S Iswaran, Temasek’s managing director for investment, said Temasek means to hold on to Shin for the long term, since it has confidence in the growth potential of the company as well as the telecommunications industry here.

Stringent criteria were used to evaluate this acquisition and Temasek believes it is a good one, he said, while declining to elaborate on the expected payback period.

Temasek has just disclosed the investment in Shin and is in the process of staging tender offers, so it is unable to comment further on the transaction, he added.

Democrat MP Korn Chatikavanij said Temasek, as an investment arm of Singapore’s Finance Ministry, could have looked beyond the numbers when analysing the merits of the deal. Singapore has some regional problems – notably its long-running water dispute with Malaysia. The acquisition of a major Thai conglomerate could give the city-state broader political weight.

“Thus, they didn’t mind the price. The strategic point of view is more important,” he said, adding that right after the 1997 financial crisis, Singaporean investors led the way in staking out positions in distressed Thai companies.

A source from a foreign securities house anticipates Temasek recouping some of its capital by spinning off ancillary businesses, while keeping only Advanced Info Service (AIS), Shin’s crown jewel.

Some analysts figure that at the price of Bt49.25 per share, Shin was valued at 17 times its prospective 2005 earnings. At that lofty price-earnings ratio, it is the most expensive telecom stock in the Thai market. That makes it hard to believe that Temasek will sit contentedly waiting for dividends to come in from the investment. Shin has a policy of paying out at least 40 per cent of its net income in dividends. For 2004, Shin paid out Bt2 per share, or a total of Bt5.95 billion, which represented 68 per cent of its Bt8.8 billion earnings that year.

With the 49.6-per-cent interest, Temasek is now entitled to half of the dividends Shin pays out. If dividends increase 10 per cent each year, Temasek would stand to receive Bt51.3 billion over a 10-year period. The cellular service concession of AIS, which is Shin’s cash cow, expires in 2015.

The Bt51.3 billion in dividend income still falls short of the buyer’s initial outlay on a discounted basis and does not take into account the cost of funds. To finance the Bt73.3-billion deal, the buyer had to borrow Bt24 billion. It will also likely take out more loans to finance part of the Bt79 billion needed to support the tender offer for the remaining Shin shares.

Sukit Udomsirikul, assistant manager of SCIB Securities Co Ltd, which structured the complex transaction, also mentioned the vague policy of Temasek regarding Shin’s subsidiaries. Temasek could sell off some companies but the big question is to whom, he said.

“I basically believe that the Shinawatra family will buy back those companies,” he said, referring to Prime Minister Thaksin Shinawatra.

Last Monday, when the takeover deal was publicly disclosed, Iswaran said Temasek had no plan to dump its shares in Shin Satellite or iTV, two listed subsidiaries of Shin.

A week has passed and it is still unclear what Temasek plans to do with both companies. In its tender offer document submitted to the Securities and Exchange Commission, Temasek – through Cedar Holdings and Aspen Holdings – said it would not tender for the remaining shares of both companies because they represent “immaterial assets” of Shin.

Shin also runs several businesses that are not first tier. Although Thai AirAsia is the biggest low-cost carrier, it faces intense competition. Capital OK Co Ltd is also one of many consumer credit companies.

More importantly, Temasek has no expertise in these businesses. While it could benefit from its holding in AIS through its 60-per cent-owned Singapore Telecommunications, it is not considered a major player in the television and satellite fields.

A local investment banker also sees the Shinawatra clan ending up coming back into the picture, though it sold off Shin to eliminate criticism of conflicts of interest.

“I’m convinced that as long as the prime minister remains in politics, he will keep some telecommunications companies, especially iTV and Shin Satellite. These could be major resources in supporting his political role. Probably, they could buy back the companies through nominees or their business partners,” the investment banker said.

After the Temasek-Shin story became a done deal, rumours started circulating that GMM Grammy – which has stated that one of its key strategies is getting its own TV station – was ready to scoop up iTV.

Business Desk
The Nation