Thailand explains changes to business ownership law

The Straits Times, January 7, 2007
By Nirmal Ghosh, THAILAND CORRESPONDENT



BANGKOK - THAILAND'S government, still seeking to repair its credibility with the investment community, has sent a memo to foreign missions in Bangkok clarifying why it made controversial changes to the Foreign Business Act (FBA).

The memo, sent out last Friday night by the Ministry of Foreign Affairs, said amending the act was 'unavoidable in order to enable stricter compliance and provide more effective enforcement...as well as to prevent circumvention of its application and provide clarification as to elements constituting a 'foreign' business'.

It said the Ministry of Commerce had been receiving complaints as well as requests to investigate 'various cases of alleged violation (in which) foreign persons hold shares in excess of legally permitted percentage and/or abuse voting rights by disguising as a Thai business'.

'The new Act is expected to strengthen our supervising capacity and address previous loopholes without unnecessary obstacle in attracting foreign direct investment,' it said.

The immediate effect of the amendments last week was to trigger a 2.7 per cent fall in equity values on the Stock Exchange of Thailand.

Later, the market recovered upon hearing clarification from the government that the changes would not have as far-reaching an effect on the business sector as earlier feared; several sectors were excluded.

In a briefing note released yesterday, the risk analysis consultancy Oxford Analytica said a slightly clearer picture had emerged of the likely impact of the new ruling.

But though the stock market has recovered, it said it was still too early to assess whether foreign investors will flee, and what the impact will be on the wider economy.

'There are indications that many are reassessing their medium- to long-term plans, and some may conclude there are less complex operating environments than Thailand,' it said.

Deputy Prime Minister and Finance Minister Pridiyathorn Devakula, in a discussion on the FBA with editors of the Bangkok Post last Thursday night, told them: 'I have no choice.

'The spirit of the law is to limit foreign shareholding to 50 per cent including nominees. However, it has never been enforced.'

The change to the law made the legal environment more transparent, which was good for long-term stability of the market, he explained.

Under the changes, companies operating in certain sectors would have one year in which to disclose and restructure their foreign shareholdings to comply.

But only 1,337 registered companies will be affected by the Commerce Ministry's estimate. Of them, only 15 are listed on the stock market.