Australian PM's WeChat account hijack highlights risk in Asia dealings

January 27, 2022 Edward Dever

News reports indicate that Prime Minister Scott Morrison's WeChat account - more likely his China Mainland Weixin account - has been hijacked.

As is often the case in Asia, everything is not always what it seems.

The PMs account appears to be a Weixin account, registered using a China Mainland mobile number. The registrant, a Mr Ji, seems to have been operating the account for the PM, a fairly common practice to circumvent Weixin user rules.

Mr Ji is alleged to have transferred the account (with its 75,000 followers) to Fuzhou 985 Information Technology in breach of Weixin rules. Tencent Weixin doesn't seem to care.

So, it seems it was never PM Morrison's account and he relied on Mr Li operating the account in good faith in accordance with his wishes.

Restrictions on foreigners doing business in Asia often requires the use of corporate structures or nominees to deliver control of an asset - whether a company or a social media account. The use of a bare nominee sits at the riskier end of the asset control spectrum, as PM Morrison seems to have found out.

With a bare nominee arrangement, the foreigner is reliant on the nominee acting in accordance with their wishes (usually for a fee), knowing that legally, in many Asian countries, there is no recourse if the nominee suddenly decides to act as if the asset (in this case, a social media account) is their own property to use or sell.

This issue often arises with shareholdings or land purchases. When things go wrong, the foreigner is unable to bring local court proceedings as they would need to rely on an illegal arrangement to prove their ownership.

Typically, the use of corporate structures with different voting rights delivers control while not offending local foreign ownership legislation which often focuses on shareholding percentages, and not control, as the determining factor.

However, this is less useful with social media accounts where a local phone number is required for registering the account. Key in these circumstances would be control of the phone number.

Chinese businessman reveals why he bought Scott Morrison's WeChat account

January 2022

The content of this publication is intended to provide a general overview on matters which may be of interest. It is not intended to be comprehensive. It does not constitute advice in relation to particular circumstances nor does it constitute the provision of legal services, legal advice or financial product advice.

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

Evergrande - Not So Grand Or Too Big To Fail?

September 21, 2021 Edward Dever

That is the main question troubling markets in Asia and elsewhere at present.

And it is perhaps a question only President Xi Jinping in China can answer.

China Evergrande Group is a Fortune Global 500 China-based property conglomerate which has diversified into eight major industries, including automobile manufacturing, film and TV production, theme parks, healthcare and food production. In the property sector, it owns more than 1,300 projects in over 280 cities in China.

For students of Australia's 1980s corporate excess, think Alan Bond and Bond Corporation, just on steroids.

Evergrande has around USD 300 billion of debt to 171 domestic banks and 121 other financial firms and is facing looming interest payments on its bank loans and bonds and a collapsing share price. Protests have taken place outside its offices in China.

The level of Evergrande's debt is around three times the national debt of New Zealand.

Recently, Evergrande has been borrowing money from its employees to stay afloat (apparently telling employees to lend it cash or lose their bonus) and offering properties (including car park spaces) in satisfaction of its debts. Rumours abound that local creditors will be paid in full while foreign creditors will be required to take haircuts.

Any restructuring would be a complex affair. Bondholders are already establishing creditors committees to engage in discussions with Evergrande. Creditors may agree to defer interest payments and rollover loans although this would seem to just delay some form of inevitable restructuring.

Ultimately, despite discouraging government bailouts, the Chinese Government may step in and organise an orderly sell down of assets. This would be driven by a need to ensure market stability and may involve selling off non-core assets - Evergrande has apparently already been completing asset disposals - and hiving off other assets into a workout vehicle. A split between Evergrande and a bad asset vehicle, probably not named "Not So Grande".

With China's current crackdown on wealthy entrepreneurs and its tightening of restrictions on indebted developers, founder Hui Ka Yan will need to rely on his Party connections to determine if he has a role going forward. This assumes President Xi does not decide to use Evergrande as an example of how capitalism goes wrong. If so, the founder's prospects of remaining involved in Evergrande seem slim.

What Is China Evergrande and Why Is It In Trouble?

September 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

Thai-based Airlines Battle Covid Restrictions

August 15, 2021 Edward Dever

Flying under the radar is the recent creditor approval of the rehabilitation plan for Nok Air. The plan goes before the Central Bankruptcy Court on 26 August 2021 for approval.

The prospects for airlines such as Nok Air and Thai Airways seem grim at present given the surge in Covid-19 cases throughout Thailand.

In July, the Civil Aviation Authority banned all flights to and from provinces declared Covid-19 hotspots (dark red zones) forcing all airlines to halt domestic operations. Nok Air shifted its temporary base to U-tapao airport near Rayong in an effort to keep some flights operational and continue to service Phuket which has reopened to vaccinated foreign tourists under a Sandbox model, as well as limited other flights.

The Government was forced to make exceptions to the grounding of flights to support the viability of the Sandbox programs like Phuket and Koh Samui.

Reported Covid-19 cases in Thailand currently exceed 20,000 per day (out of an estimated population of 70 million). The actual case numbers are likely to be significantly higher. The Government's admission that cases are likely to double in the next month indicates a failure of current restrictions to contain the spread of the Delta variant. The Government's approach to dealing with the Delta variant has been 'too little too late' although the rollout of vaccinations continues.

After much success battling Covid-19 in 2020, several policy failures have helped the spread of Covid-19 throughout Thailand, including the failure to cancel the Songkran New Year holidays in April and shifting Covid-19 positive cases back to their home provinces to alleviate the strain on Bangkok's medical resources.

The failure to enforce a proper lockdown is linked to business pressures and an inability to offer anything more than meagre Government financial support to individuals affected by a lockdown. Lockdowns also make social distancing more difficult for multi-generational households.

With a significant portion of the country's annual GDP linked to foreign tourism, the battle ahead for Thai-based airlines and other tourism related business is a mammoth one. The Government's plans to completely open up the country to vaccinated foreign tourists by mid-October (the 120 day plan) seem in tatters with the airlines remaining on life support.

Nok Airlines PCL - Creditors’ Meeting Resolution

CAAT allows special Sandbox charter flights to Bangkok

Country to reopen 'in 120 days'

August 2021

The Telltale Signs of Economic Malaise

July 15, 2021 Edward Dever

In 1998, I was looking out from a 19th floor window of Telecom Tower on Ratchadaphisek Rd in Bangkok towards the plots of land below. It was during a break in one of the interminably long creditor meetings for TelecomAsia, part of the CP Group.

Among the buildings was a plot of land covered in pink taxis, handed back to the taxi company by drivers unable to make a living in the post-1997 Asian Economic Crisis world.

The floating of the baht by the Thai government on July 2, 1997 precipitated a wider Asian economic crisis engulfing, among others, the economies of South Korea, Indonesia and the Philippines. The seeds of Thailand's crisis had, however, been sewn a number of years earlier.

1998 was before widespread mobile phone use in Thailand (and phones with cameras) so I didn't take a photo of the flamboyance of pink taxis below. People didn't take cameras to restructuring meetings.

One interesting aspect of the TelecomAsia group restructuring involved debt associated with the roll out of the Personal Cordless Telephone (PCT) network in Bangkok. This was an ultimately unsuccessful forerunner of today's mobile networks which was popular at that time in Tokyo. It allowed you to use your home phone number as a mobile number with enough handsets for the whole family. Wander the streets of Bangkok and you can still see relics of the network - decommissioned cell sites attached to telegraph poles with the telltale "PCT' logo.

Fast forward to 2021 and another economic crisis - this one brought on by Covid-19.

Taxis are once again being parked en masse as drivers struggle to find fares in a city without tourists and with many workers working from home or unemployed.

As Thailand trials reopening the country with its Phuket Sandbox model for vaccinated travellers as well as ramping up vaccination efforts, it is hoped that these taxis will soon be circulating throughout Bangkok once more. However, with reported daily Covid-19 case numbers over 9,000 for Thailand, the reality is that they may be parked for some time.

Business baffled by gaffes

July 2021

Cambodia - Supercars And Lions Become Consumer Accessories

June 30, 2021 Edward Dever

The sight of supercars and pet lions shows how much things have changed in Cambodia in the past 25 or so years.

I remember my first flight into Phnom Penh's Pochentong International Airport in 1995. As we landed, I looked out across the scorched bare fields and thought Pol Pot had really done a number on the country.* Of course, it was the middle of the hot season. When I flew in later in the year, there was a rich tapestry of rice fields as we came into land. Those fields consumed a Vietnam Airlines flight (VN815) in September 1997 when it crashed short of the runway in poor weather.

When I checked in at the Cambodiana Hotel (the only acceptable hotel choice at the time), The Killing Fields was the in room movie of the day. Meetings were often held in the hotel. Several Government officials lived in the hotel in those days. You generally just ate in the hotel. By the third day, you had eaten everything on the menu. The two restaurants and room service shared the same limited menu items.

Occasionally, meetings would be held in fairly run down mansions such as the former French Ambassador's residence which apparently had then become Pol Pot's HQ and then the UN HQ before assuming the function of the offices of the Council for the Development of Cambodia (CDC). If you didn't keep the hotel car at a meeting, you would need to flag down a motorcycle to take you back to the hotel. From memory, it was USD 1.00 for the return trip.

On one of my trips, the first set of new traffic lights in Phnom Penh was installed. The first escalator in a shopping centre was some years away (2002).

Legal agreements needed to be comprehensive as the laws in many areas were deficient or non-existent. You could register a company at the Ministry of Commerce but there was no company law.

The practice of first-in-time in registering trademark applications was a fluid concept if you were a business person with sufficient influence within the government. The government would also roll out tanks to protect said business person's hotel during the 1997 coup. And he wasn't sanctioned when he shot out the front tyre of a Royal Air Cambodge Boeing 737 after disembarking. (That was an interesting discussion with the Chairman of RAC.)

Intellectual property enforcement was in its infancy. Sheraton had some success, getting a hotel using its name to change to "Sharaton" but the "McSam Restaurant" logo bore a striking resemblance to McDonald's.

The wealth disparity in Cambodia was evident back then but has only grown over the intervening years. The seeds of that growth were planted during and immediately after the UN period. The difference in 2021 is that wealth and conspicuous consumption are on constant display, particularly among the elite's offspring. One need look no further than the Supercars of Phnom Penh Instagram page.

Pet lion seized from home in Cambodia capital after appearance on TikTok

* It is estimated that the Pol Pot regime killed around 25% of Cambodia’s population between 1975 and 1979.

June 2021

Thai Airways Cleared For Takeoff But Needs Funding

June 22, 2021 Edward Dever

On 15 June 2021, Thailand's Central Bankruptcy Court approved THAI's rehabilitation plan. The plan administrators will now implement it.

THAI remains financially crippled by years of mismanagement and Covid-19's coup de grace. It is now seeking around Bt 50 billion (USD 1.6 billion) over the next three years from government and private financial institutions in order to stay afloat. Current cash reserves are not expected to last past 2021.

The acting CEO hopes THAI will complete plan implementation within five years. However, if THAI remains balance sheet insolvent in three years, it faces delisting by the SET. This issue may be resolved by the proposed capital increase under the Plan. There are also plans for debt to equity conversions but these relate mainly to accrued interest amounts and will not take place until year 4 of the Plan.

THAI's plan approval comes at a time when Thailand has been hit with a third Covid-19 wave with reported cases exceeding 3,000 per day. Bangkok remains in de facto lockdown. The Thai Prime Minister has declared that the country will open to foreign tourists within the next 120 days. Phuket will be the first province opened under the "Phuket Sandbox" model on 1 July.

THAI ticket holders owed refunds may be waiting some time. While ticket holders will be paid 100% of ticket value, the deadline for repayment is 31 March 2024. THAI may also offer travel vouchers in lieu of cash.

THAI rehabilitation plan summary

June 2021

The Threat of Criminal Proceedings as a Gag

June 10, 2021 Edward Dever

All too often, Thailand's criminal defamation provision and the Computer Crime Act are used as a weapon by anyone accused of misconduct to gag media reporting.

The latest instance involves claims that certain parties were involved in attempts to bring about a favourable court ruling in relation to excise duty payable on the import of Toyota Prius parts into Thailand. The duty amount involved is USD 350 million.

The issue came to light following an internal investigation by Toyota and its disclosure to the US SEC that its Thailand operations may have violated the Foreign Corrupt Practices Act. A grand jury has been empanelled in Texas to examine the issue.

In response, all named parties have threatened criminal defamation proceedings and action under the Computer Crime Act against parties involved in the initial reporting. Some parties have also made the same threat against Toyota and anyone who shares the reporting on social media. The result of these threats is two-fold - it gags media not wanting to be dragged into criminal proceedings but also amplifies interest in the issue.

The Court of Justice has indicated that it will investigate the issue. This seems odd given that there is a National Anti-Corruption Commission in Thailand and the issues raised would seem to fall within their authority. The NACC is apparently investigating allegations that Rolls Royce paid bribes to Thai Airways.

Bribery is endemic in certain South East Asia countries. At times, it is quite sophisticated, involving offshore payments dressed up as consulting arrangements or interposed entities in joint ventures allowing share participation.

It often involves the purchase of equipment at inflated prices. One of the odd outcomes of this type of arrangement is bribes being depreciated as a component of a balance sheet asset due to the relevant asset's higher initial carrying value.

The grand jury investigation in the US may shine an uncomfortable light on certain dealings in Thailand..

June 2021

Creditors Approve THAI's Rehabilitation Plan

May 30, 2021 Edward Dever

On 19 May 2021, Thai Airways creditors approved the rehabilitation plan at an adjourned online creditors meeting.

According to THAI's SET Notice, creditors holding over 91% of debt attending the meeting and voting approved the plan, including three amendments proposed by the planner, Bangkok Bank and the Federation of Savings and Credit Cooperatives of Thailand Limited

On 28 May, the Central Bankruptcy Court set a hearing date on 15 June to consider the plan and two objections raised by creditors.

The plan, as approved by creditors, appears to be more of a standstill arrangement with creditors deferring repayment in the hope that THAI's business can be revived and no hard decisions implemented to repair the balance sheet.

THAI faces the prospect of delisting from the SET if it is unable to fix its balance sheet insolvency within three years.

It is also unclear how THAI will fund the cash required to effectively restart the business.

Thai Airways says court hearing on business restructuring moved to mid-June

May 2021