Thai business rules worry foreign firms

[Bangkoktraveler]

Thailand's military-appointed legislature will debate proposed changes to foreign-business ownership rules this week that are still making foreign firms nervous despite government efforts to soothe their fears.

 

Business chiefs fear foreign companies will be driven away by the new rules, which emanate from the furore generated by the takeover of Shin Corp., the telecommunications giant founded by ousted Prime Minister Thaksin Shinawatra, by Singapore government investment firm Temasek.

 

At the least, the changes could stifle foreign investment in the export-dependent economy, business executives added.

 

"While other Asian countries, with less political and economic worries and larger markets, are opening up the doors for foreign investment, Thailand is doing the opposite," said Paul Strunk, head of the German-Thai Chamber of Commerce.

 

"At present, the risks for Thailand's further economic development seem to originate more from the inside than from outside the country," he said.

 

Foreigners had poured money into Thailand over the last 30 years using gray areas in the old rules to run companies with less than a majority stake by using Thai frontmen.

 

But then the government installed by the military after a coup last September decided to launch an assault on the use of proxies, which it alleges were used illegally in the Temasek deal to give it control without a formal majority stake. The Singapore government investment firm had denied any wrongdoing.

 

The National Legislative Assembly will start debating the rule changes on Wednesday, with deliberations expected to last 2-3 months, assembly member Somchai Sakulsurarat said. If passed, the changes would need the king's approval before becoming law.

 

Considerable uncertainty

But there is still considerable uncertainty over how some of the new rules will work and how they will be implemented. One change is aimed at ending the long-standing practice of using proxies to stay under a 49.99 percent foreign-ownership ceiling.

 

"Many Japanese companies are very concerned about the new law. If they don't understand it well, they may put new investment elsewhere," said Tetsuji Banno, head of the Japanese Chamber of Commerce.

 

That is despite the fact the changes will not affect foreign manufacturers such as Japanese and American auto firms which enjoy investment privileges from the Board of Investment (BoI).

 

The announcement of the changes in January and a central bank move in December to impose tough capital controls sent Thailand's share market sharply lower.

 

BoI data show the value of foreign investment applications, mainly from Japan, dropped 23 percent in the first two months of this year from a year earlier after the changes were proposed.

 

Foreign investment applications in September 2006 through February 2007 dropped about 49 percent from a year earlier.

 

"Making any investment law more strict and difficult in terms of easing ability to invest in Thailand will have a negative impact on the flow of investment," said Peter Van Haren, head of the Joint Foreign Chambers of Commerce in Thailand. The coalition of 28 national business groups represents 10,000 companies.

 

Overreaction?

Thais say foreign companies are overreacting.

 

"The amendment would not make such a big change to what has been here. The government wants to make it clearer. Its intention is good but the presentation is bad," SCB Asset Management chief Adisorn Sermchaiwong said.

 

Stock exchange chief Patareeya Benjapolchai said no more than 15 locally listed companies would be affected by the changes.

 

But many foreign companies will be forced to undergo serious restructuring as the new government says it is determined to make Thai rules conform to generally accepted world practice by putting the stress on control.

 

They give foreign firms three years to ensure they own less than 50 percent of the shares and voting rights in protected sectors such as media and broadcasting.

 

Firms in the service sector will be "grandfathered," meaning they can continue as they are but will be regarded as foreign firms which will limit their operating flexibility, analysts say.

 

A number of sectors, including retailing, banking and brokerage houses, will also be exempt from the new rules because there are separate laws governing them.

 

But the government is planning a new retail law which could affect firms such as Britain's Tesco and France's Carrefour.

 

U.S. investors are exempt from the rules under an 1833 treaty which gives them almost the same rights as Thais, apart from some restricted sectors.

 

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