Thaksin Shinawatra $1.88 billion deal controversy
Encyclopedia
The 2006 sale of the Shinawatra family's share of Shin Corporation
to Temasek Holdings
caused great controversy in Thailand. The sale was in response to long-standing criticisms that the Shinawatra family's holdings created a conflict of interest for Thai
Prime Minister Thaksin Shinawatra
. Criticisms of the sale focused on the allegations by Thaksin and a compliant government that the transaction was exempt from capital gains tax (as per Revenue Department and Stock Exchange of Thailand regulations - later determined by Thai courts not to be legal), the fact that the Thai
company was sold to a Singaporean company, and the fact that the Thai law regarding foreign investments in the telecom sector had been amended just prior to the sale (although the amendment had been proposed since 2001). Thaksin's sale also impacted holdings, among other parties, of the Crown Property Bureau that has investment in the Siam Commercial Bank
that held ShinCorp stock.
On Monday January 23, 2006, the Shinawatra-family sold its remaining 49.6% stake in Shin Corporation, a leading Thai telecommunications company, to two nominees of Temasek Holdings
(Cedar Holdings and Aspen Holdings). The Shinawatra and Damapong (Potjaman's maiden name) families netted about 73 billion baht (about $1.88 billion). Following Thai tax laws, they did not have to pay capital gains tax.
In an unrelated transaction, the two families had earlier not paid taxes when Thaksin transferred shares to his sister Yingluck Shinawatra
and his wife, Potjaman Shinawatra
, transferred shares to her brother Bannapoj Damapong. The tax exemption was granted on grounds that the transfer, at a par value of 10 baht, took place through the stock market.
Although the tax exemption was legal, the sale drew heavy criticism over Thaksin's ethics on the grounds that Shin Corp, a dominant player in Thailand's information technology
sector, would be sold to an investment arm of the Government of Singapore
.
The transaction was done via several holding companies, including Cypress Holdings, Kularb Kaew, and Cedar Holdings. Cypress Holdings, a unit of Temasek, owned 49% of the shares of Kularb Kaew, but had 90% of the voting rights. Kularb Kaew owned 41.1% of Cedar Holdings. Cedar Holdings held a 54.54% stake in Shin Corp. Indirectly, Kularb Kaew also directly owned another 22.4% of Shin Corp.
on February 23, 2006. However, the SEC did find that Thaksin's son, Panthongtae, violated rules with regard to information disclosure and public tender offers in transactions between 2000 and 2002. He was fined 6 million THB (about 150,000USD). "The case is not severe because Panthongtae did inform the SEC but his report was not totally correct" said the SEC's deputy chief Prasong Vinaiphat.
Allegations of insider trading by the Shinawatra family, Shin Corporation Corp executives, and major shareholders were also investigated. No irregularities were found.
had criticized Thaksin earlier for not sufficiently opening up the Thai telecom sector to foreigners. Supporters further counter that the complete sale of Shin Corporation by the Shinawatra-Damapong families had been a long-standing demand of some public groups, as it would allow Thaksin to undertake his duties as Prime Minister without accusation of conflicts of interest.
The controversy surrounding the sale gave additional momentum to an already-planned anti-Thaksin rally, which took place during February 4-5th at the Royal Plaza, near the parliament building and the royal palace. At least 20,000 protesters, led by media figure Sondhi Limthongkul
, gathered around demanding the resignation of the Prime Minister, and submitted a petition to the Privy Council
chairman General Prem Tinsulanonda
and the Office of His Majesty's Principal Private Secretary
, intended for His Majesty the King Bhumibol Adulyadej
. Meanwhile, rallies also took places in several southern provinces.
The resulting political turmoil forced Thaksin to order the dissolution of the Lower House on February 24, 2006.
, a son of the former Thai Prime Minister and the brother of Arsa Sarasin, King Bhumibol's principle private secretary. Other owners of Cedar are Temasek and Siam Commercial Bank
, in which King Bhumibol's Crown Property Bureau has a controlling stake. SCB also played a crucial role advising and providing financial support for the deal.
This use of local nominees of foreign owners was attacked by some anti-Thaksin groups as a method to get around laws limiting foreign ownership of Thai companies. Subsequent investigations found that Thai nominees owned 24.1% of all shares on the Thai stock exchange, and up to 36% of all shares in the technology sector. Efforts to clamp down on use of Thai nominees could potentially cause a significant outflow of capital from the Thailand. An official investigation of the use of nominees is currently in progress.
Chairman Pong Sarasin
was later removed from the Board of Directors, and replaced by Mom Rajawongse Tongnoi Tongyai, the private secretary of Crown Prince Maha Vajiralongkorn
. The Crown Prince Office, later, declared that Mom Rajawongse Tongnoi Tongyai has never been the secretary of the Crown Prince but was only a low ranking officer in the office.
The junta's interpretation of the Foreign Business Act of 1999
, which defines nominees and limits foreign investment in Thai companies, could have far reaching consequences for foreign investment in Thailand.
against Thaksin, for failure to appear at the hearing of his "Sale of Shin Corporation to Temasek Holdings" case, due to self-imposed exile in London since last month.
Shin Corporation
Shin Corporation is one of the largest conglomerates in Thailand.- History :It was founded in 1983 as Shinawatra Computer by Thaksin Shinawatra, former Prime Minister of Thailand, and took on its current name in 1999, by using the first four letters of his last name...
to Temasek Holdings
Temasek Holdings
Temasek Holdings is an investment company owned by the government of Singapore. With an international staff of 380 people, it manages a portfolio of about S$193 billion at end of March 2011, focused primarily in Asia...
caused great controversy in Thailand. The sale was in response to long-standing criticisms that the Shinawatra family's holdings created a conflict of interest for Thai
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
Prime Minister Thaksin Shinawatra
Thaksin Shinawatra
Thaksin Shinawatra is a Thai businessman and politician, who was Prime Minister of Thailand from 2001 to 2006, when he was overthrown in a military coup....
. Criticisms of the sale focused on the allegations by Thaksin and a compliant government that the transaction was exempt from capital gains tax (as per Revenue Department and Stock Exchange of Thailand regulations - later determined by Thai courts not to be legal), the fact that the Thai
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
company was sold to a Singaporean company, and the fact that the Thai law regarding foreign investments in the telecom sector had been amended just prior to the sale (although the amendment had been proposed since 2001). Thaksin's sale also impacted holdings, among other parties, of the Crown Property Bureau that has investment in the Siam Commercial Bank
Siam Commercial Bank
Siam Commercial Bank is a bank from Thailand, based in Bangkok.- History :Established by Royal Charter in 1907, Siam Commercial Bank PCL was Thailand's first bank. At the time of its establishment, the only banks in the country were branch offices of foreign banks...
that held ShinCorp stock.
The sale of Shin Corporation to Temasek Holdings
On 23 January 2006, the Thai Telecommunication Act (2006) became effective, raising the limit on foreign holdings in telecom companies to 49%. The Act replaced the Telecom Business Law, which took effect in November 2001, and put the foreign investment cap at 25%. At the time, AIS was the only company that actually complied with this provision. Competitors DTAC and TA Orange were 40% owned by Norway’s Telenor and 49%-owned by France's Orange. Although the law was not retroactive, DTAC and TA Orange criticized the government for discriminating against foreign investors and urged it to increase the cap.On Monday January 23, 2006, the Shinawatra-family sold its remaining 49.6% stake in Shin Corporation, a leading Thai telecommunications company, to two nominees of Temasek Holdings
Temasek Holdings
Temasek Holdings is an investment company owned by the government of Singapore. With an international staff of 380 people, it manages a portfolio of about S$193 billion at end of March 2011, focused primarily in Asia...
(Cedar Holdings and Aspen Holdings). The Shinawatra and Damapong (Potjaman's maiden name) families netted about 73 billion baht (about $1.88 billion). Following Thai tax laws, they did not have to pay capital gains tax.
In an unrelated transaction, the two families had earlier not paid taxes when Thaksin transferred shares to his sister Yingluck Shinawatra
Yingluck Shinawatra
Yingluck Shinawatra , or nickname Pu , is a Thai businesswoman and politician, member of the Pheu Thai Party, and the 28th Prime Minister of Thailand following the 2011 general election...
and his wife, Potjaman Shinawatra
Potjaman Shinawatra
Khunying Potjaman Na Pombejra , formerly Potjaman Shinawatra and born as Soypetpotjaman Damapong , , is the ex-wife of former Thai Prime Minister Thaksin Shinawatra. Potjaman played a key role in the development of Thaksin's commercial enterprises in the 1980s...
, transferred shares to her brother Bannapoj Damapong. The tax exemption was granted on grounds that the transfer, at a par value of 10 baht, took place through the stock market.
Although the tax exemption was legal, the sale drew heavy criticism over Thaksin's ethics on the grounds that Shin Corp, a dominant player in Thailand's information technology
Information technology
Information technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...
sector, would be sold to an investment arm of the Government of Singapore
Government of Singapore
The Government of Singapore is defined by the Constitution of the Republic of Singapore to mean the Executive branch of government, which is made up of the President and the Cabinet of Singapore. Although the President acts in his personal discretion in the exercise of certain functions as a check...
.
The transaction was done via several holding companies, including Cypress Holdings, Kularb Kaew, and Cedar Holdings. Cypress Holdings, a unit of Temasek, owned 49% of the shares of Kularb Kaew, but had 90% of the voting rights. Kularb Kaew owned 41.1% of Cedar Holdings. Cedar Holdings held a 54.54% stake in Shin Corp. Indirectly, Kularb Kaew also directly owned another 22.4% of Shin Corp.
Legal investigation
The Thailand Securities and Exchange Commission investigated the transaction. "The investigation concluded that Prime Minister Thaksin Shinawatra and his daughter Pinthongta are clear from all wrongdoing," said SEC secretary-general Thirachai PhuvanatnaranubalaThirachai Phuvanatnaranubala
Thirachai Phuvanatnaranubala is a Thai economist and politician. From 2003 to 2011 he was the Secretary-General of the Securities and Exchange Commission of Thailand and Chairman of the ASEAN Capital Markets Forum...
on February 23, 2006. However, the SEC did find that Thaksin's son, Panthongtae, violated rules with regard to information disclosure and public tender offers in transactions between 2000 and 2002. He was fined 6 million THB (about 150,000USD). "The case is not severe because Panthongtae did inform the SEC but his report was not totally correct" said the SEC's deputy chief Prasong Vinaiphat.
Allegations of insider trading by the Shinawatra family, Shin Corporation Corp executives, and major shareholders were also investigated. No irregularities were found.
Controversy
The transaction made the Prime Minister the target of accusations that he was selling an asset of national importance to a foreign entity, and hence selling out his nation. The Democrat party spokesman called Thaksin worse than Saddam for not protecting the Thai economy from foreigners: "Dictator Saddam, though a brutal tyrant, still fought the superpower for the Iraqi motherland." Supporters, however, counter that Thailand's mobile phone industry is highly competitive, and that little criticism was raised when the Norwegian firm Telenor acquired Total Access Communications, the country's second largest operator. Democrat Party leader Abhisit VejjajivaAbhisit Vejjajiva
Abhisit Vejjajiva , , ; born Mark Abhisit Vejjajiva; 3 August 1964 in Newcastle upon Tyne) is a Thai politician who was the 27th Prime Minister of Thailand from 2008 to 2011 and is the current leader of the Democrat Party...
had criticized Thaksin earlier for not sufficiently opening up the Thai telecom sector to foreigners. Supporters further counter that the complete sale of Shin Corporation by the Shinawatra-Damapong families had been a long-standing demand of some public groups, as it would allow Thaksin to undertake his duties as Prime Minister without accusation of conflicts of interest.
The controversy surrounding the sale gave additional momentum to an already-planned anti-Thaksin rally, which took place during February 4-5th at the Royal Plaza, near the parliament building and the royal palace. At least 20,000 protesters, led by media figure Sondhi Limthongkul
Sondhi Limthongkul
Sondhi Limthongkul is a Thai media mogul and leader of the right-wing People's Alliance for Democracy . He was elected for leader of the New Politics Party ....
, gathered around demanding the resignation of the Prime Minister, and submitted a petition to the Privy Council
Privy Council (Thailand)
The Privy Council of Thailand is a body of appointed advisors to the Monarch of Thailand: King Bhumibol Adulyadej of Thailand. The Council, as the Constitution of Thailand stipulates, must be composed of no more than eighteen members...
chairman General Prem Tinsulanonda
Prem Tinsulanonda
General Prem Tinsulanonda is a retired Thai military officer who served as Prime Minister of Thailand from March 3, 1980 to August 4, 1988. He now serves as the Head of the Privy Council of the King of Thailand, Bhumibol Adulyadej....
and the Office of His Majesty's Principal Private Secretary
Principal Private Secretary
In the British Civil Service and Australian Public Service the Principal Private Secretary is the civil servant who runs a cabinet minister's private office...
, intended for His Majesty the King Bhumibol Adulyadej
Bhumibol Adulyadej
Bhumibol Adulyadej is the current King of Thailand. He is known as Rama IX...
. Meanwhile, rallies also took places in several southern provinces.
The resulting political turmoil forced Thaksin to order the dissolution of the Lower House on February 24, 2006.
Use of nominees
Kularb Kaew and Cedar Holdings were holding companies used to acquire Shin Corp. Kularb Kaew was, in turn owned by a small group of Thai nominee shareholders, including Pong SarasinPong Sarasin
Pong Sarasin is a Thai businessman and a retired Thai politician who served under Major General Chatichai Choonhavan's cabinet, acting as Deputy Prime Minister along with General Tienchai Sirisumpan in 1988...
, a son of the former Thai Prime Minister and the brother of Arsa Sarasin, King Bhumibol's principle private secretary. Other owners of Cedar are Temasek and Siam Commercial Bank
Siam Commercial Bank
Siam Commercial Bank is a bank from Thailand, based in Bangkok.- History :Established by Royal Charter in 1907, Siam Commercial Bank PCL was Thailand's first bank. At the time of its establishment, the only banks in the country were branch offices of foreign banks...
, in which King Bhumibol's Crown Property Bureau has a controlling stake. SCB also played a crucial role advising and providing financial support for the deal.
This use of local nominees of foreign owners was attacked by some anti-Thaksin groups as a method to get around laws limiting foreign ownership of Thai companies. Subsequent investigations found that Thai nominees owned 24.1% of all shares on the Thai stock exchange, and up to 36% of all shares in the technology sector. Efforts to clamp down on use of Thai nominees could potentially cause a significant outflow of capital from the Thailand. An official investigation of the use of nominees is currently in progress.
After the coup
On 16 October 2006, nearly a month after a military junta overthrew the government of Thaksin Shinawatra in a coup, Temasek issued a statement to signal the eventual reduction in its holding in Shin Corp. However, the government said that it would continue with its legal action to follow up on its investigation on whether Kularb Kaew is a nominee of Temasek.Chairman Pong Sarasin
Pong Sarasin
Pong Sarasin is a Thai businessman and a retired Thai politician who served under Major General Chatichai Choonhavan's cabinet, acting as Deputy Prime Minister along with General Tienchai Sirisumpan in 1988...
was later removed from the Board of Directors, and replaced by Mom Rajawongse Tongnoi Tongyai, the private secretary of Crown Prince Maha Vajiralongkorn
Maha Vajiralongkorn
Somdet Phra Boromma-orasathirat Chao Fa Maha Vajiralongkorn Sayammakutratchakuman is the only son of Bhumibol Adulyadej, the King of Thailand, and Queen Sirikit...
. The Crown Prince Office, later, declared that Mom Rajawongse Tongnoi Tongyai has never been the secretary of the Crown Prince but was only a low ranking officer in the office.
The junta's interpretation of the Foreign Business Act of 1999
Foreign Business Act of 1999 (Thailand)
The Foreign Business Act was a law enacted by the Chuan Leekpai-controlled National Legislative Assembly of Thailand in 1999 that limited foreign ownership of certain Thai industries. Its predecessor was the Alien Business Act of 1972, enacted by a military junta...
, which defines nominees and limits foreign investment in Thai companies, could have far reaching consequences for foreign investment in Thailand.
5th arrest warrant
Supreme Court Criminal Division for Holders of Political Positions judge Pongphet Vichitchonchai (of a 9-judge panel, with the concurrence of Justice Pornpetch), on October 15, 2008, issued a 5th arrest warrantArrest warrant
An arrest warrant is a warrant issued by and on behalf of the state, which authorizes the arrest and detention of an individual.-Canada:Arrest warrants are issued by a judge or justice of the peace under the Criminal Code of Canada....
against Thaksin, for failure to appear at the hearing of his "Sale of Shin Corporation to Temasek Holdings" case, due to self-imposed exile in London since last month.