VZCZCXRO6439
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #0264/01 0120843
ZNR UUUUU ZZH
R 120843Z JAN 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 4031
RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 BANGKOK 000264 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/CIP, EAP/MLS 
STATE PASS USTR FOR JMCHALE 
STATE PASS EX-IM BANK FOR MANLI ZHANG 
USDOC FOR 4430/EAP/MAC/OKSA 
 
E.O. 12958:N/A 
TAGS: ECON ETRD ECPS TH
 
SUBJECT:  TELECOM IN CONFUSION OVER FOREIGN OWNERSHIP REGS 
 
 
¶1.  Summary:  Thai telecom companies are nervously studying newly 
proposed foreign ownership regulations that could force their 
ostensible foreign owners to divest shares at a serious discount. 
The Minister of Finance has provided conflicting information as to 
how telecommunications will be handled under the new amendments. 
Telecom providers may be exempted from the new, stricter definition 
of foreign ownership, but would still likely be required to 
restructure their ownership arrangements to eliminate "nominee" 
structures that were technically illegal, but common practice, under 
the old law.  End Summary. 
 
¶2.  The newly proposed amendments to the Foreign Business Act (FBA) 
that are roiling the foreign business community in Thailand have 
sent telecommunications companies scrambling to see how the new 
rules will affect their business.  Local telcos have been under the 
gun since former Prime Minister Thaksin's controversial sale of Shin 
Corporation to Singapore-owned Temasek Holdings in January 2006. 
The tax-free sale of Thaksin's telecommunications empire, including 
AIS, Thailand's largest mobile provider, to a foreign company caused 
an uproar that sparked investigations into Shin and other companies 
that used complicated ownership structures to get around Thai laws 
restricting foreign majority control.  Eager to show justification 
for their September coup against Thaksin, the new government 
continued the investigations and devised these new amendments to 
take a final swipe at Shin and Temasek, and to close the previously 
available avenues that allowed foreigners to take control of 
businesses that many Thais consider national assets.  Caught up in 
the tumult over Shin is United Communications (UCOM), owner of the 
second largest mobile provider DTAC, which Norwegian telco Telenor 
took over in a deal similar to Shin's in late 2005. 
 
¶3.  Most observers agree that the FBA amendments will affect the 
telecom companies, but it is not clear to what extent or what 
companies will need to do to comply with the new rules.  The telecom 
industry in Thailand is governed by the Telecommunications and 
Business Act of 2001 and not by the FBA; however, an amendment to 
the Telecom Act in 2006 expressly linked definition of an alien to 
that in the FBA.  Therefore, telecom companies in Thailand face the 
same restrictions on foreign ownership as other service industries, 
limiting foreign control to 49 percent. 
 
¶4.  Telecommunications services are not mentioned in the Foreign 
Business Act's list of restricted services, but Deputy PM 
Pridiyathorn reportedly clarified that telecom would be considered 
as a business under List 3, which includes service industries closed 
to foreign control because Thai nationals are not yet ready to 
compete.  Under the new amendments, telcos would presumably be 
grandfathered and allowed to continue operations, though importantly 
any nominee structures would still need to be dismantled. 
 
¶5.  Adding to the confusion, a section of the amendments states that 
companies "under investigation or trial procedure" will not be 
exempted from restructuring requirements like other companies on 
List 3.  Since the Ministry of Commerce initiated investigations on 
the nominee structures for both Shin and UCOM (and 13 other 
companies as well), it would seem neither would be eligible for the 
exemption.  However, Dr. Deunden Nikomborirak, Research Director for 
the Thailand Development Research Institute and a member of the 
advisory committee for the new amendments, said the language on 
investigations was discriminatory and predicted that the National 
Legislative Assembly would eliminate that section from the final 
version of the amendments. 
 
¶6.  The issue for Shin is whether a holding company known as Kularb 
Kaew that together with Siam Commercial Bank controls a commanding 
share of Shin (through yet another holding company).  In dispute is 
whether the owners of Kularb Kaew are genuine investors or are 
acting as a "nominee" company, simply holding shares for the foreign 
owner, Temasek, and providing a Thai face to what is essentially a 
foreign-owned enterprise.   While an official investigation is still 
ongoing, the Ministry of Commerce made a preliminary conclusion last 
year that Kularb Kaew was in fact a nominee.  If so, under the draft 
amendments, Shin would be considered a foreign company and be 
required to report their foreign status within 90 days from the 
effective date of the law and restructure their shareholdings within 
one year to create a genuine Thai majority ownership.  Temasek would 
then either have to make adjustments to redefine Kularb Kaew as a 
legitimate investor, or find other buyers for the approximately 15 
percent interest that Kularb Kaew supposedly controls.  Any sell 
down would be on the cheap:  Shin's stock has already fallen 20 
percent in the last month and by over one half since the sale to 
Temasek last January.  Share prices would likely have to fall 
further to unload such a substantial share on the market. 
 
¶7.  For its part, Telenor has said publicly it would willingly 
comply with the legal changes if its ownership structure is found to 
 
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be in violation.  However, Sigve Brekke, CEO of DTAC and UCOM, told 
the press the new policy was still unclear and it was too early to 
tell if UCOM was in violation, but said he was confident that their 
shareholding structure could withstand scrutiny.  Temasek and Shin 
have been notably silent and have made no public statements on the 
new laws.  Temasek's Singapore-based director of Thailand business 
told Econoff their lawyers were examining the amendments, but so far 
"couldn't make sense of it." 
 
¶8.  Comment:  At this point the draft amendment's political purpose 
is reflected in their lack of lawyer's polish. Those targeted by the 
new laws are still unsure if they are affected or not. Until the RTG 
comes up with a clear definition of "nominee" it will be difficult 
for many foreign firms operating in Thailand's services sector to 
know what action they need to take.  End Comment.