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Second update on Thai takeover rules

Thailand's Securities and Exchange Act B E 2535 (1992) (SEC Act) and new takeover rules require reporting thresholds for substantial acquisitions or dispositions, by an investor's own act or acting in concert with others, of Thai listed shares based on increments of 5% of the total voting rights of such listed company.

This means that each acquisition and disposition of securities of any business which in aggregate reaches any multiple of 5% of the total voting rights must be reported to the Securities and Exchange Commission (SEC) Office within three business days. Acquisitions triggering the disclosure obligation include both an acquisition by an investor of 5% of a listed company's total voting rights, and an acquisition by an investor and those deemed to be related persons or concert parties with the said investor of an aggregate of 5% of a listed company's total voting rights.

The holding of securities includes the right to purchase or to be delivered securities issued by the business resulting from holding of securities issued by other businesses or from engaging in an agreement with any other persons as specified in the Notification of the Capital Market Supervisory Board. Moreover, the general reporting requirements based on acquisitions in multiples of 5% of the total voting rights as mentioned above will apply whether or not the transfer has been registered, and regardless of the amount of such increase or decrease.

As of August 11 2011, the SEC revised its rules on reporting the acquisition and disposition of securities to lessen the burden on the reporter and provide more information to investors. The changes were as follows:

(i) The obligation to report every acquisition and disposition of 5% will apply only to securities issued by companies listed on the Stock Exchange of Thailand (SET);

(ii) Submission of a copy of a report to the SET will no longer be required as it has already been disseminated through the SET's electronic system;

(iii) The following cases will be exempted from filing of every 5% report:

a) Borrowers and lenders in securities borrowing and lending transactions and collateral placement for such transactions due to their nature of non-absolute transfer where the parties also agree on return of securities borrowed or withdrawal of collateral,

b) Acquisition of securities in rights offering by exercising rights of the existing shareholder, and

c) Acquisition or disposition of underlying securities of depository receipt issued by SET's subsidiaries as depository receipt holders are already required to file every 5% report and which has been disclosed on the SEC or SET websites; and

(iv) The following steps were taken to improve the information provided to investors:

a) Extension of the scope of every 5% report to cover financial instruments issued by others, which entitles the holder to convert or demand delivery of securities issued by listed company (for example, derivative warrants which have increased in number recently), and

b) Requirement to disclose if any person who has an increase or decrease in the number of related juristic persons or parties acting in concert, which results in an increase or decrease of security holdings in a listed company by 5%. This is required to be disclosed by filing with the SEC a report for every 5% report to disclose the changes in the group's securities holding.

The SEC Act and the takeover rules also require that any person or entity acquiring shares (by his own act or acting in concert with others) or that does any other acts which results or will result in such person or others acquiring or holding securities equal to or more than the thresholds of 25%, 50%, or 75% or more of the total voting rights of such listed company, make a tender offer to purchase all of the listed company. The offer price must be fair and in accordance with the said Notification.

The so-called chain principle rule relates to indirect ownership of listed companies. This rule provides that the acquisition of business control in a listed company by holding shares (by such person or by related persons under Section 258) indirectly through other entities (the chain principal or intermediate entity) until business control or voting rights reach or pass any of the 25%-50%-75% trigger points must be subject to a tender offer obligation to purchase all securities of the listed company.

In determining the holding of securities, the "concert party" as defined in the Notification and the "attribution" rules as specified in Section 258 of the SEC Act are also applied.

After making a tender offer, the offeror, whether or not it acquires securities from the making of tender offer, is prohibited from:

(i) purchasing or doing any other act resulting in acquisition or holding of securities of such business at a price or remuneration higher than that in the tender offer during a six-month period after the end of the offer period, unless it is an acquisition of newly-issued securities or an acquisition due to a tender offer approved by the SEC; and

(ii) taking any action, for the period of one year from the closing date of the offer period, which is of a material nature different from those specified in the offer document, unless a shareholders' meeting of the business otherwise adopts a resolution with a vote of not less than three-quarters of the total votes of shareholders present at the meeting and having the rights to vote, and the SEC Office has been notified accordingly.

A person can be exempted from the requirement to make a tender offer for all securities of the business if:

(i) the source of acquisition or nature of the acquirer falls within the scope allowed under the Notification;

(ii) the acquirer reduces his shareholding or controlling interest in accordance with the provisions set out in the Notification;

(iii) a waiver of the requirement to make a tender offer has been granted by the SEC; or

(iv) a waiver for an acquisition in relation to the making of a partial tender offer has been granted.

Chantima Limpananda

Note: our recently published "Update on Thai takeover rules" was based on a notification which became effective on June 1 2011.

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