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Just one year after the Singapore government's investment arm, Temasek Holdings, acquired a controlling stake in Shin Corp. from the family of former Thailand Prime Minister Thaksin Shinawatra, it looks as though the group may be prepared to unload some of its holdings.



Singapore Foreign Minister George Yeo told the Straits Times that if there are Thai buyers for Shin Satellite, in which Temasek-controlled Shin holds 43%, then his government would give its blessing to a sale. "If this is a commercial transaction on the basis of both sides being willing parties, then I see no problem at all," he is quoted as saying in the Singapore-based newspaper.



But is Temasek really ready to sell? In an e-mail response to questions sent by BusinessWeek.com to its head office in Singapore, the company officially declined to comment. However, Thai Communications Minister Sitthichai Pookaiyaudom said his government had held informal talks about the possible sale of Shin Satellite with Temasek. Meanwhile, Thai Prime Minister Surayud Chulanont told Malaysian news agency Bernama that his government would not get involved in a private sale.



"Our Treasures"

In any case, this is no ordinary business transaction. The Shin deal played a big role in the downfall of ex-Prime Minister Shinawatra and the subsequent military coup last fall. The new Thai government has sent mixed messages to foreign investors about how welcome they are -- and recent remarks by Thai military leader General Sondhi Boonyarataklin that he wants to see Shin Satellite back in domestic hands have raised questions about the wisdom of doing deals in one of Southeast Asia's most important economies.



At a military convention on Feb. 16, General Sondhi stated, "I want our national assets back, especially the satellites," according to local press reports. "That's one of our treasures I really want."



Though his remarks led some to conclude he was considering outright seizure, it appears now that the government recognizes such a move would send the wrong signal to foreign investors wary of the government's attitude towards them. The Stock Exchange of Thailand plunged 15% in late December after Bangkok moved to slap currency controls on foreign investors [see BusinessWeek.com, 12/19/06, "Emerging Markets Turmoil"].



Controversial Moves

The government is also mulling changes to the Foreign Business Act [FBA] that would place further limits on foreign participation in service industries. "The impression is that Thailand doesn't welcome foreigners," says Sriyan Pietersz, head of research at JP Morgan (JPM) in Bangkok.



A negotiated deal with Temasek to unload its holding in Shin Satellite may go some way to easing resentment over its ownership of Shin Corp. The Singapore group's purchase of a 49.6% controlling interest in the Shin Corp. from the family of then-Prime Minister Thaksin has been dogged by controversy ever since it was announced back in January, 2006. The fact that Thaksin's family pocketed a cool $1.8 billion tax-free provoked protests that eventually led to his ouster by the military in September [see BusinessWeek.com, 9/20/06, "Markets React to Thai Coup"].



The complicated ownership structure of Shin Corp also remains a sore point among Thais. A holding company, Kularb Kaew, in which Temasek has a 30% stake, is being investigated by Thai prosecutors for the use of nominee investors, giving Temasek an effective stake of 96% in Shin Corp. Nominee investors are Thai nationals who hold assets in trust for foreign investors seeking to circumvent limits on foreign ownership. Temasek declined to comment on questions regarding the ownership structure of Kularb Kaew. Though illegal, the use of nominee companies by foreigners in Thailand is widespread, and the Kularb Kaew case is the first such case to be referred by the Commerce Ministry to the police.



Where's a Buyer?

Avoiding such potential legal entanglements could give Temasek more reason for wishing to divest, though unloading its entire holdings could be complicated. While plenty of potential buyers exist for Shin Sat, which has a market capitalization of about $250 million, including local telecoms providers Loxley Information services and Samart, the company only accounts for about 3.5% of Shin Corp's asset value.



The real challenge would be finding a buyer for Shin Corp's 42.8% stake in mobile carrier Advanced Info Services [AIS] -- which accounts for more than 90% of Shin's assets. Identifying an investor to pony up between $2.5 billion to $3 billion would be a lot harder, especially considering Thailand's labyrinthine regulatory environment for telecoms. "We are talking about a quantum difference in terms of potential buyers" says Richard Moe, Bangkok-based telecoms analyst for Macquarie Securities. AIS accounts for more than 90% of Shin Corp's net assets.



The company's appeal has not been helped by its recent performance, which has been anything but stellar. On Feb. 23, AIS reported a 13% fall in 2006 earnings to $479 million, on sales that dipped 1.2% to $2.67 billion due to stiff competition and price wars. That has helped keep dampen Shin Corp's shares, which are trading at about 50% less than their levels before Temasek took over.



Stock Woes for Broadcaster

AIS may also have suffered as a result of its previous ties to Thaksin, says Moe. "To a small extent, people were voting with their feet during the height of the criticisms against the former regime when there was a campaign to toss [AIS] Sim cards into a plastic bag," he says. He also notes that weakened confidence among staff may have eroded performance. "People have gone from thinking [working there] was a major source of pride to a sense that it was something they had to apologize for."



Yet another reason Temasek might want to reconsider its investments in Thailand has been the difficulties facing iTV, the private broadcaster in which Shin Corp holds 53%. The latest setback for the company came on Feb. 22, when the courts rejected its appeal against $2.8 billion in fines and concession fees in arrears that were slapped on iTV last May, shortly after Temasek took control of Shin. Shares of iTV have fallen nearly 90% since then.