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Thai corporate governance under a cloud


Thanong Khanthong wraps up his report on the conflict between two rival shareholder groups at Lam Soon (Thailand) Plc.

Whang Tar Liang, chairman of Lam Soon (Thailand) Plc, a food, beverage and packaging group, must have been truly satisfied with his initial triumph over his rival shareholder group, led by Hap Seng Consolidated Berhad of Malaysia.

Last Thursday, the Southern Bangkok City Court handed down a ruling in his favour. The court dismissed a critical petition filed by the group of Malaysian and Singaporean shareholders led by Hap Seng.

Apart from petitioning the court to nullify the outcome of the extraordinary shareholders' meeting on Jan 31, which approved a Bt410-million capital increase, Hap Seng also sought an emergency court injunction to block Whang from officially registering a resolution for capital increase at the Commerce Ministry.

The court ruled that there were no grounds to justify delaying the registration of the resolution for Lam Soon's capital increase. Less than 10 minutes after the court's decision was announced, Whang's legal team, led by Baker & McKenzie, registered a resolution for capital increase at the Commerce Ministry's Nonthaburi office, which is 30-40 kilometres from the court.

The almost-perfect legal execution dealt a blow to Hap Seng. As for the petition to nullify the Jan 31 shareholders' meeting, the court agreed to hear the case on March 28.

The shareholders' conflict at Lam Soon raises questions about corporate governance and shareholders' rights in Thailand.

The conflict centred on Whang's resolution to double Lam Soon's capital from Bt410 million to Bt820 million. Hap Berhad was unhappy with this resolution, for it was only very late last year that Lam Soon announced a dividend payment of Bt8 a share. When the tax was deducted, the shareholders would take home Bt7.20 a share.

Almost immediately after paying the dividends, the Whang-led management announced the capital increase to Bt820 million through a one-for-one rights issue. This meant that shareholders would have to pay Bt2.80 a share (plus their just-received dividends) just to maintain their ownership ratio.

"If the company wants to raise capital because it needs liquidity, why did it pay dividends in the first place," asked a member of the Hap Seng group.

Hap Seng and its allies decided to block the resolution on capital increase. Because they held more than 30 per cent of total shares they could have blocked the resolution. A capital increase resolution requires the support of at least 75 per cent of Lam Soon's shareholders.

However, Whang resorted to a hardball tactic at the Jan 31 shareholders' meeting. Registration officials refused to allow the share proxies of Hap Seng and its allies to register to vote. They gave no reason for the action.

At the registration desk that morning, the share proxies of ABN Amro Asia Services (Singapore) Pte Ltd, UBS Ag Singapore and Whang Sun Tze - which hold more than 30 per cent in Lam Soon - were not allowed to officially register.

Consequently, when the shareholders' votes were counted, all of Whang's resolutions, including the critical capital increase, passed.

The Malaysian and Singaporean investors cried foul and launched a protest with the Stock Exchange of Thailand, but to no avail.

The stock price of Lam Soon is quite dormant, hovering around Bt22 a share. Without liquidity, it is not an attractive buy for outside investors. But for Whang and his rival shareholders it is a battle for the goose that may lay a golden egg.



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