Thailand to tighten foreign ownership rules

Proposal does not give foreigners any grace period to reduce their stakes
The Straits Times, April 11, 2007


INVESTMENT CLIMATE: Commerce Minister Krirk-Krai Jirapaet believes the changes will not affect foreign investment or investor confidence as direct investment focuses on the rate of return and investment opportunity.





BANGKOK - THAILAND'S military-backed Cabinet endorsed tougher foreign ownership rules that increase penalties for overseas companies using local nominees to circumvent shareholding limits.

The changes endorsed yesterday do not give foreigners using local nominees to control Thai companies any grace period to reduce their shareholdings, Mr Skol Harnsuthivarin, secretary to the Commerce Minister, told reporters after yesterday's Cabinet meeting.

The revisions also increase the maximum prison sentence for breaches to five years from three. The maximum fine was unchanged at five million baht (S$216,500).

'This certainly isn't good news,' said CIMB-GK Securities head of research Kasem Prunratanamala in Bangkok. Foreigners 'should have time to adjust, otherwise the repercussions could be big', causing overseas companies to delay investments, he said.

Singapore's Temasek Holdings will be among companies affected following its US$1.9 billion (S$2.9 billion) acquisition of Shin Corp shares from the family of former premier Thaksin Shinawatra, who was ousted in a September coup.

A previous revision, approved by the Cabinet on Jan 9, gave companies between one and two years for stakes to be pared to less than 50 per cent.

'Under the revised draft, we removed the amnesty clause as the Council of State ruled that it's not fair for other companies,' Mr Skol said.

The Council of State is the government's legal adviser. The proposed changes must be approved by the junta-appointed Parliament before passing into law.

Yesterday's proposed changes to the law extends to three years from two the period companies operating media, mining, aviation and agriculture businesses have to reduce foreign-controlled voting rights to below 50 per cent.

The Cabinet also exempted businesses involved in telecommunications, retail and hotel businesses from having to pare foreign-controlled voting rights.

Thai business sentiment has sunk to the lowest in more than five years amid investment restrictions and policy bungles.

The Bank of Thailand will probably cut its key interest rate today for a third time this year to spur the slowing economy as confidence slides.

'I personally believe that the amendment will not affect foreign investment in Thailand or investor confidence because direct investment usually focuses on the rate of return and the investment opportunity,' Commerce Minister Krirk-Krai Jirapaet said yesterday.

However, the international business community has warned that the changes would dampen the investment climate in Thailand, where confidence has already suffered due to a series of abrupt policy changes.

The World Bank last week also warned about the impact of the amendments and suggested that the rules be liberalised.

BLOOMBERG NEWS, AGENCE FRANCE-PRESSE