PPP Law, 3-Airport High Speed Rail: Foreign Acquisition of 74% Majority Stake Permissible

It is sounding fictitious for the current majority-Thai shareholder of the concessionaire company to ponder selling its controlling stake in the concessionaire company, running the multibillion dollar 3-airport high-speed rail concession, to any foreign infrastructure conglomerate.

But who knows, at the right price, the impossible can turn out to be a reality.

The concession contract itself acknowledges the financial must-haves for the concessionaire to be able to raise unlimited sums of Thai and international equity and debt financing to fund this ambitious project by legally allowing a generous foreign shareholding in the concessionaire company up to the maximum of 74%, leaving the Thais to hold a minority of a mere 26%.

The Strategic 26% Thai Stake

The threshold of 26% minimum Thai shareholding is called for in the concession to align the direct control over the company with the mechanism spelled out in the Civil and Commercial Code (CCC): to form a quorum of a general shareholders’ meeting and to block a special resolution of shareholders that requires at least 75% of the vote of shareholders to pass.
The 26% minority Thai shareholders alone would be able to form a quorum of a shareholders’ meeting set by the CCC at the minimum of 25% of all shares present at the meeting, even though the 26% shareholders have not reached out to seek the prior consent of the other 74% to convene the meeting.

Why Are Special Resolutions Important?

In regard to a special resolution, a crucial shareholder decision affecting the fundamental corporate structure of the company, numerically the great majority of 74% foreign vote in the company won’t be able to gather the 75% super majority vote to pass a special resolution under the CCC, without the participation and prior approval of the 26% Thai minority.

The 75% super majority is needed for special resolutions to give effects to increasing the company’s capital; reducing the capital; lowering or raising the par value of each share or the total number of the shares; altering the constitution of the company in the form of the articles of association including any articles governing Thai or foreign shareholding in the company, its directorship or management; amending or expanding the types and objectives of the business of the company; or just changing the name and identity of the company.

Synchronization between RFP and Concession

The Request for Proposal (RFP) and the concession contract are not necessarily in sync with each other in all matters of substance and it is a myth to believe that the concession has to always mirror the terms in the RFP.

Clause by clause analogy between the two documents is recommended when conducting a due diligence on the concession for acquisition or financing purposes.

Nevertheless, the RFP and the concession are in agreement, one with the other, in one area: the shareholding structure of the concessionaire company.

The 51% First Majority Shareholder, Foreign or Thai, During Construction

Both the RFP and the concession are open-minded about the nationality of the initial principal major shareholder of the company; any nationality is acceptable to the government project owner.

The twin documents do not legally restrict that the 51% initial majority shareholder of the concessionaire company at the time of the contract must be of Thai nationality, opening the possibility for a foreign company to start with the 51% initial majority participation. The generosity and nationality-blind approach is purportedly due to the need of the project for a massive international funding.

Since before the contract was awarded, the RFP required that whoever the first 51% major shareholder in the company is, foreign or Thai, it must continue to hold the simple majority stake throughout the 5-year construction period to make sure the completion of the construction is attained promptly.

The concession contract that ensued echoes this RFP requirement without any alteration.

Shift to 74% Foreign Majority During the First 5 Years

Any change of the first 51% majority shareholder, foreign or Thai, from the time of the contract to someone else up to a foreign ceiling of 74% during the 5-year construction of the project is a weighty matter for the government owner to consider, not a routine consideration to be taken lightly.

Such a change during the remaining 45 years of the operation of the concession is less serious but the prior approval of the owner remains necessary, provided that the initial 51% majority shareholder does not dilute its stake to less than 5% of all shares.

The requirement for the first 51% shareholder to stick around pre- or post-construction is, however, not absolute.

Like many other issues of policy in the concession, long-term 50-year flexibility has technically been built in to give the government owner an opportunity to review its position and grant the prior approval to a change of the initial 51% major shareholder at any point of the concession.

Current Shareholding Structure

By coincidence, the concessionaire who won the concession in December 2019 happened to be a company, at least 51% of which is owned by a Thai corporate giant.

Bound by the rule, contract rather than law, this 51% majority Thai shareholder needs to stay with the project throughout the first 5 years of the concession when the construction is ongoing and thereafter.

If there is a necessity for the Thai simple majority shareholder to dispose of its majority stake to a 74% foreign acquisition during the construction period, it can do so with the blessing from the government owner. There is no law restricting that 74% foreign ownership.

All in all, The Thais might have to keep its last 5% anticipated in the RFP and the concession.

Thai Strength Solidified by Foreign Acquisition

Barring very attractive pricing proposal, it is unimaginable why the present 51% majority Thai shareholder would want to divest.

Bidding and complicated legal set-ups aside, it is undeniable that this project materializes and is bearing fruit because of the backing and support of this principal shareholder as one of Thailand’s largest and most powerful business juggernauts, who with no doubt will be able to attract the needed funds through its global networks, notably from China and Japan, in addition to the overflowing backup and divine treatment it has been receiving from Thai banks over the past decades, no matter any project risks.

Potential partners will afford great credibility and trust to its name prior to scientifically analogizing risks that come with the project, generally associated with Thai mega-infrastructures or uniquely attributable to this project.

Realistically, any foreign participation going forward, during the construction or operation, will embolden, but not replace, the pre-existing solidity of the coalition that has been constructing this historic rail, with actual groundbreaking to be unveiled in no time at all.

Wirot Poonsuwan is Senior Counsel and Head of Special Projects at Bangkok law firm Blumenthal Richter & Sumet and can be contacted at wirot@brslawyers.com.

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