Shinawatra clan sells out to Singapore's Temasek

Prime Minister Thaksin cashes in the family jewels with $1.85 billion sale.
The worst kept secret in Thailand was revealed yesterday (January 23) with the news that Prime Minister Thaksin Shinawatra's family has sold its entire 49.6% shareholding in Shin Corporation to Singapore's Temasek Holdings and its partners, in a cash offer of $1.85 billion. The rumours had been matched by recent intensity of turnover in the stock, which had spiked until it was finally suspended earlier on Monday.

Various members of the Shinawatra family had owned personal stakes in Shin Corp since the family patriarch's role as prime minister of Thailand meant he could not be the nominal owner of the shareholding.

Temasek will pick up approximately 38% in Shin Corp via its wholly-owned subsidiary Aspen Holdings Ltd and 49% owned subsidiary Cedar Holdings Ltd, with minority partners Siam Commercial Bank and several undisclosed Thai investors accounting for the remainder. Many are speculating that these Thai investments will ultimately become part of the pan-regional stable of SingTel, which is 63%-owned by Temasek.

Temasek has announced that it plans to launch a tender offer for the remaining outstanding share capital of Shin Corp plus the shares that Shin Corp does not currently own in Advanced Info Systems (AIS). With the market capitalization of Shin Corp standing at $3.56 billion and that of Advanced Info at $7.6 billion, this ranks as Thailand's biggest ever acquisition.

Shin Corp is the holding company for the entire group. Advanced Info Systems operates a 900 MHz mobile phone service under the name Digital GSM Advance, which has a 25 year build-operate-transfer concession executed in 1990 with the Telephone Organization of Thailand, (now corporatized and known as TOT Corporation PCL). AIS is Thailand's second biggest company by market capitalization, after PTT.

Offers for the remaining outstanding shares of other Shin group companies will reportedly not be made. These include ITV, a television station specializing in news and soap operas that ranks as Thailand's biggest draw of television advertising. ITV is owned 55% by Shin Corp.

The same applies for Shin Satellite, 41.5% owned by Shin Corp, the latter recently having launched a new iPSTAR satellite, known as Thaicom 4, which could see that company's earnings double next year as China and India utilize its bandwidth. Shin Satellite now plans to launch Thaicom 5 carrying 38 transponders in 2006.

Thaksin founded his telecommunications empire in 1982, when he signed a lucrative contract with the Royal Thai Police force to supply it with computer equipment. Having spent 14 years in the police force he quit that career in order to build Shin Corp into Thailand's biggest media conglomerate.

Briefly foreign minister in a short-lived Palang Dharma Government, in 1998, Thaksin founded his own political party, 'Thai Rak Thai'. This party, running on a nationalist political platform, won a landslide in 2001 over a Democrat party whose stewardship of the economic crisis had seen it fall into disfavour with the electorate.

Thai Rak Thai won an even bigger election victory last year and now has absolute control over the Thai parliament, meaning it has no need to rely on fractious coalition partners. Thaksin's dominance of Thai politics has seen him propelled into a regional leadership role. His international critics have been quick, however, to accuse him of heavy-handedness in the disputes with the Islamic inhabitants of the three Southern provinces of Yala, Pattani and Narathiwat.

Domestically, this has not disquieted his up-country Buddhist supporters, who almost unanimously back his get-tough approach. A popular misconception is that the average Thai person is unhappy about Thaksin's business involvements and the wealth that it may result in.

Thais, both on the high street and in business largely respect him for his huge fortune and the only emotional angle they experience is one of envy. However, the regulatory playing field has become muddied with the putative changes to the state-controlled Telephone Organization of Thailand and Communications Authority of Thailand, but in the past Thaksin has always shrugged off inferences of conflicts of interest.

But it appears that spin-doctoring of domestic public relations with the electorate and the Thai business community is not the driving force behind this share sale. These companies will demand significant funds to upgrade to the 3G environment into which Thailand is entering in 2006, with the issue of 3G licensing being decided shortly.

Advanced Info Systems has said it will set aside capital expenditure of $500 million this year to finance its network with the new technology. A realistic rationale is simply that Thaksin was offered an irresistible price for shareholdings that have soared in value since his Government took office, and stand at an 11 year high. Shin Corp's stock is up 27% since mid-November, and is currently trading at 15.6 times 2006 price-to-earnings.

According to its website, Temasek has a portfolio of investments that amount to S$103 billion, spanning Singapore and the globe.

The exact size of the deal will depend on acceptances of the general offer for both listed stocks. In the case of AIS, the general offer is for the 57% of the company not owned by Shin Corp; with 20% of AIS currently owned by SingTel. However, given that the general offer for AIS is being made at around a 30% discount to the current stock price, it seems unlikely that a large amount of this stock will be tendered. This would suggest that AIS will remain listed and that the transaction's total consideration will probably amount to close to $4 billion (the cost of the Shinawatra family stake in Shin Corp, plus the cost of buying out the minorities and warrant holders of Shin Corp at the same price).

Goldman Sachs advised the Temasek consortium on the acquisition.

Thaksin himself commented that the decision to make the sale was driven by his children who wanted him to "remain in politics happily". Whilst Thaksin continues to advocate investment in Thai business from his political platform, his family has now taken its chips off the table with the divestment of this asset. Only time will tell whether (and how) these funds will potentially be recycled into Thai investments.

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