How can one quantify foreign dominance?

26 Jul 2012

In Thailand, there is a saying: when asked, “Where have you been?”, the answer is, “three feet, two inches.”

The same can be said of the current state of affairs regarding the foreign dominance notification which on one hand threatens to shut down Thailand’s economy if taken literally and on the other is being dismissed with denial and a dose of backroom dealing.

That the FDN still exists at all has taken many by surprise. What started as a national security issue now has the references to national security removed and all that remains is foreign dominance in order to get rid of foreign companies that hide behind domestic nominees. The NBTC says it is to enforce current business laws and dismiss critics that say it goes far beyond the foreign business act and breaks Thailand’s WTO commitments.

I asked AIS if it was concerned with the FDN and, more importantly, being forced to accept the FDN as a prerequisite to the 3G bid. The reply was simple enough:

“AIS has no concern regarding to this issue. All operations from shareholdings can be examined from The Stock Exchange of Thailand. In the meantime, Intouch, the AIS’s main shareholder, is a Thai Company. Thus there is no concern or worry about this.”

Really? Let’s do the math.

From AIS’ 2011 annual report date 26 Jan 2012, the telco’s shareholding structure is 40.45% Shin Corporation (now renamed Intouch), 23.32% SingTel and 36.23% free float.

Of Intouch, 41.62 is owned by Aspen Holdings (which is in turn controlled by Temasek Holdings) and 37.99 by Cedar Holdings.

Cedar Holdings in turn is 48.99% controlled by Aspen Holdings (Temasek) and 45.22% by Kularb Kaew.

Kularb Kaew is in turn 29.90% owned by Cypress Holdings (Temasek again).

SingTel, meanwhile, is itself 55% owned by Temasek.

The question is, what does foreign dominance mean? At a glance it would seem like Singapore directly and indirectly controls almost two-thirds of AIS shares, though by simply adding up the numbers, it owns considerably less. At each level, Temasek’s control is diluted - but still very much there.

The shareholding structure of Dtac with Telenor holding shares at many levels is not dissimilar.

This is legal under the foreign business act and is common practice all over the world, but under the FDN, from what public comments have been made, the regulator has the power to examine the shareholding structure down through as many levels as is needed until the nationality of shareholders are ascertained.

However, the wide-ranging definition of dominance makes the FDN impossible to police objectively. Shareholding is just one of eight points. Another is nationality of executives (down to manager level staff). Suppose the shares are, say, 40% foreign dominant, does the addition of one HR manager push it over the edge? How much dominance is a manager or a C-level executive worth? Or half a dozen C-level executives? Is a foreigner on a work permit more dominant than one on a residency visa, perhaps married to a Thai national? There is simply no objective measure of dominance.

We could be in a situation where every telco considers itself to be compliant with the FDN with every one of its competitors disagreeing.

Conceivably, this could lead to a deadlock with an operator using the FDN to ask a court for an injunction for key events, such as the upcoming 3G bid, while the court struggles to find a way to quantify dominance in its many facets.

The question is what does a telco do when faced with this level of uncertainty and subjectivity? Does it shake hands with the devil? Or does it play boy scout and go through all legal due process to have the FDN declared null and void, even if it does mean missing the 3G boat this October?

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