Most companies not affected by amended foreign business laws
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
Temasek 'awaiting details' on Thai investment limits
Singapore's state-linked Temasek Holdings said Wednesday that it would await further details on Thailand's decision to push a head with new limits on foreign investment before taking any action.
The Thai cabinet Tuesday approved changes to the Foreign Business Act, agreeing to limit foreign investors to holding no more than 50 percent of the shares or the voting rights in companies.
It follows a controversial deal between Temasek and the deposed premier Thaksin Shinawatra's Shin Corp last year, which may have violated foreign ownership laws and led to street protests and a military coup on September 19.
"We await details. We'll then consult with our legal counsel on the implications of the changes," said Myrna Thomas, Temasek's managing director for corporate affairs at the company's Bangkok office.
Companies have traditionally set up their operations in Thailand so that the local subsidiaries are nominally owned by Thais but effectively controlled by foreigners.
The practice became controversial last year after investors led by Temasek bought 96 percent of telecom giant Shin Corp for 3.8 billion dollars, giving it key stakes in Thailand's biggest mobile operator, a satellite company, a television station and an airline.
The investment firm bought half of those shares from billionaire businessman Thaksin's family, sparking public outrage that eventually led to the putsch.
After the coup, the commerce ministry ruled that the takeover violated foreign ownership requirements, casting doubt on the legality of the operations of thousands of local subsidiaries of foreign companies.
Agence France-Presse
FOREIGN BUSINESS ACT
Nominees will be forbidden
Planned amendments give more teeth to laws that restrict business holdings; executives warn of investment backlash
Foreign companies, which have been using Thai nominees to circumvent ownership laws, will be forced to reduce their stakes and their voting rights within specified time limits when the amended Foreign Business Act becomes law.
After deliberating for almost five hours yesterday, the Cabinet approved a draft amendment to the Foreign Business Act designed to create a level playing field and transparency among foreign companies doing business in Thailand.
The amendment aims to end the legal contention over allegations that Temasek Hold-ings of Singapore had relied on nominees to get around the Thai ownership law to take over Shin Corp.
The amendments require foreign business owners to reduce their voting rights to below 50 per cent within one year.
For shareholdings, if they own a stake in their own name that exceeds the limit, they have two years to reduce it. If the exceeded limit is held in the name of a Thai nominee, they have one year to reduce it.
Commerce Minister Krirk-krai Jirapaet said the new law would set a clearer definition on foreign corporate entities.
"The law is designed to create more transparency in the system. It should improve the investment atmosphere," he told a news conference.
Under the amendments, "foreign companies" are defined as those whose shareholding stakes or voting rights exceed 50 per cent.
This law mainly affects foreign companies in the service industry. Most foreign manufacturing companies are exempt, including companies that fall under Board of Investment mandated waivers.
The Foreign Business Law covers three lists of business sectors - deemed critical to national security - subject to the degree of protection. The most protective category is Annex 1, followed by Annex 2 and Annex 3.
Industries listed in Annex 1 include rice farming, forestry, agriculture and protected professions such as hairdressing. Annex 2 comprises national security-related sectors such as telecommunications, handicrafts, media, weaponry, ammunition, military equipment, the culture-related sector, environment, transportation, marine and air transport, domestic aviation, antique sales, salt farming and mining.
Companies operating in industries listed in Annex 3 of the law will be exempt from the rule. Annex 3 includes rice milling, fisheries, forestry, accountancy services, the service business, legal service business, agriculture, engineering, and retail.
However, the retail law will soon be subject to a retail business law to be introduced in the near future.
At present, there are around 8,800 companies under Annex 1 and 2, while another 30,000 companies operate under Annex 3.
According to the draft amendments, companies, which operate under Annex 1 and 2 and which violate the foreign business law, will be required to revise their shareholding structure and voting rights below 50 per cent within a maximum of two years.
For foreign companies, which have used nominees to circumvent the ownership law, they must report their true status to the Commerce Ministry and will be given one year to comply with the law by reducing their stake to less than 50 per cent.
In total, the new law will govern almost 40,000 multinational companies operating in Thailand at the moment.
The Joint Foreign Chambers of Commerce on Monday warned the government to suspend the amendment saying members might withdraw their investments if the new law becomes more restrictive.
"Companies in List 1 and 2, which include large companies, will be affected. The net effect is something that we can't really gauge and we don't know what it is [at the moment]. However, the immediate effect is that it changes the playing rules, and that reduces the confidence of investors," said Peter Van Haren, chairman of the joint foreign chambers.
However, the new law would not affect the legal process in the Kularb Kaew case. Krirk-krai said Kularb Kaew, suspected to hold Shin Corp's shares on behalf of Temasek Holdings, would be subject to the old law.
The Commerce Ministry is still firm on its recommendation to the police that evidence leads the ministry to believe that Kularb Kaew might be a nominee for Temasek of Singapore.
Sources said Cabinet members intensely debated the merits of the law. According to the source, Interior Minister Aree Wongsearaya voiced concern that the new law might provide amnesty to Kularb Kaew. Information and Communications Technology Minister Sitthichai Pookaiyaudom also questioned the implication of the law on the Shin Corp deal.
Foreign Minister Nitya Pibulsonggram asked for Cabinet's comments on how he should explain the new law to foreigners. Eventually, Prime Minister Surayud Chulanont assigned Krirk-krai to explain the issue to avoid confusion.
Surayud also tried to ward off investors' concerns, saying the decision was right and the government would be able to explain it.
He said the changes would not take effect for "some time", as a panel of legal experts needs to review the changes and the government would try to reassure nervous investors.
"We think that it needs to be worked out in detail for the law to be more transparent, and to make investors more confident," Surayud said.
But that failed to console the stock market, which tumbled 2.69 per cent, with the Stock Exchange of Thailand (SET) composite index losing 17.07 points to close at 616.75.
Krirk-krai said he could not say when the law would be enacted as the draft would have to receive the blessing of the Council of State. He expected that it might take three to four months.
Krirk-krai said the amendment would promote good governance and transparency. Foreigners wishing to hold more than 50 per cent in businesses under Annex 2 and 3 could apply for approval on a case by case basis.
The old law imposes a maximum three-year jail sentence and Bt100,000 to B1 million in fines. But the new law would increase the fine from Bt500,000 to Bt5 million.
Director general of the Business Development Department, Kanissorn Navanugraha, said the law should be clearer and the investment atmosphere should be transparent. The department would develop the system of checking company structures and would randomly check to see who was violating the law.
Asked if foreign investors would pull out, Krirk-krai said: "It's their right to invest, but I believe that quality foreign investors will understand this issue."
Petchanet Pratruangkrai
The Nation
These new laws are clearly aimed at the Singapore Govt and Temasek Holdings - which is great!