Temasek a bull in Thailand’s china shop

By Paul Mackintosh - 03/03/14

As internal tensions continue to mount in Thailand and the political crisis shows no sign of being resolved, one Singaporean institution has stepped with elephantine tact into the firing line. Who else but Temasek Holdings! Reports indicate that the Singapore sovereign wealth fund (SWF) is planning to sell its 41.62% share of Thai communications giant Shin Corp to Singapore Telecommunication Plc (SingTel), effectively its subsidiary, with a potential gain of up to US$3.1 billion. Tempting, perhaps – except that its original purchase of Shin Corp from telecoms magnate and former prime minister Thaksin Shinawatra in 2006, though one of Southeast Asia's largest-ever private equity deals, also brought down the Thaksin government. Now its actions look likely to further stoke opposition to the government of his sister, Yingluck Shinawatra.

And the potential consequences don't end there. As the Bangkok Post has outlined in great detail, a Shin Corp stake purchase by SingTel could push the latter's aggregate shareholding in Advanced Info, Thailand's largest cellular operator, well above the 25% ceiling required under Thai Securities and Exchange Commission rules to trigger a tender offer. Where that would leave Temasek and SingTel, especially in the event of a change of government, remains to be seen.

There's also the vexed question of how Temasek could book a return on the sale. After all, SingTel is its subsidiary as well. Could the deal simply, somehow, increase the value of the entire holding? Presumably Advanced Info might benefit from a more unified ownership, and capital gains for Temasek on the back of Shin Corp share price rises since 2006 would be substantial, but it's still not intuitively obvious that this deal makes financial sense – or at least, not $3.1 billion worth of sense.

There might be more immediate political reasons to get out of the asset, though. Companies supposedly allied to the Shinawatra family, including Advanced Info itself, have been hit by boycotts and, in the case of Advanced Info, a subscriber exodus, leading to around a 6% share fall so far for both Advanced Info and Shin Corp itself. Advanced Info sent text messages to subscribers to tell them it was no longer associated with the Shinawatras: apparently it made no difference. Thais, it seems, are either unconvinced or unforgiving. And although, as further reports indicated, the talks between Temasek and SingTel have been put on hold due to their potential political sensitivity, Temasek hasn't exactly rushed to deny the rumours either. Just the right move to cement its reputation as a diplomatic past master.