Thailand - The Glacial Pace of Government Approvals

October 18, 2022 Edward Dever

In 2005-2006, I was part of a small team who completed the sale of a Canadian listed company with concession rights to potash deposits in Udon Province in Thailand. The purchaser was Italian-Thai Development PCL

The takeover was completed during a period of significant political upheaval in Thailand, with daily rallies in the streets, either protesting the Thaksin Shinawatra-led Government or rallying in support of the Government. People in Bangkok at that time will recall Sondhi Limthongkul's Friday afternoon rallies in Lumpini Park. Sometimes, the only way to determine who was demonstrating was to look out the office window and check the colour of their shirts - red was pro-Thaksin, yellow was anti-Thaksin.

The political upheaval culminated in a military-led coup on 19 September 2006.

Fast forward 16 years and, on 7 October 2022, ITD was granted a Potash Mining Licence from the Udon Thani Provincial Industrial Office. This allows ITD to proceed with the underground mining project to extract potash for both domestic and international markets. The Udon South Potash Project's mine construction period will be approximately three years with potash ore production of around 21 years from this deposit.

When ITD completed the takeover of Asia Pacific Resources Ltd in 2006, we knew they faced an uphill political battle to obtain a mining licence. (Ask Kingsgate Consolidated Ltd how easy it has been to deal with the Thai Government during the past decade.) However, I suspect none of us thought it would take 16 years post-sale to progress the project to the point where a mining licence would be issued. Clearly, ITD's persistence has paid off.

ITD SET Release - 7 October 2022

October 2022

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Thailand - Investors optimistic about Kingsgate resolution

October 11, 2021 Edward Dever

Judging by the recent run up in the share price of ASX-listed mining company Kingsgate Consolidated Limited, investors may be punting on a successful resolution of its long running dispute with the Thai Government. (Kingsgate also announced that it continues negotiations for the sale of its gold-silver exploration and development project in Chile, which may also be a contributing factor in the share price rise.)

Kingsgate commenced arbitration proceedings against the Thai Government under the Thailand-Australia Free Trade Agreement (TAFTA) in 2017 following the Thai Government's 2016 order suspending mine operations. This is the first significant test of TAFTA's provisions.

In its latest ASX release, Kingsgate states that "negotiations between the Company and the Royal Thai Government are now entering the final stages. Kingsgate has also been advised that the arbitral tribunal is now ready to issue the award after a lengthy period of deliberations".

The parties have jointly requested that "the arbitral tribunal hold the award until 31 October 2021, to allow the parties a short extension to conclude their settlement negotiations."

Interestingly, the 23 September release makes no reference to compensation by the Thai Government for Kingsgate's losses. Kingsgate's Chairman was previously quoted as stating "[t]here is a definition of expropriation in the Tafta agreement and this certainly fulfils that and so we want full compensation.”

The release sets out a non-exhaustive range of steps as part of settlement negotiations. But no reference to compensation. That does not mean that there will be no compensation as part of any settlement but it seems odd that it was not mentioned. A likely sticking point in the negotiations.

Other disputes between the Thai Government and foreign companies have shown how hard it is to extract compensation from the Government, even with the benefit of an arbitral award. Kingsgate's approach presumably takes these difficulties into account.

It will be interesting to see if Kingsgate can conclude a successful resolution and whether the Thai Government will honour any settlement commitments.

Thailand Update – 23 September 2021

October 2021

The Art of Due Diligence

September 8, 2021 Edward Dever

News that there are eight potential suitors doing second stage due diligence on the Thai-based consumer assets of Citibank is a reminder of the level of necessary redundancy in corporate transactions.

Eight law firms (and other advisers) running the ruler over the same set of assets, perhaps with different materiality criteria. Eight sets of due diligence reports essentially stating the same thing.

I have worked on numerous transactions where multiple due diligence reports were prepared by different firms. On one transaction, it seemed that most of the larger law firms in Bangkok had spent time in the due diligence data room.

If there are any potential issues within the business, it is always interesting to see which firms correctly identify them. On the sell side, tidying up physical data rooms at the end of each day made it easy to see what documents teams had focused on. Virtual data rooms make document reviews easier to monitor.

On one transaction working with the seller, the work habits of the potential buyer and its advisers were curiously observed. The buyer's team would leave the data room each day at 4.00pm, the lawyers left at 5.00pm and the accountants left at 9.00pm. On that transaction, I rated the accountants best able to identify relevant issues. (They would be emailing follow up questions at 11.00pm.) In saying that, none of the parties seemed to focus on potential tax concerns which were clearly identified in the data room and subsequently in the Disclosure Letter.

On another telecoms transaction, the potential buyer requested the seller pay for a team's five week trip around Thailand's provinces while a detailed study was undertaken of all the company's transmission towers and cell sites. The request was denied.

With one sale which dragged on for over a year, we became adept at refreshing the data room to ensure documents were up to date and were able to shift the entire data room from the company's HQ to the main external counsel's offices at a moment's notice without any of the company's staff learning we had done this. This was driven by the buyer's need for confidentiality. It was no secret that the business was for sale.

Best suggestion on the buy side is to clearly discuss due diligence goals with the buyer's management. Find out their concerns and their areas of particular interest. Work with them to establish appropriate materiality criteria. More often than not, they will have a better understanding of the seller's business than the lawyers. Quickly focus on crucial legal issues such as foreign ownership or other structural or compliance issues.

Weighty tomes reviewing every document ever signed by the seller's business are destined to gather dust on a shelf and crucial issues may be lost somewhere deep in the report.

At least 8 suitors vying for Citibank’s Thailand operations amid sales complications

September 2021