This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 BANGKOK 000788 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/MLS AND EB 
TREASURY FOR OASIA 
COMMERCE FOR 4430/EAP/MAC/OKSA 
STATE PASS TO USTR FOR WEISEL 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL TH
SUBJECT: THE GREAT THAKSIN ASSET SALE: TAX-FREE BUT WITH 
COSTS 
 
¶1. This cable is sensitive but unclassified. Not for internet 
distribution. 
 
¶2. (SBU) Summary. The sale of the Prime Minister's 
publicly-listed family holding company, Shin Corp, to 
Singapore's Temasek, has provoked widespread criticism for 
the byzantine nature of the transaction, the fact that it was 
structured to be entirely tax-free, the appearance that 
government polices were promulgated to support the deal, and 
the sale of "national assets" to foreigners. While the 
legality of the transaction is still open to debate, a sale 
providing nothing to the government coffers while earning the 
Thaksin family US$1.8 billion is widely seen as unethical. 
The deal has catalyzed Thaksin opponents and created perhaps 
the most serious challenge to the stability of the Thaksin 
administration since it took office in 2001. Attacks on 
Singapore's motives and implication that the Singapore 
government somehow abetted Thaksin's corrupt practices in the 
Shin sale are causing a Thai nationalist reaction, with even 
respected academics demanding Singapore call off the deal. 
The fact that the PM's 2001 platform called for Thai 
nationalist economic polices coupled with the amount of 
political capital that the Shin Corp transaction has cost, 
further complicates Thaksin's efforts to push forward his 
outward-looking, albeit politically difficult economic 
policies, including privatization of SOEs, massive 
infrastructure development, and an FTA with the US. End 
Summary. 
 
The Deal 
----------- 
 
¶3. (U) On January 23, 2006 the Shin Corp CEO announced that 
the company's controlling shareholders, the PM's Shinawatra 
family, would sell their 49.6 percent ownership of the 
company's outstanding shares to Temasek Holdings, the 
investment vehicle of the government of Singapore.  Shin 
Corporation is publicly listed on the Stock Exchange of 
Thailand (SET) and it functions as a holding company for 
shares in mobile telephone company Advanced Info Service (AIS 
- 43 percent), Shin Satellite (41 percent), television 
station iTV (53 percent), and communications and tech company 
CSLoxinfo (40 percent). The total value of the sale was 73.3 
billion baht (US$1.8 billion). In addition, Singtel, the 
Singapore telephone company majority owned by Temasek, owns 
20 percent of AIS. 
 
¶4. (SBU) The Temasek transaction was designed in a way to 
avoid taxes and get around Thai law limiting foreign equity 
in telecom firms to 49 percent. The law raising the limit on 
foreign equity participation was raised to 49 percent from 25 
percent the day before the Temasek deal was announced. Three 
companies were created in Thailand one week before the 
transaction was announced to hold varying amounts of Shin 
Corp shares. Each nominee company has Temasek as a major 
shareholder but two also include Siam Commercial Bank and a 
local businessman (who received a 20 billion baht loan from 
Siam Commercial Bank to fund his contribution to the capital 
of the nominee firm). One of the nominee companies owns 41 
percent of another. Through these Thai nominee companies 
holding Shin Corp shares, the legal fiction can be maintained 
that Shin Corp remains a majority-Thai owned firm.(This 
practice of using nominees is quite common in Thailand as a 
means to get around a variety of restrictions to foreign 
ownership on Thai as 
sets.) 
 
¶5. (U) The members of the PM's family and their associates 
sold their shares (transferred to them by the PM in 2000, 
just prior to running for PM in 2001 as part of an effort to 
comply with Thai conflict of interest requirements for senior 
officials) to Temasek through the SET.  Thai law exempts 
capital gains taxes from trades made by individuals 
transacted through the SET. However, it became clear that 
Thaksin's son and daughter sold more shares than they had 
previously reported as owning. This was due to a transaction 
on January 20 in which they bought shares equivalent to 10.4 
percent of Shin Corps total outstanding from a British Virgin 
Islands company called Ample Rich Investment Ltd.  Although 
the price of Shin Corp shares was 49.25baht/share on January 
20, the transaction between Ample Rich and the Thaksin 
children was done at 1baht/share. 
 
Ample Rich 
-------------- 
 
¶6. (U) As explained at a February 1 press conference held by 
Suvarn Valaisathien Thaksin's tax attorney, the timeline of 
the Ample Rich transaction was as follows: 
-June 11, 1999. Ample Rich Ltd. established in the British 
Virgin Islands to hold Shin Corp stock in preparation for 
listing Shin Corp. American Depository receipts on NASDAQ. 
The US listing was never done because of the "poor 
performance of the NASDAQ in 2000" (Note: through August 31, 
2000 the NASDAQ Composite Index was up slightly for the 
year.) Ample Rich transferred the Shin Corp shares from 
Thaksin at par i.e. 1baht/share. 
-December 1, 2000. PM transfers his shares in Ample Rich to 
his son Panthongtae, to comply with Thai constitution 
prohibiting a minister from holding more than 5 percent of 
the shares of a company. 
- May, 2005. Panthongtae transfers 20 percent of Ample Rich 
shares to his sister, Pinthongta. 
- January 20, 2006. Panthongtae and Pinthongta purchase all 
the Shin Corp shares held by Ample Rich at the same price as 
Ample Rich's original purchase price i.e.1baht/share. Suvarn 
explained that the shares were brought back to Thailand in 
order for the country to benefit from the capital inflow 
achieved through the sale of shares to Temasek. It should be 
noted that if the shares were sold offshore, a 15 percent 
withholding tax would have applied to the transaction. We 
also understand that Temasek did not want questions to arise 
from buying such a large part of the shares from a shell 
company located in a  tax haven. 
- January 23, 2006. The siblings sell all their Shin Corp 
shares, about 27 percent of all outstanding Shin Corp shares, 
to Temasek via the SET. 
 
Favorable Rulings 
---------------------- 
 
¶7. (U) Prior to Temasek purchasing the shares, the Securities 
and Exchange Commission (SEC) and the Revenue Department made 
several rulings highly favorable to the Shinawatra family and 
Temasek. Thai securities law requires that an entity 
acquiring 25% of the equity of a listed firm must offer to 
buy the remaining outstanding shares of existing shareholders 
at a price "not less than the price the tender-maker offered 
to any shareholder during the previous 90 days." Yet the SEC 
ruled that Temasek could tender for remaining AIS shares at a 
price 23 percent below market based on an opinion from a 
financial advisor (the advisor was SCB Securities, a 
subsidiary of the Bank which owns shares in the nominee 
companies that formally acquired Shin). Also, the SEC ruled 
that "because Shin Sat and iTV comprised less than 10 percent 
of Shin Corp's total revenue," Temasek did not have to tender 
for those shares despite the regulations regarding change of 
control. These rulings substantially reduced Temasek's 
required cash outlay for controlling interest in the Shin 
subsidiaries. 
 
¶8. (U) When Thaksin transferred Shin Corp shares to family 
members in 2000, the Revenue Department ruled that, because 
the shares were transferred below market price, they would 
not be liable to personal income tax.  When the family sold 
their Shin shares to Temasek, the Revenue Department ruled 
that, since the shares were sold by individuals on the SET, 
no capital gains liability occurred.  The Revenue Department 
has ruled that no tax event has occurred on any of the asset 
transfers and sales from the time Thaksin began distributing 
Shin Corp shares in 1999 through the sale to Temasek. Critics 
have been unable to find evidence of tax evasion (as opposed 
to tax avoidance) from these maneuvers but argue that because 
at least some of the transfers were not reported to the SEC 
as required for all off-SET trades, the Shinawatra children 
could be subject to fines and up to one year in jail. 
 
Questions and Accusations 
------------------------------- 
 
¶9. (U) In addition to these facts, Thaksin opponents have 
made additional accusations: 
-Thaksin did not sell his shares in 2000 because he wanted to 
use his position as PM to favor his companies and make them 
more valuable. As demonstrated by the fact that the value of 
Shin and affiliated company shares have appreciated more 
rapidly than the overall Thai stock market over the past five 
years, these critics argue the PM succeeded in his goal and 
sold out at the high. Policy decisions limiting competition 
in the mobile phone and satellite markets and preferential 
concession agreements are, critics contend, just some 
examples of the special treatment these Thaksin-owned 
entities received from the RTG to help build the value of 
their enterprises. 
 
- The Thai constitution specifically prohibits ministers from 
having an interest in or acting on behalf of a company, yet 
the PM was "on vacation' in Singapore for four days during 
the end of December, a remarkable coincidence. 
 
- There are reports that a second company called Ample Rich, 
incorporated in the UK, engaged in trades of Shin Corp shares 
held offshore through Singapore brokerage firm Vickers, 
Ballas & Co. This accusation is based on a July 21, 2000 Shin 
Corp major shareholders report to the SEC indicating that 
Ample Rich (BVI) owned 10 million fewer Shin shares than it 
had when Thaksin first transferred shares offshore in 1999. 
These 10 million shares reportedly showed up on the books of 
Vickers although no trade was ever reported. When the 
siblings bought all Ample Rich's Shin Corp shares in 2006, 
the missing 10 million shares were there. 
 
- Temasek paid a premium of about 20 percent for Shin shares 
over market value of the underlying assets. Critics contend 
that "there must be a quid pro quo" with one senior Democrat 
Party MP asking "did they promise Singapore basing rights for 
their F-16s?" An academic accused Singapore of "enabling 
Thaksin's cash out" and questioning "the moral and ethical 
standards of the buyer." 
 
-Even if the transaction can be legally justified, critics 
contend there is no doubt but that making a profit of over 
US$1 billion and not paying any taxes at a time when the 
government budget is under pressure and the Revenue 
Department has become more active in collecting taxes sets 
the wrong example and violates Buddhist precepts for proper 
behavior of a leader. 
 
- Thaksin has been trying for several years to privatize 
EGAT, the state-owned electric utility, in the face of 
opposition from unions and those who fear privatization would 
lead to higher energy prices for consumers. Three days ago 
the EGAT chairman, responsible for preparing the company for 
privatization, resigned in the wake of the Shin Corp sale 
stating that he did not want to preside over the sale of his 
company "to foreigners." 
 
¶10. (SBU) Comment: The Constitutional Court and the National 
Counter Corruption Commission investigated Thaksin in 2001 
for failing to dispose of all his substantial corporate 
assets. By the narrowest of margins, both institutions 
acquitted the PM of wrongdoing and accepted his argument that 
his failure to disclose certain assets was simply an error. 
Now Thai regulators stand accused of again making special 
rulings to favor the PM. As one stock market observer noted 
"it's not exactly news that Thai institutions are weak" but 
the blatant manipulation of legal loopholes and influence has 
now resulted in enormous liquidity in the hands of the PM and 
made him appear "greedy." 
 
¶11. (SBU) In his favor, the path of Thaksin's transaction is 
well trodden here in Thailand, from the use of offshore 
companies, to nominees, to effective use of tax avoidance 
techniques. But the arrogance and scale with which this was 
done has rubbed many Thais the wrong way, thereby weakening 
the PM politically, at least in Bangkok. Thais are also 
concerned that "national assets, some of which may have a 
national security component" (e.g. satellites), were sold to 
an entity controlled by a foreign government. Thaksin 
opponents are trying to play up the nationalist/xenophobia 
card with a February 7 newspaper headline reading "Singapore 
Warned: Drop Shin Takeover." 
 
¶12. (SBU) Thaksin was elected in 2001 partially on a platform 
of taking Thailand back from the IMF and the other 
foreigners. With the need to expend so much political capital 
justifying his self-enrichment, Thaksin may need to reduce 
his exposure to any further charges that he is "selling out 
the country to the foreigners." His policies involving 
"megaprojects" infrastructure development, privatization of 
state-owned enterprises and an FTA with the US could face 
review if and when the PM needs to re-establish his 
nationalist and populist credentials. 
 
BOYCE