Shin Corp a "Good Buy"?

Quite a number of articles have been written on the Shin Corp deal and on the amount of money that Temasek Holdings has lost "on paper". Singapore Elections and Yawning Bread have written on the deal as early as March 2006.

However, one fundamental question still remains: was Shin Corp really a "good buy" in the very first place? Readers may want to understand Shin Corp better by visiting its website on the subsidiaries that it holds.

According to the press release issued by Temasek Holdings on 23 Jan 2006, Temasek Holdings has paid THB 49.25 for each share of Shin Corp. If we take a look at the historical data of Shin Corp's price, right from 11 Jan 2002 till now, this price tag of THB 49.25 is the highest price ever paid for one Shin Corp's share.

Purely from the commercial point of view, Shin Corp is a good company to buy in to, though the price is just too steep.

Shin Corp is a profitable company which owns strategic assets that matters to a Nation. It is similar to Singtel which holds strategic communication assets. As it weilds control on strategic assets and thus, monopoly power over the Thai market, the potential revenue and profit for this company would have been great.

However, isn't this deal "too good to be true"?

In Singapore's context, when we first "privatised" Singtel, Singapore Government only offered 25% of Singtel shares to the public. There are certain restrictions on foreign ownership on Singtel shares as well. Thus, it is intriguing to me why would Temasek Holdings consider that it is "politically safe" to buy out Shin Corp?

Well, of course there is a certain assurance in the deal when the seller was related to the country's Prime Minister himself. However, with the development in Thai politics at that moment, it would make anyone "nervous" about getting involved with Thaksin family.

Thaksin was heavily bombarded by his opponents prior to the April elections on corruptions charges and abuse of power to benefit his family related businesses. But this is not the most important root of trouble for Thaksin.

In Thailand's history, the Thai King is a well respected political figure, though constituitionally, he holds no "parliamentary power". But it is not difficult to understand from the past political history of Thailand, military coups are common and most of them needed the blessings of the Thai King before it could be considered as "successful".

The trouble of Thaksin is not about his political opponents' attacks on him but rather his rough edges with the Thai King. As early as at the end of 2001, there was visible unhappiness of the Thai King of the way Thaksin handled the Thai economics and politics. Subsequently, the Thai King has specifically lectured Thaksin over his intolerance of criticisms from his political opponents as well as the free press in Thailand.

These are the significant signs of the instability of Thaksin adminsteration. When the Prime Minister of Thailand no longer has the endorsement from the Thai King, it will be a matter of time he would be forced to resign. Thaksin is not the first one to face such fate and he will not be the last one also. This is the unique political culture of Thailand which Temasek Holdings may lack the understanding.

Thus, for any politically savvy investors, when Thaksin family put Shin Corp up for sale, it was an obvious move of "cashing out". It is just a deal "too good to be true".

What is disturbing to me is that if one realises that Thaksin family was cashing out, in a hurry, why would one agree to pay the highest price ever for Shin Corp's share? Especially so when the total amount of the deal is so enormous that it would not be easy for Thaksin family to find any buyer with so much cash in such a short notice. Thus, from the commercial perspective, this should be the buyers' market and obviously, it makes no sense for the buyer to pay too high a price for such a deal which involves great political risks.

No doubt that if Thaksin managed to overcome his political barriers, Shin Corp may prove to be a very good buy. His adminstration would not question the legitimacy of Temasek Holding's total control of Shin Corp. Shin Corp would continue to enjoy concessions from the Thaksin adminstration.... etc. But in view of his political standing at that point in time, developed right from 2002 to end of 2005, one would realise that his adminstration was standing on thin ice.

In short, this is a "risky buy" instead of a "good buy". If Temasek Holdings has done its homework, it would come to the same conclusion as well. Not that it is going to be really a "bad buy" (well, basically nobody has 100% hindsight) from the commercial perspective, but for a government investment arm, is it wise to take such high risks at all?

Singapore PAP government has always put emphasis on "political stability" so to attract foreign investment. It is so obsesses with the term "political stability" so much so that it would always "warn" voters that if voters voted in more opposition memebrs into parliament, it will send "the wrong signals" to foreign investors and they would not invest in us. But it makes us wonder why its investment arms like Temasek Holdings would do exactly the opposite of what it preaches, investing in a country that is a potential political hotspot like Thailand? Well, for private companies, they are accountable for their risky choices but in government investment arms, who will be accountable for such risky decisions?

Goh Meng Seng