In Thailand, the telecommunications business is one of the prohibited business activities that foreigners, both individuals and corporations, are not allowed to engage in. Under the Foreign Business Act, the term 'Foreigner' refers to any individual foreigner and/or corporations with foreign majority shareholding structures, notably not less than 49% of the total shares of the Company held by either a foreign individual and/or juristic person.
The Thai market is relatively open to the entrance of international firms and a lack of restrictions means that outfits like Baker & McKenzie focus their practices on local law. Lateral partner movement this year has been low and the majority of legal teams are largely unchanged....
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The Thai market is relatively open to the entrance of international firms and a lack of restrictions means that outfits like Baker & McKenzie focus their practices on local law. Lateral partner movement this year has been low and the majority of legal teams are largely unchanged.
The legal system itself still presents some peculiar challenges to investors and the need to find solutions has acquired greater urgency in light of the two major dramatic circumstances of the last few years: flooding and the political unrest.
A key case is the insurance market, where the major companies are starved of capital in relation to the number of claims that followed the abovementioned events. The limits on foreign shareholding in this sector, capped at 49%, have brought many of them to the verge of bankruptcy. The Insurance Act of 2008, which introduced the new cap for foreign ownership, is expected to come into full effect by 2013, but legal professionals foresee a U-turn in the form of an amendment to the rule. This issue has limited a potentially large market for M&A in a context where consolidation is needed.
A final aspect worth mentioning relates to the government proposal to lower the statutory tax rate from 30% to 23%, effective by the end of 2012. The measure, it is hoped, will kick-start investments depressed by the floods that have seriously damaged a number of key facilities in sectors like manufacturing and mining.
The mid-2010 moratorium on the execution of all additional solar power plants was a major revision of the government's previous approach, offering incentives, which proved too costly. However, even though the market has become more complex, it has not stopped deal flow in the sector.
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CONTEXT AND TRENDS
After the 2010 moratorium, a rush of mergers and acquisitions and related financing followed. At present, the market is divided between the holders of Power Purchase Agreements (PPA) obtained from the government and local and foreign investors with the capital to actually build the project....
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CONTEXT AND TRENDS
After the 2010 moratorium, a rush of mergers and acquisitions and related financing followed. At present, the market is divided between the holders of Power Purchase Agreements (PPA) obtained from the government and local and foreign investors with the capital to actually build the project. Practitioners in the market complain that the prices asked for those PPAs are inflated, which has partially stifled dealflow. The landscape could change dramatically though if the government decides to act on its proposal to cancel a large portion of the unused PPAs by the end of the year.
The relatively abundant liquidity in the Thai capital markets, on the other hand, has kept the banking and project practices busy. This liquidity is also feeding a new trend for outbound work: acquisition and related financing as well as offshore project financing from Thai banks in other jurisdictions are becoming more common, partly pushed by PTT's deal pipeline.
Although PPPs (public-private partnerships) have become a rarity, Thai banks are using their liquidity for outbound investment. In this regard, SSI was among the pioneers with the acquisition of the Teesside steel factory in the UK. A year before that, Thai Union Frozen bought MW Brands, a French-based food company.
Another area of interest for project finance practitioners is Myanmar's shifting political situation. Partners argue that big scale projects may be forced to hold off until there is more confidence, but the signals are encouraging.
RISING STARS
Allen & Overy
Ben Thompson
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CONTEXT AND TRENDS
The adverse effects of the flooding and political unrest seem to be lifting as the equity capital markets come back to life after what has been a three-year period of low deal activity. Most firms confirm that the pipelines for both debt and equity deals are back to a healthy state....
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CONTEXT AND TRENDS
The adverse effects of the flooding and political unrest seem to be lifting as the equity capital markets come back to life after what has been a three-year period of low deal activity. Most firms confirm that the pipelines for both debt and equity deals are back to a healthy state.
The main types of deals seen in the market are IPOs destined for the Thailand Stock Exchange (SET). Even though foreign entities are now finally allowed by the Securities and Exchange Commission of Thailand to list on the SET, no companies have actually listed yet, but given the considerable liquidity of banks and other investors in the Thai market, this may be about to change.
An increasingly common second type of transaction since the beginning of the year has been the issuance by a number of local and foreign banks of Bhat-denominated subordinated bonds, usually with a maturity of at least five years. Their attractiveness is probably due to the bond terms. The Bank of Thailand, in fact, allows funds raised from subordinated bonds, with minimum maturity of ten years, to be treated as Tier 2 capital. The upside for the companies and banks is that this reduces operational risk and strengthens their financial status.
The consensus among law firms seems to be that the new government is generally contributing to a more stable investment environment and this is also reflected in increased FDI activity this year.
For M&A work, both domestic and outbound, 2012 has been busier than the previous year. In terms of inbound work, there is no shortage of foreign clients doing acquisitions. The local market offers a number of options for investors, especially in the renewable energy sector, both wind and solar.
While the legal experts agree that inbound transactions are still prevalent, major Thai companies are starting to diversify their portfolios by acquiring and investing offshore. In this regard, the novelties are the joint ventures in Myanmar and acquisitions in Vietnam, but investors are looking for opportunities in larger markets too: China, Korea and Japan.
RISING STARS
Baker & McKenzie
Benja Supannakul
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