shareholder, you would want people with proper jobs, salaries, assets, bank accts and so on.

Thais are pretty wily people, I guess you have to find ones who are willing to be wily on your side!

Edited January 10, 2007 by johnnyk

[Mid]

perhaps you'd like to explain how you can have more than 50% of the voting rights under the new regs ............

given that they have stated clearly that foreigners will be not entitled to more ,

My idea says you don't have to have more than 50%.

You and your accomplice: 49 + 11 = 60

thanxs 'johnnyk' ,

my post was directed at Paul MBMG .

accomplice is such an adapt word

[Paul MBMG]

perhaps you'd like to explain how you can have more than 50% of the voting rights under the new regs ............

given that they have stated clearly that foreigners will be not entitled to more ,

Dear Mid,

I'm obvioulsy not exlaining myself terribly well - I think that you need to look at the fact that control of a company doesn't neccessarily equate with shareholder voting rights: even within public companies certain individuals are able to wield disproportionate influence - how many shares in GE did Jack Welch own? Within private companies you have the scope, to a very large extent, to decide who can make what decisions on behalf of the company.

There have been in many jurisdictions structures based around 50:50 shareholdings built on the premise that you only need to 'neutralise' one vote from the remaining 50% to guarantee that your 50% is a majority.

[Paul MBMG]

I unnastan your reply except 'quoracy'... something to do with quorum perhaps?

Correct, this can be used to ensure suitable decision making processes

[Mid]

The minister said the law will apply mainly to service industries,

here's the thin end of the wedge .................

No the minister didn't say that.

Actually what he said was (just in a general statement)..."In list #3 - most companies are in service industries, and approx 30,000 of them have foriegn shareholding of no more than 49.99% "

Here's his exact sentence in thai (source Thairath news)

"ธุรกิจที่อยู่ในบัญชี 3 ซึ่งส่วนใหญ่เป็นธุรกิจบริการ และมีการจดทะเบียน โดยมีคนต่างด้าวถือหุ้นไม่เกิน 49.99% ประมาณ 30,000 ราย "

just been back through the entire thread and it looks as if the news post I pulled the quote from has been deleted ????

thanxs for the updated info