Thai PM sale of family business comes under fire
Unfortunately for Thaksin, it's probably a no win situation either way. If he continues to hold Advanced Info Services (AIS), a mobile operator that has a 50-60% market share of the mobile telephone subcribers in Thailand, he will be criticised for having conflicts of interest given his position as Prime Minister of Thailand. By selling it to Temasek, effectively the Singaporean government, he comes under fire for selling out a 'national asset' to foreigners and which could raise security concerns. Die if you do, die if you don't. The fact is that no one in Thailand could afford to buy AIS in any event, so his only choice was to look abroad. Singtel, which is 63% owned by Temasek, already owns 19% stake in AIS, so either Singtel or Temasek was probably the most natural choice for a buyer.
One can cite many examples of policy corruption in the sale of the PM's families' stakes to Temasek (the latest being the amendment of the telecom act increasing the foreign ownership levels from 25% to 49% which came into effect 20th Jan 2006 - a few days before the official announcement of the sale!), but the biggest issue for minorities in telecom co's must be the increased risk both industry-wise and politically. 3G reform which was agressively being pursued by the SHIN group has been put on hold and although there is another public hearing by the NTC in Feb, it is quite clear that 3G is actually not needed in Thailand and the opposition will surely point out that it is purely a means to convert existing concessions which will expire in 7-13 yrs time and will benefit foreigned owned telcos and damage the TOT and CAT, national assets. Because of the the concession fees, Thailand is probably one of the few countries in the world where spending on a new 3G network probably makes more economical sense than investing more on the existing network purely because under the 3G network, the operator stops paying revenue sharing to the Telephone Organisation of Thailand (TOT), the concessionaire holder for the current mobile licenses.
Existing (local) shareholders' appetite for putting in a 3G network seems however less than enthusiastic. Interestingly, the family controlling the second largest mobile player, TAC, had also decided to sell their stake in the holding company, UCOM, to Telenor group, which currently holds 30% of TAC, which means that the only remaining locally controlled mobile player is TA-Orange, who has in any event, been on the lookout for a foreign investor since Orange sold out. This may be partly driven by the uncertainty of the actual 3G licenses itself but having gone through the upheavals of the previous capex cycle (2G) in the mobile sector, who is to blame them for wanting to get out!
In any event, I do not believe that Temasek (nor Telenor, for that matter) has received any assurances from sellers nor are they able to and as we move closer to the end of the concessions, the PV of the FCF during the concesssion declines and terminal value rises. At some point, the TOT and CAT will offer to buy out the listed concessionaires at the PV of FCF during the concessions, but not probably before serious investment into the new 3G networks are underway. Either way, my views would be the same, investing in a stock at the beginning of a capex investment cycle is probably a bit early (given uncertainties of new technologies and cost overruns)...better to wait to reap the rewards when the infrastructure has already been laid down and proven...probably also why I don't really like looking at new tech startups...(that's another story)
Finally, Thaksin has been accused of avoiding taxes by selling Shin rather than AIS direct. Really, some people just can't be satisfied! Who would want to pay a US$550m tax bill if they could avoid it! The fact is that the businesses, or other investments in Shin group does not even come close to US$0.6bn. Temasek got, what I would refer to as the 'MacDonald Value Meal' proposition. When you buy a Big Mac Meal, you get the fries and the Coke whether you want it or not. It's cheaper than buying the Mac and the Coke separately...Take it or leave it. The Ucom family sold its assets back to the family, however, I doubt Thaksin would be looking to buy ITV and Sattel back, otherwise no point selling AIS in first place. On the other hand, who is to say someone else might not be interested in these companies...(not us for sure!).
One can cite many examples of policy corruption in the sale of the PM's families' stakes to Temasek (the latest being the amendment of the telecom act increasing the foreign ownership levels from 25% to 49% which came into effect 20th Jan 2006 - a few days before the official announcement of the sale!), but the biggest issue for minorities in telecom co's must be the increased risk both industry-wise and politically. 3G reform which was agressively being pursued by the SHIN group has been put on hold and although there is another public hearing by the NTC in Feb, it is quite clear that 3G is actually not needed in Thailand and the opposition will surely point out that it is purely a means to convert existing concessions which will expire in 7-13 yrs time and will benefit foreigned owned telcos and damage the TOT and CAT, national assets. Because of the the concession fees, Thailand is probably one of the few countries in the world where spending on a new 3G network probably makes more economical sense than investing more on the existing network purely because under the 3G network, the operator stops paying revenue sharing to the Telephone Organisation of Thailand (TOT), the concessionaire holder for the current mobile licenses.
Existing (local) shareholders' appetite for putting in a 3G network seems however less than enthusiastic. Interestingly, the family controlling the second largest mobile player, TAC, had also decided to sell their stake in the holding company, UCOM, to Telenor group, which currently holds 30% of TAC, which means that the only remaining locally controlled mobile player is TA-Orange, who has in any event, been on the lookout for a foreign investor since Orange sold out. This may be partly driven by the uncertainty of the actual 3G licenses itself but having gone through the upheavals of the previous capex cycle (2G) in the mobile sector, who is to blame them for wanting to get out!
In any event, I do not believe that Temasek (nor Telenor, for that matter) has received any assurances from sellers nor are they able to and as we move closer to the end of the concessions, the PV of the FCF during the concesssion declines and terminal value rises. At some point, the TOT and CAT will offer to buy out the listed concessionaires at the PV of FCF during the concessions, but not probably before serious investment into the new 3G networks are underway. Either way, my views would be the same, investing in a stock at the beginning of a capex investment cycle is probably a bit early (given uncertainties of new technologies and cost overruns)...better to wait to reap the rewards when the infrastructure has already been laid down and proven...probably also why I don't really like looking at new tech startups...(that's another story)
Finally, Thaksin has been accused of avoiding taxes by selling Shin rather than AIS direct. Really, some people just can't be satisfied! Who would want to pay a US$550m tax bill if they could avoid it! The fact is that the businesses, or other investments in Shin group does not even come close to US$0.6bn. Temasek got, what I would refer to as the 'MacDonald Value Meal' proposition. When you buy a Big Mac Meal, you get the fries and the Coke whether you want it or not. It's cheaper than buying the Mac and the Coke separately...Take it or leave it. The Ucom family sold its assets back to the family, however, I doubt Thaksin would be looking to buy ITV and Sattel back, otherwise no point selling AIS in first place. On the other hand, who is to say someone else might not be interested in these companies...(not us for sure!).
posted by Kenneth | 9:19 AM
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