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New York pans new Thai regulations


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Extracted from the Bangkok Post: Bangkok Post

 

(BangkokPost.com, Agencies)

 

Thailand got mostly bad media again, as foreign markets criticised the new investment rules and foreigners sold down their Thai holdings.

 

But a few savvy investors seemed to realise the "new rules" were simply a case of the new government going after the old, specifically the acquisition of Shin Corp by Singapore's Temasek Holdings.

 

The Thai Cabinet on Tuesday approved proposed amendments that would force foreign investors in telecommunication and several other sectors to sell off shareholdings and give up voting rights that exceed 50%. The government said overseas investors have a year to disclose their holdings in Thai companies, and another year to reduce stakes to less than 50%.

 

It further announced measures to close a loophole that allows foreign investors to own stakes in companies through local "nominees." The policy redefines "alien" to include foreigners and their Thai nominees.

 

"Although these new policies do not impact portfolio investors, it is yet another step in the deterioration of the political and investment climate," said Marc Chandler, an analyst at Brown Brothers Harriman.

 

In New York, two closed-end funds that focus on Thai stocks fell sharply. The Thai Capital Fund was off 3.4% at $10.1. The Morgan Stanley Thai Fund lost 4.7% at $9.27.

 

The Thai baht dropped 0.9% versus the dollar and 0.7% against the euro. The debt market rallied.

 

The Joint Foreign Chambers of Commerce in Thailand, which represents about 28 foreign chambers of commerce and about 10,000 companies, had urged the government as recently as Monday to suspend changes to the Foreign Business Act for six months and to first organize an economic-impact study on any proposed changes. The JFCCT warned that such restrictive amendments would cause foreign investors to leave the country.

 

"The timing [of the news] is certainly interesting," said Bill Mann, an advisor at Motley Fool Global Gains. "It almost seems there's a revenge factor involved," as they were specifically going after the acquisition involving the former prime minister's family business, he said.

 

"The fuel for the Thai economy has been foreign capital and that capital has just been restricted," he said. The key issue is as foreign investment pulls out, "you have to have enough domestic capital in order to be able to soak up all the excess - and I don't think they have it in Thailand."

 

At UBS, Keith Neruda, said today's announcement may not be "as bad as expected" although the market's decline would appear to have interpreted it as "apocalyptic."

 

The analyst noted that the amendments will only apply to limited sectors -- including broadcasting, telecom, and air transport companies.

 

Thai officials said the tighter rules will affect investments in about 15 publicly-traded companies, out of almost 500 listed on the Stock Exchange of Thailand. The rules also apply to unlisted enterprises. Retailers and hotels will be required to report their holdings, but foreign investors in those sectors will not have to cut stakes, the government said.

 

"Given that it was Temasek's purchase of Shin Corp. that precipitated these amendments, it is no surprise that the industries targeted are those held by Shin," he said, in a note. "We do not expect a major exodus of foreign investors from Thailand or the end of foreign direct investment," Neruda said. "We see the market's 16% sell-off since December 15th as a buying opportunity. We prefer blue chips and yield stocks."

 

BBH's Chandler said the deteriorating investment and business environment bodes ill for the Thai baht.

 

The baht was one of the strongest currencies in the region last year, gaining about 12.5% against the dollar since the end of 2005. It "is likely to be among the worst performers until the political/policy environment improves," he said, adding that he expects the dollar to retest the 36.50 area last seen in mid-December and possibly head toward the 38 level in the coming months.

 

Mann said the recent news from Thailand and from Venezuela involving a plan to nationalize CA Nacional Telefonos de Venezuela might be a reminder to investors of the risks in emerging markets.

 

If you combined all the news together, "people may recognize that there're still risks that they may not be building into their assessment of investing in these markets," he said.

 

"Emerging markets have had a really tremendous run and I think that a lot of people are underestimating the risk," he said. "Do people look at this and say this is just what happened in Thailand and just what happened in Venzuela, or do they say my goodness, I don't feel as great about my investment in India or in Russia than I did a week ago. We'll have to wait and see."

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