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Corporate Structure of Shin Corporation Public Company Limited

Background information

Shin Corporation Public Company Limited (Shincorp) is a public company listed on the Stock Exchange of Thailand. Shincorp is a telecommunications holding company with investments mainly focused on the telecoms industry, as well as others. Shincorp investments include the following:

Background information

Shin Corporation Public Company Limited (Shincorp) is a public company listed on the Stock Exchange of Thailand. Shincorp is a telecommunications holding company with investments mainly focused on the telecoms industry, as well as others. Shincorp investments include the following:

  • Advanced Info Service Public Company Limited (AIS), a wireless communication business operating a mobile phone network under a concession granted by the Telephone Organisation of Thailand.
  • Shin Satellite Public Company Limited (SATTEL), satellite and international business providing satellite transponder leasing, internet-related services, telephone-related services and telephone directories and distribution under concessions granted by the Ministry of Information Communications Technology and the Communications Authority of Thailand, respectively.
  • ITV Public Company Limited (ITV), a media and advertising business operating the UHF system television station under the name ITV Television under a concession granted by the Prime Minister’s Office.
  • Thai AirAsia Co., Ltd., a joint venture with AirAsia Sdn Bhd, Asia’s first low-cost airline from Malaysia, operating a budget airline business.
  • Capital OK Co., Ltd., a joint venture with DBS Bank of Singapore, operating a consumer finance business by providing personal loans, sales finance, credit cards and hire-purchase loans.

Shincorp was considered a Thai company as its majority shares belonged to the Shinnawatra family, the family of the former Prime Minister, Pol.Lt.Col. Dr. Thaksin Shinnawatra. Shincorp could therefore, hold a majority stake in the above entities even though they were conducting certain businesses which are restricted businesses under Lists 1, 2 and 3 of the Foreign Business Act B.E. 2542 (1999) (the FBA).

On 23 January 2006, the Shinnawatra family sold 49.6% of its stake in Shincorp for Baht 73.3 billion to Temasek Holdings, the investment arm of the Singapore government. A tender offer was made in accordance with the Takeover Rules and this has resulted in Temasek holding 96% of Shincorp since March 2006.


Shareholding Structure

In order to acquire shares in Shincorp, Temasek set up 4 companies, i.e., Cedar Holdings Limited, Aspen Holdings Limited, Cypress Holdings Limited and Kularb Kaew Co., Ltd. There are three tiers of shareholdings in Shincorp as follows:

  • 1st tier of shareholding in Shincorp consists of Cedar and Aspen;
  • 2nd tier of shareholding in Cedar consists of Kularb Kaew, Siam Commercial Bank Public Company Limited and Cypress; and
  • 3rd tier of shareholding in Kularb Kaew consists of Cypress, Mr. Pong Sarasin, Mr. Suphadej Poonpipat and Mr. Surin Upatkoon.

The accusation that Temasek took over Shincorp using nominees has focused on the 2nd and 3rd tiers of shareholdings, that is Kularb Kaew, in which two Thai shareholders (i.e., Mr. Pong and Mr. Suphadej) may be nominees of Temasek. The use of this structure, is that Kularb Kaew is a Thai entity and so are Cedar and Shincorp, respectively.

According to public records, Kularb Kaew increased its capital twice since its establishment in January 2006. Firstly on 15 February 2006, Mr. Pong and Mr. Suphadej together held 51% of the preference shares and Cypress held 49% of the ordinary shares. Secondly on 13 March 2006, neither of them subscribed to newly issued shares, but Mr. Surin did. Thus, Mr. Pong’s and Mr. Suphadej’s shares were diluted to 2.1% of ordinary shares, and Cypress’ shares were diluted to 29.9% of ordinary shares while Mr. Surin held 68% of ordinary shares.

The shares in Kularb Kaew were classified into ordinary and preference shares, with different voting rights, dividends and capital return entitlements, as follows:

  • Preference shareholders have 1 vote for 10 shares held, while ordinary shareholders have 1 vote for 1 share held;
  • Preference shareholders are entitled to receive dividends before ordinary shareholders at the fixed rate of 3%;
  • Preference shareholders are entitled to receive capital returns upon liquidation of the company not more than the proportion of capital investment.

The investigation of the Business Development Department, Ministry of Commerce (the Department) examined whether Kularb Kaew was a Temasek nominee that, together with Thai investors, owned 96% of Shincorp. The Department found that Temasek helped Mr. Pong and Mr. Suphadej buy Kularb Kaew shares. Based on documents from Siam Commercial Bank, where the transaction between Kularb Kaew, Cedar and Cypress took place, the Department found that money paid to Cypress, money from Cypress to Kularb Kaew, Cypress’ transfers to back Mr. Suphadej’s loan and Cypress’ payments for shares in Cedar, all originated from Fullerton Private, a unit of Temasek. In addition, when examining the articles of association of Kularb Kaew, the Department took the view that it does not make any sense from a commercial perspective, for the Thai investors (i.e. Mr. Pong and Mr. Suphadej) who actually owned the majority shares to agree to accept less voting rights and dividends than foreign shareholders. Furthermore, in relation to the management of Kularb Kaew, Cedar and Cypress, Temasek nominated more directors to the board as a result of its control of voting rights. In addition, the authorised signatories for the bank accounts of Kularb Kaew, Cedar and Cypress are all foreigners designated by Temasek.


Consequences of the Investigation

In October 2006, the Department concluded its investigation, finding that Kularb Kaew was a nominee of Temasek and in breach of the FBA. The case was handed over to the police for further action. Currently, the case is being investigated by the Department of Special Investigation, National Police Office.

If Kularb Kaew was a nominee of Temasek as alleged by the Department, Kularb Kaew would be considered a foreign entity1, and therefore, Cedar and Shincorp would also be foreign entities as well. If Shincorp was a foreign entity, this would affect its investments in the various subsidiaries, such as AIS, SATELL, ITV, etc., which are operating restricted businesses under the FBA and this would also be a breach of the relevant concession contracts. In such circumstances, the relevant authorities could revoke and terminate the concessions.

In addition, if the relevant persons, e.g., the Thai shareholders and the foreign shareholders are found guilty by the Department, this could result in criminal charges and punishment, i.e. imprisonment not exceeding 3 years or a fine from Baht 100,000 to Baht 1,000,000, or both and even possible dissolution of the company.2


Proposed Amendment to the FBA

On 9 January 2007, the Cabinet approved in principle the draft amendment to the FBA proposed by the Ministry of Commerce. The approved draft will be passed to the Office of the State Council for review before consideration by the National Legislative Assembly. In brief, the major changes of the draft amendment to the FBA are summarised as follows:

  1. Amending the definition of ‘foreigner’ to include an entity in which a foreigner has half or more of the voting rights. This is to prevent avoidance of the law by using preference shares where the majority shareholder (i.e. a Thai) has fewer preferential voting rights than the other shareholder (i.e. a foreigner).
  2. Amending the criminal offences under Sections 35, 36 and 37 of the FBA to double the exisiting fines, but the imprisonment term remains unchanged.
  3. Providing a remedy period for entities which will be affected by the amended definition of ‘foreigner’. The existing operators can continue their businesses if they notify the Director-General of the Department and apply for a certificate in accordance with the rules and procedures prescribed by the Director-General within one year after the amended FBA comes into force. Once the certificate is granted, operators whose business activities fall under List 3 will be entitled to conduct business until dissolution, and operators whose business activities fall under Lists 1 and 2 will be entitled to conduct business for another 2 years after the amended FBA comes into force.
  4. Amendment to certain business activities under List 3. For example,
    • Cancel a business that is already governed by a specific law, such as travel agency.
    • Exclude certain businesses that are governed by the relevant authorities such as, service business relating to trading in agricultural commodity futures, finance and securities business, derivatives, commercial banks, etc.
    • Take out the minimum capital requirement in respect of the retail sale and wholesale businesses, which will result that the operators will need to obtain a foreign business license from the Department.

Conclusion

Despite the conclusion of the Department accusing Kularb Kaew of being a nominee of Temasek due to the different voting rights and dividend entitlements, the funding from Temasek, the management control including the bank authorised signatories being nominated by Temasek, the change of the definition of ‘foreigner’ concerns voting rights only.


Footnotes

  1. Foreigner under the FBA means:
  • a natural person (individual) who does not have Thai nationality;
  • a juristic person (a legal entity) that has not been registered and incorporated in Thailand;
  • a juristic person registered in Thailand as follows:
    – a juristic person with one-half or more of its share capital held by a person(s) under (1) or (2), or a juristic person in which a person(s) under (1) or (2) as investors to a value of one-half or more of its capital; or
    – a limited partnership or a registered ordinary partnership whose managing partner or manager is a person under (1).
  • a juristic person registered in Thailand, in which half or more of the share capital is held by a person under (1), (2) or (3) or a juristic persons under (1), (2) or (3) as investors to a value of one-half or more of its capital.

For purposes of this definition, shares of a limited company represented by a share certificate issued to a bearer shall be regarded as shares of a foreigner, unless otherwise provided in the ministerial regulations.

  1. Section 36 of the FBA provides that ‘any Thai national or juristic person that is not a foreigner under this Act, aiding or abetting or taking part in the business operation of the foreigners whose business falls under the Lists attached hereto and the aliens are not permitted to operate the business or taking part in the business operation of the foreigner by showing that he or it is the sole owner of the business or holding shares on behalf of the foreigners in any partnership or limited company or juristic person in order for the foreigners to operate the business in avoidance of or violation to the provisions of this Act, including the foreigners allowing Thai nationals or juristic persons that are not foreigners under this Act to do so, shall be punished with an imprisonment of not exceeding three years or a fine from 100,000 Baht to 1,000,000 Baht or both and the Court shall order a stoppage of the aiding or abetting or order a stoppage of the joint business operation or order a stoppage of shareholding or a cessation of the partnership as the case may be.’

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  • Advanced Info Service Public Company Limited (AIS), a wireless communication business operating a mobile phone network under a concession granted by the Telephone Organisation of Thailand.
  • Shin Satellite Public Company Limited (SATTEL), satellite and international business providing satellite transponder leasing, internet-related services, telephone-related services and telephone directories and distribution under concessions granted by the Ministry of Information Communications Technology and the Communications Authority of Thailand, respectively.
  • ITV Public Company Limited (ITV), a media and advertising business operating the UHF system television station under the name ITV Television under a concession granted by the Prime Minister’s Office.
  • Thai AirAsia Co., Ltd., a joint venture with AirAsia Sdn Bhd, Asia’s first low-cost airline from Malaysia, operating a budget airline business.
  • Capital OK Co., Ltd., a joint venture with DBS Bank of Singapore, operating a consumer finance business by providing personal loans, sales finance, credit cards and hire-purchase loans.

Shincorp was considered a Thai company as its majority shares belonged to the Shinnawatra family, the family of the former Prime Minister, Pol.Lt.Col. Dr. Thaksin Shinnawatra. Shincorp could therefore, hold a majority stake in the above entities even though they were conducting certain businesses which are restricted businesses under Lists 1, 2 and 3 of the Foreign Business Act B.E. 2542 (1999) (the FBA).

On 23 January 2006, the Shinnawatra family sold 49.6% of its stake in Shincorp for Baht 73.3 billion to Temasek Holdings, the investment arm of the Singapore government. A tender offer was made in accordance with the Takeover Rules and this has resulted in Temasek holding 96% of Shincorp since March 2006.


Shareholding Structure

In order to acquire shares in Shincorp, Temasek set up 4 companies, i.e., Cedar Holdings Limited, Aspen Holdings Limited, Cypress Holdings Limited and Kularb Kaew Co., Ltd. There are three tiers of shareholdings in Shincorp as follows:

  • 1st tier of shareholding in Shincorp consists of Cedar and Aspen;
  • 2nd tier of shareholding in Cedar consists of Kularb Kaew, Siam Commercial Bank Public Company Limited and Cypress; and
  • 3rd tier of shareholding in Kularb Kaew consists of Cypress, Mr. Pong Sarasin, Mr. Suphadej Poonpipat and Mr. Surin Upatkoon.

The accusation that Temasek took over Shincorp using nominees has focused on the 2nd and 3rd tiers of shareholdings, that is Kularb Kaew, in which two Thai shareholders (i.e., Mr. Pong and Mr. Suphadej) may be nominees of Temasek. The use of this structure, is that Kularb Kaew is a Thai entity and so are Cedar and Shincorp, respectively.

According to public records, Kularb Kaew increased its capital twice since its establishment in January 2006. Firstly on 15 February 2006, Mr. Pong and Mr. Suphadej together held 51% of the preference shares and Cypress held 49% of the ordinary shares. Secondly on 13 March 2006, neither of them subscribed to newly issued shares, but Mr. Surin did. Thus, Mr. Pong’s and Mr. Suphadej’s shares were diluted to 2.1% of ordinary shares, and Cypress’ shares were diluted to 29.9% of ordinary shares while Mr. Surin held 68% of ordinary shares.

The shares in Kularb Kaew were classified into ordinary and preference shares, with different voting rights, dividends and capital return entitlements, as follows:

  • Preference shareholders have 1 vote for 10 shares held, while ordinary shareholders have 1 vote for 1 share held;
  • Preference shareholders are entitled to receive dividends before ordinary shareholders at the fixed rate of 3%;
  • Preference shareholders are entitled to receive capital returns upon liquidation of the company not more than the proportion of capital investment.

The investigation of the Business Development Department, Ministry of Commerce (the Department) examined whether Kularb Kaew was a Temasek nominee that, together with Thai investors, owned 96% of Shincorp. The Department found that Temasek helped Mr. Pong and Mr. Suphadej buy Kularb Kaew shares. Based on documents from Siam Commercial Bank, where the transaction between Kularb Kaew, Cedar and Cypress took place, the Department found that money paid to Cypress, money from Cypress to Kularb Kaew, Cypress’ transfers to back Mr. Suphadej’s loan and Cypress’ payments for shares in Cedar, all originated from Fullerton Private, a unit of Temasek. In addition, when examining the articles of association of Kularb Kaew, the Department took the view that it does not make any sense from a commercial perspective, for the Thai investors (i.e. Mr. Pong and Mr. Suphadej) who actually owned the majority shares to agree to accept less voting rights and dividends than foreign shareholders. Furthermore, in relation to the management of Kularb Kaew, Cedar and Cypress, Temasek nominated more directors to the board as a result of its control of voting rights. In addition, the authorised signatories for the bank accounts of Kularb Kaew, Cedar and Cypress are all foreigners designated by Temasek.


Consequences of the Investigation

In October 2006, the Department concluded its investigation, finding that Kularb Kaew was a nominee of Temasek and in breach of the FBA. The case was handed over to the police for further action. Currently, the case is being investigated by the Department of Special Investigation, National Police Office.

If Kularb Kaew was a nominee of Temasek as alleged by the Department, Kularb Kaew would be considered a foreign entity1, and therefore, Cedar and Shincorp would also be foreign entities as well. If Shincorp was a foreign entity, this would affect its investments in the various subsidiaries, such as AIS, SATELL, ITV, etc., which are operating restricted businesses under the FBA and this would also be a breach of the relevant concession contracts. In such circumstances, the relevant authorities could revoke and terminate the concessions.

In addition, if the relevant persons, e.g., the Thai shareholders and the foreign shareholders are found guilty by the Department, this could result in criminal charges and punishment, i.e. imprisonment not exceeding 3 years or a fine from Baht 100,000 to Baht 1,000,000, or both and even possible dissolution of the company.2


Proposed Amendment to the FBA

On 9 January 2007, the Cabinet approved in principle the draft amendment to the FBA proposed by the Ministry of Commerce. The approved draft will be passed to the Office of the State Council for review before consideration by the National Legislative Assembly. In brief, the major changes of the draft amendment to the FBA are summarised as follows:

  1. Amending the definition of ‘foreigner’ to include an entity in which a foreigner has half or more of the voting rights. This is to prevent avoidance of the law by using preference shares where the majority shareholder (i.e. a Thai) has fewer preferential voting rights than the other shareholder (i.e. a foreigner).
  2. Amending the criminal offences under Sections 35, 36 and 37 of the FBA to double the exisiting fines, but the imprisonment term remains unchanged.
  3. Providing a remedy period for entities which will be affected by the amended definition of ‘foreigner’. The existing operators can continue their businesses if they notify the Director-General of the Department and apply for a certificate in accordance with the rules and procedures prescribed by the Director-General within one year after the amended FBA comes into force. Once the certificate is granted, operators whose business activities fall under List 3 will be entitled to conduct business until dissolution, and operators whose business activities fall under Lists 1 and 2 will be entitled to conduct business for another 2 years after the amended FBA comes into force.
  4. Amendment to certain business activities under List 3. For example,
    • Cancel a business that is already governed by a specific law, such as travel agency.
    • Exclude certain businesses that are governed by the relevant authorities such as, service business relating to trading in agricultural commodity futures, finance and securities business, derivatives, commercial banks, etc.
    • Take out the minimum capital requirement in respect of the retail sale and wholesale businesses, which will result that the operators will need to obtain a foreign business license from the Department.

Conclusion

Despite the conclusion of the Department accusing Kularb Kaew of being a nominee of Temasek due to the different voting rights and dividend entitlements, the funding from Temasek, the management control including the bank authorised signatories being nominated by Temasek, the change of the definition of ‘foreigner’ concerns voting rights only.


Footnotes

  1. Foreigner under the FBA means:
  • a natural person (individual) who does not have Thai nationality;
  • a juristic person (a legal entity) that has not been registered and incorporated in Thailand;
  • a juristic person registered in Thailand as follows:
    – a juristic person with one-half or more of its share capital held by a person(s) under (1) or (2), or a juristic person in which a person(s) under (1) or (2) as investors to a value of one-half or more of its capital; or
    – a limited partnership or a registered ordinary partnership whose managing partner or manager is a person under (1).
  • a juristic person registered in Thailand, in which half or more of the share capital is held by a person under (1), (2) or (3) or a juristic persons under (1), (2) or (3) as investors to a value of one-half or more of its capital.

For purposes of this definition, shares of a limited company represented by a share certificate issued to a bearer shall be regarded as shares of a foreigner, unless otherwise provided in the ministerial regulations.

  1. Section 36 of the FBA provides that ‘any Thai national or juristic person that is not a foreigner under this Act, aiding or abetting or taking part in the business operation of the foreigners whose business falls under the Lists attached hereto and the aliens are not permitted to operate the business or taking part in the business operation of the foreigner by showing that he or it is the sole owner of the business or holding shares on behalf of the foreigners in any partnership or limited company or juristic person in order for the foreigners to operate the business in avoidance of or violation to the provisions of this Act, including the foreigners allowing Thai nationals or juristic persons that are not foreigners under this Act to do so, shall be punished with an imprisonment of not exceeding three years or a fine from 100,000 Baht to 1,000,000 Baht or both and the Court shall order a stoppage of the aiding or abetting or order a stoppage of the joint business operation or order a stoppage of shareholding or a cessation of the partnership as the case may be.’

Want to find out more? Contact our experts:

Linda Osathaworanan
Telephone: +66 2646 1888 ext 1017
Email: Linda_O@siampremier.co.th