Thailand To Limit Foreign Stake In Firms To 50 Per Cent

[Mid]

M.R. Pridiyathorn made a stunning U-turn from comments he made on Tuesday

stunning is the understatement of the year so far

I feel free to quote said gentleman ,

This is Thailand

[m02]

I'll apologize in advance for this post as my sense of humor doesn't always match that of others, but I've just read through the whole thread and I needed a laugh after all the panicky doom and gloom speculation.

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AsiaCheese: 2007-01-09 22:29:55 #75

(Which way does a compass point in space?)

Dear AsiaCheese: It has been indisputably proven, although the full report will not be released until after the fiftieth annual review cycle, by the Scientific Academic Advisory Committe to the Thai Economic and Scientific Panel for Post Toxin Wealth Redistribution Stress Syndrome Schemes(SAACTESPPTWRSSS), that in space a compass shall point to either the ignition coil of the black Mercedes you are undoubtedly tootling around the universe in, or to the steel plate surgically inserted in your head after your second to the most recent motorcycle accident.

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Pual MBMG: 2007-01-09 22:01:05 #69

(I agree We have to respect Thai culture. You did the crime Now you have to do the time. The only answer is to get married and put everything in your wives name. If not married put in GF name no problem The lady from Isan will look after you.)

"You guys should research a little more thoroughly before spouting off. Many perfectly legal companies have been established owning property here for the benefit of foreigners. Undertaken properly this has ben a robust structure that can be easily adapted to suit the new regulations. I'd prefer this to relying entirely on the goodwill and immortality of a spouse of any sex and nationality."

Ahh... Paul, your observations on the Thai / farang business situation are good ones; but, I think the reference to the lady from Isan looking after you, was sort of meant as a joke. At least I laughed.

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"This is Thailand (TIT)": various

Good definitions. The best example of course of a Thai using this expression was Toxin before he became God Emperor for a Day. This was his response to the American IT company, that initially partnered with him and set him up in the IT business, when they threatened to sue him in Thai court for the 800 grand he stiffed them out of. He laughed all the way to the bank; he probably still gets a chuckle out of it.

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"Invest in Vietnam or China or Cambodia": various

This has to be the most humoristic thing posted on this board. The whole tempest in a tea cup going on now in Thailand over foreign business ownership is simply the pre-feeding frenzy mania over the anticipated return of Shin stock from Singapore. Things will get back to normal once that is over one way or another - not that I'm saying normal for investment here was ever that great, after all TIT .

For anyone who thinks the Chinese or Vietnamese are to be trusted to secure any investment by mid-level foreigners, all I can say is you have an educational experience awaiting you in the true meaning of xenophobia; but you'll make some Chinese or Vietnamese smile a lot. When I was in the service the guys use to post their 'Dear John' letters on the bulletin board to share with others. The communal sympathic laughter and comparative discussions on the merits of the various letters helped to ease the pain somewhat. Perhaps those who venture into China or Vietnam can use the ThaiVisa forum to do something similar in the future.

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BTW: I think the Abbot and Costello radio skit, 'Who's on First', is still about the funniest thing ever done. There are quite a few places to download it now, just do a search. Not that I'm implying it has anything to do with the topic of this thread, mind you...

[Dawn]

Sunbelt,

Many thanks for the clear and concise response which has put my mind at ease

I'll still be setting up my limited company as my business will be engaged in activity on list 3.

If I worried constantly about changes that may be made 'in the future' to small businesses on this list then I'd never get off my backside and move to LOS.

Life is full of risks and I wouldn't be where I am today if I hadn't taken many of them in the past! Business is no different.

Many thanks

Dawn

[Dawn]

Paul MBMG,

Sorry, forgot to thank you too!

Many thanks for the swift advice,

Dawn

[Laulen]

If the Government are trying to prevent the 'illegal' business activities of Khun Thaksin and his pals, they would do well to look at other successful economies to use the best of their controls over business activities, particularly those concerning foreign investment and ownership.

Sadly, from the gist of what I have read so far, there appear to be too many vested interests with an 'island' mentality for the decision-makers and law-givers to be truly creative. Are they too proud to not review and take advantage of legislation from other countries, such as in Finland?

What Thailand needs desperately is to encourage investment through transparency and good governance. Failure to achieve this will result in neighbouring nations leap-frogging over Thailand in pursuit of ever greater prosperity and economic success.

I hope, for the ordinary Thai's sake, that doing business in Thailand will become easier, more open, and less subject to kick-backs, bribes and other illegal activities. Sadly, I fear that I may be hoping for a long time yet!

[OlRedEyes]

M.R. Pridiyathorn also said that application of the planned law to limit foreigners' shareholding and voting rights in sectors deemed vital to national security to less than 50 percent would be flexible.

More of the same .

We are told to respect Thailand's laws, and that this is Thailand.

I don't think any serious business person will want a flexible law. What they want is clear and stable law. If the Thai want to keep Thailand Thai, then all they have to do is make clear, stable laws. Businessmen will then make their own decisions to invest or not, with due respect for Thai law.

Problem is they want the money and they want to keep Thailand Thai.

We want it all. Kids.

Now National security is suddenly flexible. <deleted>.

Edited January 10, 2007 by OlRedEyes

[Mobi]

I used to be the FD - essentially the number 2 - to a multi-billion dollar financial conglomerate in the city of London.

I spent the last 5 years or so of my career doing a lot of M & A / new investment work - mainly Eastern Europe, but also Asia and western Europe.

Whenever we went into a new territory, our first visits were to the lawyers and auditors in that country to establish whether there would be any impediment to us having effective overall (management) control of any potential acquisition or investment. Any legal method, as advised by the local lawyers, would be acceptable. Usually it simply amounted to having 51% of the company, but sometimes it became more complex as some countries required a higher shareholding in order to have ultimate control of the board and it's business. Sometimes this was achived the "Thai way" by using legal proxies, and sometimes a complex structure of holding companies was established, to ensure control.

If we ever found a territory (or a potential acquisition) that would not give us control, we would walk away immediately - we were simply not interested in being minority investor, regardless of the attractions of the business, and regardless of the apparent status and trustworthiness of the majority shareholder.

Remarkably, there were very few - if any countries where we could not ensure majority control - and of course under the old'rules', this included Thailand.

I would imagine my ex employer is tearing his hair out right now.

I know many of my colleagues in the investment business held the same views as I did, and I would think that over a period of time investment into Thailand will cool considerably. It will take a while to work its way through, although I see from today's Business Post that Amata has already lost some new investors to other Asian countries in their latest expansion plans.

Ultimate control when investing in the developing world is crucial - as is a stable political climate, with laws that can be relied on - with no risk that they may be changed on the whim of some half baked, naive, nationalistic lackey of an increasingly inept military dicatorship.

Thailand may be in for some hard times ahead - which will suit my holdings in offshore hard currency admirably.

[Paul MBMG]

[\quote]

I don't agree! They certainly have been 100% legal for Thai companies with 100% Thai shareholders, or for Thai companies with Thai/foreign shareholders (where the voting right set-up does not give the foreigner control of the company).

But if these voting rights have given a foreigner control of the company - then (in my opinion), that has always been illegal...

Simon

Simon,

what do you base that on? The written code for restrictions of control has been generally vague or non-existent - most tests in practical enforcement of the law have been based purely on % ownership and that had become the accepted legal practice here. Thai governments of different political colours for many years had issued warnings that abuse of the loopholes would lead to a tightening. We had taken this to refer to the abuses by farangs which have been prevalent over recent years, little realizing that the spark to ignite the whole thing would ultimately be assumed to have originated from Thai nationals!

[Paul MBMG]

Thailand may be in for some hard times ahead - which will suit my holdings in offshore hard currency admirably.

as long as you're not harbouring the delusion that USD is a hard currency for the next 1-2 years, Mobi!

[Mobi]

Thailand may be in for some hard times ahead - which will suit my holdings in offshore hard currency admirably.

as long as you're not harbouring the delusion that USD is a hard currency for the next 1-2 years, Mobi!

Not a chance. Largely sterling denominated in a spread of international equities - nothing in LOS.

[Paul MBMG]

would i invest on that premise

ABSOLUTELY NOT

that's the whole point Mid - you now have a clearer picture of what rights you do and don't have (not to say that these can't be changed, but this is an area that's needed clarification for years and now we have it so hopefully this framework will endure). Previoulsy too many investors have embarked on projects here with both too little control and too little understanding of what is and isn't available. Now you can make your judgement and take your pick. Some will be put off. I believe that the vast majority won't - especially in the cool light of day rather than the heat of the battle. Either way if you're makig the right decision for your own circumstances based on full knowledge, that's the right scenario. Whether it's right or wrong to invest in a business in Thailand should be an individual subjective decision but raising the debate shuld have also raised standards too.

[Paul MBMG]

Fancy legal footwork won't change the fact that you will not be able to have more than 50% of the company, however they choose to define that.

Why would you put your money under some else's control? Thais wouldn't do it, I'm sure, so why would foreigners?

Its very confusing. Its was said not to affect retail, but Big C and Makro are retail, so what;s going on?

And its all very well to say not many listed companies are affected, but most companies are unlisted, so what about them?

I expect many people will just decide its all too hard and go away. Result will be many thousands of Thais out of work. Very unfortunate.

Dear Bruce,

again you're confusing share ownership and control. These are not neccessarily the same.

[Paul MBMG]

Although the Thai were united in their demand for the return of the lost provinces, Phibun's enthusiasm for the Japanese was markedly greater than that of Pridi, and many old conservatives as well viewed the course of the prime minister's foreign policy with misgivings.

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Hmm....what do you all think?

Are there any connections to us at all?

Hope not - wouldn't want Air Force, Army and Navy to be fighting each other gain, or PMs having to swim to safety in Thonburi

[bkkandrew]

Fancy legal footwork won't change the fact that you will not be able to have more than 50% of the company, however they choose to define that.

Why would you put your money under some else's control? Thais wouldn't do it, I'm sure, so why would foreigners?

Its very confusing. Its was said not to affect retail, but Big C and Makro are retail, so what;s going on?

And its all very well to say not many listed companies are affected, but most companies are unlisted, so what about them?

I expect many people will just decide its all too hard and go away. Result will be many thousands of Thais out of work. Very unfortunate.

Dear Bruce,

again you're confusing share ownership and control. These are not neccessarily the same.

Which is precisely the difference that the junta are trying to eliminate in their ham-fisted way!

[Paul MBMG]

Thailand may be in for some hard times ahead - which will suit my holdings in offshore hard currency admirably.

as long as you're not harbouring the delusion that USD is a hard currency for the next 1-2 years, Mobi!

Not a chance. Largely sterling denominated in a spread of international equities - nothing in LOS.

good man! although Euro and ChF may outperform in shorter term and yen later in the year

[Mid]

would i invest on that premise

ABSOLUTELY NOT

that's the whole point Mid - you now have a clearer picture of what rights you do and don't have (not to say that these can't be changed, but this is an area that's needed clarification for years and now we have it so hopefully this framework will endure). Previoulsy too many investors have embarked on projects here with both too little control and too little understanding of what is and isn't available. Now you can make your judgement and take your pick. Some will be put off. I believe that the vast majority won't - especially in the cool light of day rather than the heat of the battle. Either way if you're makig the right decision for your own circumstances based on full knowledge, that's the right scenario. Whether it's right or wrong to invest in a business in Thailand should be an individual subjective decision but raising the debate shuld have also raised standards too.

nice try Paul ,

the whole point is attracting investors , local and foreign in a global market place nothing less .

spin from within is expected and forgiven ,

mid

[Thai-Spy]

Earlier in this thread there was a citation from the article in the Financial Times which certainly pulls no punches. The entire article:

A military coup and a submerging market

For the third time in a month, Thailand has been exposed as the high-risk emerging market that has always lurked under the country’s veneer of relaxed, foreigner-friendly capitalism.

First, the government installed by the army after a coup d’état imposed capital controls to try to hold down the surging local currency, and then hurriedly withdrew most of the controls when the stock market predictably plunged. Next, a mysterious series of bombs exploded in Bangkok on New Year’s eve, killing three people.

The government on Tuesday added to the confusion by announcing new limits on foreign ownership of Thai companies, ignoring the pleas of foreign chambers of commerce in Bangkok and prompting yet another decline in Thai equities to their lowest level for more than two years.

It can be argued that the previous arrangements were opaque and unsatisfactory: for decades, Thailand had allowed foreigners to breach the spirit of the law by using Thai nominees, permitting an investor who was technically a minority shareholder to have de facto control of a company.

For many existing investors, furthermore, the direct impact of the latest proposals will not be significant. Hoteliers and law firms, for example, will be permitted to retain majority foreign control, although they will have to report their shareholdings to the state.

But the Thai government has introduced these changes to the Foreign Business Act in the wrong way and for the wrong motives. As with its earlier blunders, it has acted without transparency or sufficient consultation. It has not even moved with the firmness and determination expected of a military-installed regime, leaving domestic and foreign investors full of doubt about the possibility of yet more changes to investment legislation in the future.

On the face of it, Tuesday’s announcement might look like a nationalist attempt to protect Thai companies from foreign competition, but the real reason is doubtless to punish Thaksin Shinawatra, the prime minister ousted by the coup. He was overthrown after the controversial, tax-free sale of his family’s telecoms empire to Temasek, the Singapore state holding company, for $1.9bn. It is no surprise that telecoms is not one of the sectors exempted from the new requirement that foreigners reduce their voting rights to below 50 per cent of a Thai company within two years.

The result is that the changes to the law will be bad for the business climate in Thailand, and not only because some investors will be pushed into a forced sale of their assets. Perversely, both Thai and existing foreign investors in most service industries will profit from discrimination against new entrants, to the detriment of competition. Above all, business will be more reluctant than ever to invest in a country where the authorities do not seem to know what they are doing.

--FT 2007-01-10

[bkkandrew]

Yes. The referenced article should be compulsory reading for all the 'it won't add up to much' brigade. The FT is probably the most respected, widely published, financial publication worldwide. It is hardly known for sensationalism.

I fear that many, from the junta, to the people on this board, with their heads in the sand, will take much notice though..

[Paul MBMG]

Which is precisely the difference that the junta are trying to eliminate in their ham-fisted way!

Personally, I think they're genuinely creating clarification while leaving plenty of room for manoeuvre

[Paul MBMG]

nice try Paul ,

the whole point is attracting investors , local and foreign in a global market place nothing less .

spin from within is expected and forgiven ,

mid

of course, the reaction of investors to the legislation is in some ways as important as the actual quality of the legislation itself - perception is as important as reality in terms of meritorious investment criteria

However most professional investors seem relatively undeterred initially. KRC published a report forecasting a 20% downturn if the opriginal proposals were passed. The watered down version should presumably imply a lower downturn but it's too early to assess the exact extent

[johnnyk]

I don't agree! They certainly have been 100% legal for Thai companies with 100% Thai shareholders, or for Thai companies with Thai/foreign shareholders (where the voting right set-up does not give the foreigner control of the company).

But if these voting rights have given a foreigner control of the company - then (in my opinion), that has always been illegal...

Simon

You may not agree but it is allowed in the company articles of association under Thai law.

[bkkandrew]

Which is precisely the difference that the junta are trying to eliminate in their ham-fisted way!

Personally, I think they're genuinely creating clarification while leaving plenty of room for manoeuvre

Are you managing the Sonthi PR Account?

[ThaiGoon]

From the Nation:

BURNING ISSUE

unfriendly to foreign investors? look around a bit

But timing of business law changes could have been better

If you think that Thai foreign business law is unfriendly to foreign investors, try Venezuela - or Japan.

This week, while the Cabinet was approving draft amendments to the Foreign Business Act, Venezuelan President Hugo Chavez was proposing to nationalise his country's energy and telecommunications sectors.

And in Japan, Citigroup has moved to sharply downsize its consumer-finance operations in response to stricter laws. The move was announced this week after Japan's parliament passed laws to place limits on rates and cap loans. Foreign companies will have to adjust to comply with the rules.

Amid the forces of globalisation, countries face a dilemma: how to open up their markets to foreigners without hurting locals.

While emerging countries such as Vietnam and India are revising their laws to welcome foreign companies, countries such as Venezuela recently decided to walk in the opposite direction. Chavez vows to nationalise the telecommunications and electricity industries, both controlled by US firms.

Propelled by nationalistic sentiment, Chavez began his new six-year term as president by planning to speed up socialism.

Although his statement was criticised by Washington, which has had strained relations with Chavez in recent years, his plan somehow connects with voters. He has managed to turn anti-capitalism into political kudos at home.

In Japan, meanwhile, Citigroup, one of the world's largest financial-services firms, said it would close all but 50 of its 320 branches and shut down 100 of its 800 automated loan machines because of the toughening environment for consumer lenders.

Citigroup's announcement came less than a month after Japan's parliament passed new legislation that would slash the maximum loan rate to 20 per cent from 29 per cent and set a limit on loans to individual customers, in a move lawmakers say would protect consumers from borrowing beyond their means.

The legislation directly affects foreign firms operating in the consumer-finance industry, which grew rapidly during the country's economic slump in the 1990s. At that time, Japan's troubled banks scaled back lending. Citigroup, however, said it was not planning to withdraw completely from the sector.

In spite of the timing, the rationale behind each country's decision is different. The Venezuelan motive is purely political and aims to guard two strategic sectors against foreign domination.

Tokyo does not mean to drive away foreign business, rather, its decision aims to protect local consumers from over-exposure to easy foreign money.

In Thailand, Commerce Minister Krirk-krai Jirapaet said foreign business law amendments were to promote good governance in business following the scandalous Shin Corp takeover by Temasek Holdings of Singapore.

While details of the law have barely changed from the old one last revised in 1999, the government has tightened the definitions to address the question of nominees in order to prevent some investors exploiting legal loopholes in the future.

Despite the Cabinet's - we assume - good intentions, the timing for amending the law looks far from perfect.

Chavez managed to score domestic support for his nationalisation plan because of strong votes he had just received and the country's oil resources, that enable his government to buy oil companies.

Japan's business sentiment is at its most upbeat in two years, according to the latest survey of consumer confidence late last year.

The backdrop of the Thai political and economic situation is different. The draft law was passed while foreigners are starting to turn away from Thailand after a series of discouraging incidents.

The Bank of Thailand's draconian capital-control measures introduced on December 19 have raised fears that Thailand is turning its back on globalisation. This has hurt sentiment in the financial markets and might potentially harm foreign direct investment in the long term.

A series of bombs on New Year's Eve has also alarmed investors over political stability.

The new foreign business law has, in fact, barely changed from the old one, revised the last time in 1999. It simply makes the definition clearer and tries to plug loopholes on nominees used to circumvent the ownership law. Foreign investors are still free to invest in Thailand in most business sectors, just like most other countries in the world.

However, no matter how good the intention of the law, if the timing is wrong, it can create an impression that Thailand is shooting itself in the foot, again.

Jeerawat Na Thalang

The Nation

[johnnyk]

Poor Citigroup, let's shed a tear for them.

They were charging 29% and can now charge only 20%...in a country where interest rates are very close to 1%.

[Filer]

Yes. The referenced article should be compulsory reading for all the 'it won't add up to much' brigade. The FT is probably the most respected, widely published, financial publication worldwide. It is hardly known for sensationalism.

I fear that many, from the junta, to the people on this board, with their heads in the sand, will take much notice though..

I agree with the comments about the FT. The FT's long time Bangkok resident correspondent, Amy Kazmin, with one or two assistants, stands head and shoulders above most of the other western correspondents in reporting what is going on in Thailand and the SE Asia region. In Europe, the FT is the only English-language newspaper/journal which provides balanced reporting on the Thai scene together with good insight. Much of the reporting in other "respectable" business papers is far from reality, often drawn from wire service reports and edited by junior staff who have no understanding of the region.

The referenced article of 10 Jan was in fact a "leader" (anonymous editorial) article, but Amy Kazmin obviously provided the input. It's well worth checking the FT's web site each day for its Asian pages to get a well-balanced English language view of the top stories from Thailand.

(I don't work for the FT - just have many years experience of business in Thailand and the region).

[MyFriend You]

The problem is not with the new law or if it affects the majority of small businesses directly. The problem is that the now government in their wisdom, or lack of it, can change the rules instantly and don't seem to be the least concerned about the impact of their act. While the new law may not affect many businesses directly the possibility of an escalation or rule changes that do is very real. This has to be troubling to anyone that has investments in Thailand.

Before all the government trouble and the protests in Bangkok we pulled out of 2 major projects and have now pulled out all our investments. We now only have our house, in wife's name, and a few thousand baht in the bank (for house repairs) and it's going to stay that way until the situation stabilizes, which could take years.

Good Advice - A lot of you small business owners should take heed and follow this example - remember back when Vietnam first opened up in the late eighties thru the nineties - the policy was B. O. T. Build Operate & Transfer you could build it, operate it & share profit for 5 years, then the controlling power was transferred to the Vietnamese 'partner' for the next five years, with your profit declining until finally you had to transfer it entirely to your partner. That ran a lot of investors right to Cambodia and Thailand - since the Minister has already declared 'This Is Thailand' whats to say the new law could not be amended to be another variation of BOT...............my money remains in the US............

[cclub75]

In fact, no change, if you have a restaurant or other type of business on list 3. If you are not an Amity treaty company or have a Alien Business License, you still can have 99% of the voting rights even if you have 49% of the shares with preferred shares.

Where the changes are with telecommunications companies, mining companies or with property developer companies. You now can only have 49.999% of the shares and 49.999 % of the voting rights if the company is on the List 1 and List 2.

For most small companies, no change.

I'm rather disappointed by your first reaction...

Question : do you know one company that operates a restaurant for instance, and that is classified as "foreign" by FBA and who have successfully asked a licence or special authorization as stated in FBA for List 3 activities ?

We need to stop playing silly games.

All the foreigners who have created food/beverage businesses for instance went for the easiest way : being a "thai" company, AKA owning officially less than majority of shares and using dual shares system or nominees to keep control.

To reformulate : I believe foreigners are not concerned by the companies that are already within the field of FBA. Because actually... there are none.

FBA was right from the begining a total dead law. The best proof : the content of list 3 has never evolved. Because nobody cares, all investors simply bypassed the FBA, by being "thai" or by using special systems like BOI.

If you put aside BOI and Amity Threaty... we can say (don't laugh) that there are no "foreign" companies in Thailand, as they are described in FBA old version... Must be shocking for our thai friends, huh ? !

Now, the gvt after 30 years, aknowledge that everybody is cheating. It's not a few : it's everybody, from Temasek at the top, to Lotus, Carrefour, to the small LTD that operate a bar, a travel agency, a restaurant whatever.

So they change the key criteria that make a company "thai" or "foreign".

So you shouldn't say "nothing change". Because by saying that, you simply continue the hypocrite game.

How will react a genuine foreign investor who wants to create a business in Thailand ? If he can't go BOI, if being "thai" is now impossible, and if because of FBA he can't choose his activity, and can't keep the control of his company... do you believe that he will go for it ?

So I repeat, the "nothing change" posture looks to me very... limited. On the contrary, as I said before, it's bigger than the pandora box. Unless of course, the gvt make another... U turn. It has already happened yesterday (exemption of telecom companies).

The best analysis to this date, is coming from a... Thai. Published this morning in Bangkok Post. Read it and you will understand the real issue.

http://www.bangkokpost.com/News/11Jan2007_news17.php

[kmart]

M.R. Pridiyathorn seems to be the hand puppet for all those clueless retired generals in the back room, doesn't he?

[Bruce1]

I see Vietnam is joining the World Trade Organization and so will be further opening itself up to foreign investment. Rather good timing for the people who leave Thaland, I would think.

The intention of the law to prevent foreigners owning more than 50%, while allowing them to retain effective legal control through voting rights, was an acceptable compromise to make good a bad protectionist idea. The govt is now removing that compromise for some classes of companies. As someone said, while the small number of list companies will still be OK, I imagine there would be a very much larger of companies who went the different "Thai" route who will be the ones now affected.

BTW, did I really see somewhere way back up on this thread that "hairdressing' was a listed profession closed to foreigners? So is hairdressing a matter of naitonal security? Or is it supposed to be related to "Thai culture"? All those millions of hairdressers in other countries around the world might find that idea a bit surprising.

[d44]

haven't seen this posted yet, don't know the source.

http://www.dancham.or.th/attach_file/newsfile_612_243.jpg

http://www.dancham.or.th/attach_file/newsfile_612_244.jpg