Thai politics complicating big business

Updated On: Sep 15, 2006

Singapore’s Government-Linked Companies (GLCs) were established in the early days of Singaporeas vehicles for economic development. 

The GLCs have built up significant technical capabilities and management depth, and are among the leading firms in their industries.  The Singapore government has been careful in ensuring that all GLCs should be run on strict commercial principles and be subject to the discipline of the market. However, their sizes and origins have generated some misunderstandings from some regional politicians and media outfits though, on the whole, GLC investments have been welcomed by many in the region.

As the Singapore economy regionalizes, it will encounter some of these issues generated by media perceptions and political games in the region. Nevertheless, GLCs can bank on its positive track record. 'Singapore Inc' brand is now a regionally known entity with a reputation for fairness, stability in investment, honesty and trust, good corporate governance as well as a long-term commitment. Such track records are important as the Singapore economy gradually integrates itself with the region.

In its regionalization drive, Singapore will just have to manage the inevitable political minefields in the region, balancing its economic priorities that are more aligned with its developed Northeast Asian neighbours which are busy regionalizing their economies with the political transitions of its immediate Southeast Asian neighbourhood. Such balancing acts are not easy, however sensitive the GLCs and Singaporegovernment have been to regional political idiosyncrasies. One such example is found in the recent deal in Thailand.

In January 2006, Singapore GLC Temasek bought a 49 per cent stake in Shin Corp for US$1.9 billion (S$3 billion). Unfortunately, this deal has been complicated by Thailand’s domestic politics and rocky leadership transition. The latest twist in this highly-politicized political drama is whether the holding company Kularb Kaew acted as a nominee for Temasek. Thailand's laws limit foreign holdings in telecom firms to 49 percent. If it is proved to have done so, that would push Shin Corp's foreign ownership above the legal limit. Investigators were seeking to ascertain whether Kularb Kaew was a Thai company or a Temasek nominee.

In its official replies to the politicized investigations, Temasek has patiently reiterated its position and sought cooperation with the Thai authorities: 'We have complied with all laws of Thailand. We are fully cooperating with the investigation by the Commerce Ministry. Temasek said its direct holding in Shin Corp was 44 per cent, through Aspen. The other 52 per cent was owned by Cedar, which has Kularb Kaew and Siam Commercial Bank as major shareholders.

Lost in this political drama is the fact that such antics are hurting Thailand’s own economic interests. Thai and international law firms are doing brisk business as foreign MNCs panic and grapple with the possible need to change their shareholding structures, given the acute uncertainties thrown up by the case of Shin Corp. Some of Thailand’s top investors like Tesco, Holcim, Carrefour and others which may be crucial in facilitating the country’s post-1997 economic recovery are clearly spooked. If restructuring proves to be too much of a hassle or if the MNCs find the final interpretation in the Shin Corp case too restrictive, they reserve for themselves the option of exploring Vietnam, China or India as possible alternatives, given the red carpet treatment and added incentives for foreign investors and their booming markets.

The Shin Corp case is also hurting the stability of interpretation of Thailand’s economic laws. The authorities closest to the machinery of Thailand’s economy are clearly worried by the country’s political turmoil and its impact on big businesses. Yanyong Phuangrach, a deputy permanent secretary of the Commerce Ministry said: ''What is of concern to us is the impact [the ruling] will have on business…The conclusion from the investigation could be different from the one that [has been reported].'' Thanong Bidaya, the caretaker finance minister, acknowledged that the Shin investigation had raised widespread concerns among foreign companies. More importantly, he pinpointed the inconsistencies of the legal system. ''In the past, Japanese companies, for instance, invested heavily in Thailand and sought prominent Thais as partners. Many investors basically purchased shares on behalf of the Thai directors and we have never assumed that this was a violation,'' Mr Thanong said.  

Regardless of political transitions and complications in the region, Singapore is moving ahead with its regionalization, the quest made all the more urgent by acute competitive pressures from the rise of China and India.  In this aspect, without looking too far away, Senior Minister Goh Chok Tong announced his vision for the near future: 'In my own mind, I think in later years, maybe 20, 30 years down the road, we should actually think of a bridge linking Singapore to Pulau Tekong to the East Coast of Malaysia.' Thirty years on, there may be some development along Malaysia's East Coast to merit the construction of such a bridge, Mr Goh said. 'And the bridge in itself will stimulate further growth along the East Coast.'

On a broader scale, Singapore seeks an even more ambitious plan of integrating its economy with that of its Northern neighbour. Senior Minister Goh said Singaporeand Malaysia should find ways to integrate the two economies as he believed both countries stand to gain tremendous benefits with this economic arrangement. Such strategies may have been made even more urgent, given the dying global free trade talks, now almost entirely dependent on China keeping it alive amongst the major economic powers in the world. Singapore hopes that its own bilateral and regional free trade agreements and strategic blueprints can act as strategic backup in the worst case scenario of a total collapse of trade talks, given the impasse between agriculturally protectionistic Europe and the free trade voices of the US/Australia.


Shin Corp deal fully complied with Thai law, says Temasek (Straits Times, 13 September 2006)

Surin's role raises questions (Nation, 13 September 2006)

Possible third link to Malaysia in future (Straits Times, 13 September 2006)

Need To Build Other Bridges Linking S'pore-M'sia, Says Goh (Bernama, September 13)

SingaporeMalaysia should integrate economies for further growth: SM Goh (Channelnewsasia, 12 September 2006)

Temasek insists Shin deal legal (Bangkok Post, 12 September 2006 )

Direct link to Temasek found (Nation, 12 September 2006 )

Temasek denies breaching Thai laws in Shin Corp takeover (Channel News Asia, 12 September 2006 )

Shin probe generates panic (Bangkok Post, 13 September 2006 )