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Thailand revises business rules Thailand revises business rules
(about 3 hours later)
The Thai government has approved plans to tighten rules regulating foreign businesses - a move analysts say could damage an already shaky economy. The Thai government has announced plans to tighten rules regulating foreign businesses - a move analysts say could damage an already shaky economy.
The Cabinet has agreed "in principle" to changes in the Foreign Business Act, said spokeswoman Netpreeya Chumchaiyo. Changes to the Foreign Business Act would see foreign firms being prevented from controlling more than 49% of the voting rights of a Thai business.
Few details have yet emerged, but there are fears the plans could force foreign firms to reduce their Thai holdings. But the changes will take two years to implement and key sectors, such as retail and banking, will be exempt.
The Joint Foreign Chambers of Commerce in Thailand (JFCCT) has already said it is "gravely concerned" about the plans. Foreign investors are already nervous after last month's stock market crash.
Foreign investors in Thailand are already nervous, after last month's stock market crash. 'Grave concern'
The downturn was sparked by the government's sudden decision to limit the amount of money that could be withdrawn by investors - a plan that was then partially rescinded in an effort to bring market levels back up again. The downturn was sparked by the government's sudden decision to limit the amount of money that could be withdrawn by investors - a plan it then partially rescinded in an effort to bring market levels back up again.
The coup and the New Year's Eve bombings have also raised questions about Thailand's stability for investment. September's coup and the New Year's Eve bombings have also raised questions about Thailand's stability for investment.
Loopholes
The exact details of the new proposals have yet to be spelt out, but they are expected to include rules limiting foreign ownership in Thai businesses to about 50%, while redefining voting rights for local subsidiaries.
Different regulations currently apply to different industry sectors, but at the moment, while many businesses already have a 49% ceiling on foreign ownership, in practice foreigners often have overriding control, because the local subsidiary owners are merely nominees with little or no voting rights.
By tightening up laws to consider voting rights as one of the key criteria for foreign ownership, many companies may be forced to alter their shareholding structures and sell shares to Thai investors in order to stay within the law.
Such a radical change of this law will lead to a further erosion of business confidence Peter van Haren, Joint Foreign Chambers of Commerce in ThailandSuch a radical change of this law will lead to a further erosion of business confidence Peter van Haren, Joint Foreign Chambers of Commerce in Thailand
Large investors such as supermarket chains Tesco and Carrefour could be among those firms affected, according to stock market analysts. The Joint Foreign Chambers of Commerce in Thailand (JFCCT) said it was "gravely concerned" about the proposed changes to foreign ownership controls.
Last week Commerce Minister Krikkrai Jirapaet said that if the new rules were passed, companies would be given time to adjust their share structures. "Such a radical change of this law will lead to a further erosion of business confidence," said its president Peter van Haren.
But JFCCT President Peter van Haren said: "Such a radical change of this law, of the Foreign Business Act, will lead to a further erosion of business confidence." Thai stocks fell nearly 3% after the proposals were published.
"What we want is for the government to delay the endorsement of the law for six months, and then go to the beginning by talking with us and taking that consultation into consideration," he told the French news agency AFP. Different regulations currently apply to different industries but while many businesses already have a 49% ceiling on foreign ownership, in practice foreigners often have overriding control, because the local subsidiary owners are merely nominees with little or no voting rights.
Foreign control By tightening up laws to consider voting rights as one of the key criteria for foreign ownership, many firms may be forced to alter shareholding structures and sell shares to Thai investors to stay within the law.
The use of local nominees to enable foreigners to have overall control over businesses in Thailand has been highlighted by the ongoing investigations into the financial dealings of former Prime Minister Thaksin Shinawatra, who was ousted in a coup in September. Exemptions
Officials said about 15 publicly listed companies would be affected by the proposals, which have still to be approved by Parliament.
But according to the draft proposals, industries such as retail, tourism, banking and insurance - in which foreign firms have substantial interests - would not be affected as they are governed by other laws.
This would exclude firms such as Tesco and Carrefour from any impact.
Thaksin's business dealings put foreign firms under scrutiny
One analyst said that his initial impression was that the changes would not be as punitive for foreign investors as first thought.
"First indications are that the revision is somewhat less stringent than initially expected," said HSBC's Frederic Neumann.
"The amendment brings the Thai direct investment regime broadly into line with international practice."
Foreign control over Thai businesses has been highlighted by the continuing investigations into the financial dealings of former Prime Minister Thaksin Shinawatra, who was ousted in a coup in September.
Investigators are focusing on the Thaksin family's sale of its controlling stake in the telecommunications giant Shin Corp last year.Investigators are focusing on the Thaksin family's sale of its controlling stake in the telecommunications giant Shin Corp last year.
The shares were bought by the Singapore-owned investment firm Temasek - effectively selling the company abroad, albeit partly through Thai subsidiaries.The shares were bought by the Singapore-owned investment firm Temasek - effectively selling the company abroad, albeit partly through Thai subsidiaries.
The sale fuelled allegations that Mr Thaksin had abused his power and betrayed national interests, and was one of main reasons for the protests which ultimately led to his removal from office. The sale fuelled allegations that Mr Thaksin had abused his power and betrayed national interests.