A lesson not learnt: Another Thai “flip-flop” over the revised Foreign Business Act

Updated On: Jan 13, 2007

First came the announcement of limits on foreign ownership of Thai companies on Tuesday (9 January). 

Stocks tumbled, and then another policy reversal, leaving investors utterly confused.  After initially warning that some 10,000 companies would be affected by the changes, Thai authorities on Wednesday (10 January) insisted that only some 1,300 would be affected.  This policy backtracking that occurred yesterday (Wednesday), the second within a month, neither help the economy nor the government’s image.

According to the Bangkok Post, the government has stipulated that “foreign investors will be given one year to sell down their holdings and up to two years to reduce voting rights to less than 50%”. It has also “redefined alien business classifications, and given a 90-day deadline for firms that use Thai nominees to disclose their holdings”. This means that “foreign investors under Annex 1 and 2 will be subject to a maximum shareholding and voting rights of 49.99 per cent, while those under Annex 3 will be required to hold shares not exceeding 49.99 per cent but will not have to reduce their voting rights”, the Nation outlined. Additionally, a grace period of one year would be given for businesses to comply with the law. These announcements led to a predictable plunge in the Thai stock market on Tuesday.

On Wednesday, Deputy Prime Minister and Finance Minister MR Pridiyathorn Devakula came out to clarify that the impact on foreign businesses was less than what people envisioned as “telecom companies were partially exempt from the amended Foreign Business Act”, the Nation reported. This has left many puzzled as the changes were seen as a move to weaken Temasek’s hold over Shin Corp. Now, the policy reversal on the Shin Corp-Temasek debacle has unclear ramifications. Pridiyathorn also further assured that the “amendments would not affect companies in the manufacturing and export sectors or those that have been awarded investment privileges by the Board of Investment (BoI) [while] application of the planned law to limit foreigners' shareholding and voting rights to less than 50 per cent in sectors deemed vital to national security would be flexible”.

With such fuzzy guidelines of how businesses are to be categorized, it is no wonder that foreign businesses have scrambled frantically to clarify their status and secure exemptions wherever possible. For instance, the Nation noted that SVI and Compass East Industry (Thailand) promptly asserted they were not to be affected by the draft “because they had received Board of Investment privileges”.

Investors are also unappeased by Pridiyathorn’s apology for the confusion –the second policy “flip-flop” after the capital controls policy of December 2006 –causing a flood of criticism to come upon the Thai authorities. Lance Depew, the portfolio manager of Quest Capital, told the Bangkok Post, “If this government's aim is to scare away foreign investors, then I think they are doing a very good job here; they have the perfect strategy in place to do this… They are wreaking havoc on foreign investors, and investors are going to vote with their money on where they want to invest… What is Thailand doing? Countries like Vietnam are looking to relax foreign limits, and we are looking to tighten them?” 

Kim Eng Tan, an associate director for sovereign and international public finance ratings at Standard & Poor’s, echoed this view, saying, “In the face of competition from so many other countries, this is nothing but negative for Thailand, and we may have to do more research on what the impact of these measures would be before deciding on the sovereign ratings… I have a feeling that things are not going to be very rosy from here on… Even in the best-case scenario I would say it is negative news for Thailand.”

Vikas Kawatra, head of institutional sales at Kim Eng Securities, painted a bleak picture as he scorned the lack of economic and political finesse by the “army-sponsored government represented largely by retired army generals”. He criticized that while these ministers “learn on the job” investors can look forward to more “silly moves” that would wreck Thailand’s economy.

Not only is it looking fuzzy in the economics arena, the political scene is also messy.  Media crackdown and “gag order” against Thaksin, revoking of Thaksin’s diplomatic passport, and feeble efforts to go after Thaksin’s children and supporters perhaps only showed up the inability of the coup leaders to tackle all those problems that they claimed as justification for the coup in the first place. 


SET steadies after telecom exemption (Nation, 11 January 2007)

Pridiyathorn out to reassure foreigners (Nation, 11 January 2007)

It's 'the end of investment' (Bangkok Post, 10 January 2007)

FBA changes get cabinet approval (Bangkok Post, 10 January 2007)

Bad news for investment (Bangkok Post, 10 January 2007)

Thai stocks tumble on approval of new business rules (Nation, 10 January 2007)

Kularb Kaew has 1 year to cut non-Thai shareholding (Nation, 10 January 2007)

Overseas investors wary of changes (Nation, 10 January 2007)

Nominees will be forbidden (Nation, 10 January 2007)

Foreigners rip new rules on ownership (Bangkok Post, 10 January 2007)