Temasek playing with fire … again

Temasek playing with fire … again

In the investment world, one must either be very dumb or very smart to make moves such as the one reportedly being contemplated by the Singapore sovereign fund Temasek Holdings Pte in Thailand.

Reports over the past week said that Temasek was looking to divest its shareholding in Shin Corp Plc (now called Intouch or INTUCH), and make a financial killing in the process.

Temasek purchased nearly 96% of Shin in 2006 for 49.25 baht a share and is sitting on potential capital gains of billions of dollars as the current share price of INTUCH is around 70 baht.

The reports quoted sources as saying that Temasek, which owns 41.62% of Shin through subsidiary Aspen Holdings, was looking to offload that stake to Singapore Telecommunication Plc.

To the layman, this looks like shifting money from your right pocket to your left, because SingTel is 52% owned by Temasek. The pockets in this case are very deep as SingTel would fork out US$3.1 billion and the deal would be done.

But wait a minute: SingTel also owns 23.13% in Advanced Info Service Plc while Shin owns 40.45% of Advanced Info, Thailand’s largest mobile phone operator with a market capitalisation of nearly $20 billion.

A deal with Temasek would bring SingTel’s direct and indirect holding in Advanced Info close to 40%, well above the 25% ceiling and trigger an automatic tender offer under Thai Securities and Exchange Commission rules.

Some may question whether a tender offer would be necessary when the holdings are direct and indirect. But not doing so would be a violation of the rules, because then anyone looking to take over another firm could just set up a group of companies that individually buy shares below the 25% trigger point.

Apart from this, SingTel would again have to make a tender offer for its shares of Shin, as its holding would be above the 25% trigger point. It was only about a year ago that Temasek managed to trim its own holding to 41.62% from the 96% it had held since 2006.

The legal complexities of a possible tender offer for Advanced Info are beyond the scope of my expertise, but what leaves me totally dumbfounded is that people don’t learn from their mistakes.

It was not that long ago that Temasek was grasping at anything possible to keep its investment in Shin intact after the original purchase from former prime minister Thaksin Shinawatra’s family in 2006.

The sale of Shin and subsequent non-payment of disputed taxes was one of the key factors that brought down Thaksin, and Temasek was caught in the Thai political brawl. Some thought its various assets were even at risk of being seized and/or nationalised after the September 2006 coup.

As a foreign firm, Temasek was also blamed for owning “sensitive” assets such as satellites and mobile telephony. Although Temasek never acknowledged that it owned more than the 49% foreign legal limit in Shin (the rest was held by Thai entities), any sale to SingTel could once again trigger nationalistic feeling and send the company and the investment climate spiralling south.

The Shin sale, if Temasek has forgotten, not only hurt the Singapore company but also had wide-ranging implications for others. It triggered a new debate and closer enforcement of the Foreign Business Act on many companies across Thailand.

Perhaps the memories of the people managing Singapore’s admirably successful state investor need a jolt. They just got one from anti-government protest leader Suthep Thaugsuban. In his latest stunt, he’s calling on People’s Democratic Reform Committee (PDRC) followers to boycott Shin Corp and Shinawatra family businesses.

That’s why I say that either the managers of Temasek are either too smart for all of us to figure out what they are really planning, or profoundly stupid to be attempting such a deal in a politically unstable country such as Thailand.

It is strange how quickly one can forget the bad times. The last time Temasek was in the news in Thailand, it set off a fire that took years and a lot of money to douse.

Temasek should stop and think about issues beyond its control. Management should take the events from 2006 to 2011 as a lesson and learn that if they play with fire they could be burned. But this time it would not just be their money on the line but the fate of many other real investors who are putting their blood and sweat into building a better Thailand, and not just punting on today’s business valuation to make some money.

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