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

UNCLAS SECTION 01 OF 03 BANGKOK 001549 
 
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: EFIN ECON ETRD PREL TH
SUBJECT: SHIN CORP DEAL IS LEGAL, SO WHAT? 
 
 1.(SBU) SUMMARY: Notwithstanding recent speculation on the front 
pages of Bangkok's newspapers that the Temasek Holdings takeover of 
Thailand's Shin Corporation will unravel, Embassy contacts 
universally expect the deal to go through when the tender offer is 
completed on Tuesday, March 14. Telecom sector analysts and 
attorneys regard the buyout as being in technical compliance with 
Thai law and practice. While the opposition continues to level a 
variety of charges against the transaction, the sole legal challenge 
to date focused on individual misconduct, and Thailand's 
Constitutional Court found insufficient evidence to hear a case 
charging Prime Minister Thaksin Shinawatra with violating conflict 
of interest law - effectively the same charge for which the court 
found him innocent when he was first elected PM in 2001. In what may 
be tacit recognition of the legal realities, the opposition has 
focused more on the ethics of the transaction. This issue 
underscores the critical need for strengthening the judicial and law 
enforcement institutions in Thai society, particularly with regard 
to their perceived impartiality and legitimacy. END SUMMARY 
 
Speculation and Speculators 
-------------------------- 
 
¶2. (SBU) Front page stories in papers like the Nation and the 
Bangkok Post have speculated during the past week that the takeover 
of Shin Corp by Singapore's Temasek Holdings (REF A) could be facing 
difficulties in the face of 
widespread public opposition to the deal and a drop in the Shin 
share price of about 8 percent in one day. Such public discussion of 
the 73-billion baht acquisition includes many voices, including, for 
example, those urging Temasek to halt the deal, others urging a 
boycott of products with a significant connection to Shin Corp or to 
Singapore, and still others seeking to use the issue to unseat Prime 
Minister Thaksin.  Some market observers claim that the sudden 
decline in Shin Corp's share price to an 11 percent discount to the 
tender offer was, in fact, manipulation by speculators trying to 
scare minority shareholders into selling so that they could earn a 
quick profit. (Note: The SEC has thus far not investigated this 
unusual stock action. End Note.) 
 
Nominees as Holding Companies 
----------------------------- 
 
¶3. (SBU) Telecom analysts and attorneys familiar with the structure 
of the Temasek buyout have all expressed the view that it complies 
with existing law, and is not open to legal challenge regardless of 
how unpopular it may be - especially since the Shinawatra family has 
already received payment for its 49 percent share in the company. 
One telecom analyst who was asked to review the deal explained to 
Econoff that there is no record of a successful court challenge to 
the legal device used by Temasek to effect the deal, i.e., the use 
of alleged nominees in structuring purchases. 
 
¶4. (SBU) The creation of nominee holding companies as majority 
shareholders in operating companies - in which stock with varying 
voting rights or the use of controlled investors is used to get 
around restrictions on foreign ownership regulations or other 
restrictions - is a very common practice in Thailand. As one lawyer 
told us, "There must be 10,000 nominee companies in Thailand, and 
virtually every businessman and lawyer of any consequence is 
involved with one." Even the restriction on foreign ownership of 
real estate (other than condominiums) is circumvented through the 
creation of a Thai nominee corporation as the beneficial owner of 
the property. Only in this way can the thousands of foreign real 
estate investors in Phuket enjoy their place in the sun. Thais also 
use nominees themselves to get around the requirement that any 
corporation have a minimum of seven shareholders.  While it may be 
confusing to a westerner, this arrangement is a very "Thai way" of 
reconciling the political mandate of de jure restrictions on foreign 
ownership of things Thai versus the de facto desire/need for 
foreigners' money. 
¶5. (SBU) That the jurisprudence is so supportive of the Temesek 
deal's legality is not surprising.  The opposition's case, that the 
nominees do not count as a real owner, is almost impossible to 
prove:  it requires that a party's status as a "non-owner" be set 
forth expressly in writing.  The notifications filed with the RTG 
authorities in the Shin deal have not made such a declaration. 
Significantly, nominee status may not be inferred from such 
arrangements as unequal dividend splits or uneven division of voting 
rights. An attorney who has handled many such transactions explained 
to Econoff that the customary practice to "prove" the bone fides of 
nominees is to require all shareholders to pay for their shares, as 
it appears the parties to the Shin deal did. 
Derailment Fails 
---------------- 
 
¶6. (SBU) Petitions lodged by over several civil society groups such 
as the Federation of Consumer Organizations (FCO), which launched a 
successful challenge to the partial privatization of the state-power 
producer EGAT Plc in November 2005, have failed to yield any result. 
 The FCO and other organizations argued to the National 
Telecommunications Commission (NTC) that it should consider national 
security in relation to the Temasek deal, because it rendered Shin 
Corp-and subsidiary companies such as mobile provider Advanced Info 
Service, Shin Satellite, and broadcaster iTV-"alien" companies and 
in violation of Thai foreign ownership restrictions on telecom and 
media firms.  The February 23 reply of the NTC essentially punted on 
the matter.  The reply said that there is no clear evidence of any 
harm to national public services, and that it did not have 
sufficient information to inquire further into the complaints. The 
regulator did, however, request additional information so that it 
could consider whether or not any laws governed by the NTC were 
violated.  In the view of the consumer organizations, the NTC did 
not exercise its full authority. 
 
¶7. (SBU) To the extent that the Temasek deal has given rise to legal 
action, the focus has been on individual wrongdoing. On February 16, 
the Constitutional Court (by an 8 to 6 majority opinion) rejected a 
petition by 28 senators that the Prime Minister violated the 
conflict of interest law. "The petitioners did not state clearly how 
the Prime Minister was involved in managing the share trade deal." 
The Thai constitution forbids ministers from managing shares or 
affairs of a private company. Senators opposed to the Prime Minister 
have vowed to fight on, but have declined to say how. In retrospect, 
it is hard to see how the Constitutional Court could have reached a 
different judgment:  the Senators' charge is effectively the same as 
that which the PM won in an 8-7 Constitutional Court decision back 
in 2001. 
 
SEC bares teeth - Shows Gums 
---------------------------- 
 
¶8. (SBU) On March 10, the Securities and Exchange Commission fined 
Panthongtae Shinawatra (age 27), the son of Prime Minister Thaksin, 
5.98 million baht for two counts of disclosure violations and 
another 2.65 million baht for one violation of tender rules. 
Regulators said that Panthongtae had failed to properly report his 
total shareholdings in Shin, both directly and indirectly through 
the British Virgin Islands-based Ample Rich Investments, a firm set 
up by his father in 1999. Thaksin transferred control of the firm to 
his son in 2000. While consistent with precedent, the fines are well 
under the maximum penalties that could have been imposed, namely 
jail sentences of two years, fines of up to 500,000 baht, and 
additional fines of up to 10,000 baht per day.  For one of his 
disclosure violations, for example, Panthongtae received a base fine 
of 127,500 baht, and an additional fine of 1,000 baht per day for 
the 3,197 days he was in violation of the law. 
Checks, Balances, Something? 
---------------------------- 
¶9. (SBU)  Criticism of the Shin transaction has focused most closely 
on the fact that a transaction worth more than US$1.8 billion was 
structured to incur no tax liability. The fact is, however, that the 
law clearly states that transactions made via the Bangkok Stock 
Exchange are not subject to tax. The Revenue Department similarly 
found that transfers of shares from the PM to his children and to 
his holding company (Ample Rich) were not taxable events because 
they were either gifts (and no cash was exchanged) in the case of 
the former, and the transfer was done at a price (below market) so 
that no capital gains were earned (in the latter case). 
 
¶10. (SBU) The various institutions that were created by the 1997 
constitution to act as a check on the power of parliament and the 
ruling party have failed to have any influence on the Shin Corp 
debate. The Constitution Court effectively punted, the National 
Counter Corruption Commission is still without the requisite number 
of commissioners (even if they had decided to hear a case). The 
Auditor General, whose tenure Thaksin tried to cut short only to 
have the King effectively block this action and have her 
re-instated, has done nothing because, according to her office, this 
is a private sector transaction and she deals only with the public 
sector (thus endorsing one of Thaksin's key assertions-that he 
personally had nothing to do with the deal).  It is this 
ineffectiveness that Thaksin opponents say has driven them into the 
streets. 
 
¶11. (SBU) In Singapore, Temasek Managing Director for Investment, S. 
Iswaran, acknowledged that the company was aware that investing 
abroad brought with it political risk, but emphasized that he 
expected the deal to be completed by March 14 in accordance with the 
rules of the Stock Exchange 
of Thailand. He reiterated that Temasek's investment in Shin Corp 
was a commercial decision that reflected its confidence in 
Thailand's long-term economic prospects. We note that Temasek 
concluded the purchase of all the shares from the PM's family in 
January, so that it has both a legal obligation to proceed with the 
transaction (per Thai SEC regulations) as well as an incentive to 
secure a majority interest in Shin Corp. 
 
¶12. (SBU) Comment: It seems almost certain that the Temasek buyout 
will go through because none of the opponents have presented a 
credible reason to block it. It is unlikely however, that completion 
of the deal will either quiet the political uproar over it or close 
the book on all charges of individual wrongdoing in connection with 
it. 
 
¶13. (SBU) If there were credible evidence of clearly illegal aspects 
of the transaction, we are confident that the former investment 
bankers in the Democrat party (some of whom have made careers out of 
structuring such deals for wealthy Thais and worked for the same 
firm thatprovided financial advice to Temasek for the Shin 
transaction) would have identified and aggressively pursued them. 
The choice to make this an ethical rather than a legal issue is, we 
think, a practical one, determined by the weakness of the case (the 
opposition could lose, thus providing the deal with a clearer legal 
imprimatur that it has now), and Thais' greater faith in the 
precepts of Buddhist morality than the vagaries of the Thai justice 
system. If citizens had more confidence in their institutions 
(courts, regulators, bureaucrats), then their finding of no 
significant illegality in the Shin-Temasek deal would not be 
dismissed quite so quickly by so many Thais. Thaksin earns few 
political points for arguing the legality of the case - Thais know 
that "legal" here is a flexible term. 
 
¶14. (SBU) The dismaying reality is that Thais don't trust the 
institutions involved (suspecting them to be either dismantled, 
bullied, or bribed into submission), so many Thais say "so what" to 
the statement that the transaction has been found to be legal. 
Above all, this issue underscores the need for a strengthening of 
the judicial and law enforcement institutions in Thai society, 
particularly with regard to their perceived impartiality and 
legitimacy. 
BOYCE