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With the global surge in AI and cloud computing, Thailand is swiftly positioning itself as a significant hub for data centers, attracting both local and international tech companies keen to capitalize on its favorable business environment. This growth is fueled by rising demand for cloud-based applications, rapid digitalisation across various industries, and the growing need for data storage. Government initiatives like the Thailand 4.0 policy further support these developments. The country’s advanced infrastructure and appealing incentives also contribute to such market’s growth, with 5G technology expansion expected to further boost demand.

Challenges remain, particularly with operational costs and significant energy consumption. Despite these obstacles, the outlook for Thailand’s data center market is favorable. The escalating demand for digital transformation and AI across various sectors continues to drive the need for such facilities. This transition into data centers is critical to Thailand’s strategy to modernize its industrial sector and enhance value creation.

Thailand’s appeal as an investment destination for data centers and cloud services is built on five key advantages: strategic location, secure environment, high-quality infrastructure, a growing domestic market, and attractive incentives from the Board of Investment (“BOI”). The BOI has outlined eligibility criteria and investment incentives for data centers. Eligible data centers must offer complementary services like server co-location, customer data backup, data hosting, etc., while maintaining high-speed telecommunication systems and uninterrupted client service during maintenance, and ensure continuous power supply, backup systems such as UPS and cooling, 24-hour security, and ISO/IEC 27001 certification.

The BOI offers substantial tax incentives, including up to 8 years of corporate tax exemption, exemptions from machinery and raw material import duties, etc. Non-tax incentives include permits for foreign nationals to explore investment opportunities, permits for skilled workers, land ownership rights, and favorable remittance terms. Additionally, any data centers investing over 1% of revenue or over THB 200 million in research and development within the first three years will receive up to 13 years of corporate tax exemption. Thailand is launching a pilot project enabling data centers to directly purchase renewable power, recognizing the need for clean energy policies to attract investment. The government has expedited this initiative, by ordering the creation of support measures for direct power purchase agreements (“PPAs”). Direct PPAs offer benefits like stable long-term pricing and reduced carbon footprints. Addressing the absence of a policy framework for direct green power purchases is crucial, as it poses challenges to energy-intensive industries committed to decarbonization.

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The Personal Data Protection Act B.E. 2562 (“PDPA”) mandates prompt notiﬁcation to the authority and/or affected data subjects in the event of a data breach. Despite this requirement, many operators have historically hesitated to report breaches due to fear of potential non-compliance with the PDPA. However, it is noteworthy that breaches are often brought to light by data subjects, who may take to social media to share their experiences or approach the authority directly without consulting with the operator ﬁrst. This heightened and abrupt visibility can attract the attention of the authority and the public, potentially damaging the operator’s reputation and increasing the risks of non-compliance. Although the authority has not imposed any penalties on operators, this period of leniency is coming to an end.

On the other hand, proactive reporting to the authority can lead to more favorable outcomes. The authority may request evidence demonstrating that the operator has taken reasonable steps to mitigate the risks, potentially avoiding further punitive action. Therefore, unless operators can deﬁnitively conclude that there is no risk to any data subjects, it is advisable for them to promptly notify the authority upon discovering the unfortunate occurrence. Furthermore, operators are advised to have necessary documents in place, as the lack of proper documentation may be discovered by the authority upon reporting.

Data breaches can be caused not only by hackers but also by human error and natural disasters. The rule of thumb is, regardless of the cause, prompt notiﬁcation to the authority and affected data subjects must be considered. If deemed necessary, operators must report the incident to the authority within 72 hours. To expedite this process, it is crucial to educate employees about data breaches and establish clear protocols for reporting incidents. Some operators have implemented internal data breach notiﬁcation forms to ensure that employees can report incidents promptly and with sufﬁcient detail. Additionally, simulating breach scenarios through workﬂow exercises can help prepare operators for swift and effective responses. Lastly, a common question is whether to report right away upon discovery or to wait for more information and report at a later date. The answer is that if there is probability that personal data has been accessed, a prompt notiﬁcation must be undertaken to avoid any risks involving the authority.

In conclusion, operators should prioritize preparedness over fear of reporting. Timely and transparent reporting not only aligns with legal obligations but also minimizes potential damage from breaches.

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Amidst the pressing air quality crisis, particularly the serious and widespread repercussions of PM2.5 throughout Thailand, the Thai government, in col-laboration with various stakeholders including academics and civil society organizations, is actively and diligently working towards the enactment of the proposed Clean Air Act (“Bill”) which aims to systematically reduce pollution and mitigate its effects. The following is a summary of the current draft provisions which are open to further reﬁne-ment based on input and feedback from relevant stakeholders.

Fundamental Rights – The Rights to Clean Air: The Bill is developed from the people’s right to access unpolluted air, commonly known as the right to clean air. Moreover, the Bill stipulates that individuals have the right to access crucial information regarding pollution and air quality, which impact their well-being. The Bill further provides the right to monitor, and protect themselves and others from the threat of air pollution, including the right to participate in government decision-making processes concerning air quality.

Supremacy of the Clean Air Act: Prior to the introduction of the Bill, measures to combat air pollution were dispersed across various pieces of legislation, with speciﬁc measures applying to certain types of activities. To avoid potential overlaps between the Bill and existing legislation, the Bill asserts its supremacy. In cases where existing laws or regulations set air pollution standards or measures that are less stringent than those prescribed by the Bill, the Bill’s provisions will take precedence.

Control Mechanisms: The Bill proposes speciﬁc measures and management methods for four cat-egories of air pollution sources, namely permanent pollution sources, open burning, vehicle pollution, and cross-border pollution.

Economic instruments and measures: To incentivize public efforts towards achieving clean air, the Bill introduces economic instruments and meas-ures, including (i) tax and fee incentives (including additional taxes and fees imposed on the owners or possessors of air pollution sources); (ii) the imple-mentation of cap-and-trade system at national or local levels; (iii) subsidies for air pollution reduction or prevention efforts; and (iv) mandatory security to be placed by businesses identiﬁed as signiﬁ-cant sources of pollution harmful to air quality or public health.

Penalties: The environmental law principle of “polluter-pays” has been incorporated into the Bill, imposing civil penalties for non-compliance and mandating compensation to rectify the consequences arising from the non-compliance. Fines and imprisonment will be imposed on owners or possessors of pollution sources. The Bill adopts a strict liability principle for cross-border pollution, presuming owners or possessors of pollution sources outside the country to be accountable for air pollution within Thailand, subjecting them to substantial ﬁnes.

With active and ongoing reﬁnement of this Bill, the path to clean air in Thailand is within reach, promising a brighter and healthier future for gen-erations to come.

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In Thailand, a signiﬁcant spotlight is now directed toward the adoption of Environmental, Social, and Governance (“ESG”) principles, attracting the attention of regulators, investors, and other stakeholders. This resonates with the global implementation of ESG-related regulations and societal expectations. Thailand’s ESG policy framework consists of a series of guidelines that may be observed by enterprises in those relevant sectors.

Presently, ESG-related disclosures are mandatorily required only for listed companies and sustainable and responsible investing funds (“SRI Funds”). Listed companies must comply with the guidelines set out by the Thai Security Exchange Commission (“SEC Reporting Guide”). This comprehensive guide encompasses all aspects that must be reported annually through the 56-1 form (“One Report”), with a speciﬁc focus on areas like climate change, environmental preservation, low carbon footprint, and inequality reduction. The disclosures are on a “comply-or-explain” basis. For instance, if a listed company does not disclose its GHG emissions, the company must clarify its reasoning for not making the disclosure. Listed companies are not required to align with international standards, although are encouraged to do so. Furthermore, asset managers overseeing SRI Funds are subjected to stringent reporting requirements to prevent instances of greenwashing.

In addition, The Bank of Thailand has introduced a policy on the business operations of ﬁnancial institutions related to the environment and climate change. Although not mandatory, ﬁnancial institutions may be expected to make ESG disclosures under this policy as the adoption will allow ﬁnancial institutions to manage risks, attract investors and customers, and contribute to long-term business viability in a sustainability-focused landscape.

In parallel, to facilitate the implementation of ESG policies, the country has established various sustainability policies, such as mobilizing transition ﬁnance for decarbonization projects and implementing the Bio-Circular-Green framework. Additionally, private companies are voluntarily reassessing their practices to prevent human rights violations, implement stringent corporate governance measures to prevent corporate oversight and engage in initiatives related to carbon credits aimed at reducing their carbon footprint.

A noteworthy recent development is Thailand’s introduction of the Thailand Taxonomy, aligned with the ASEAN and EU taxonomy. In its initial phase, this framework will adopt a targeted approach, focusing on the energy and transportation sectors. While not mandatory for companies to formulate transition plans, listed companies have the option to utilize the Thailand Taxonomy as a means of showcasing their commitment to sustainability, which can encompass transition plans, among other aspects.

During the ﬁrst and second quarters of 2023, there were two main developments in relation to capital markets regulations in Thailand as follows:

Amendments to the regulations related to initial public offerings (IPOs) regarding issuer’s qualiﬁcations (the “IPO Issuer’s Qualiﬁcations Amendments”); and
Amendments to the regulations for newly issued share offerings of listed companies through private placement (PP) (the “PP Amendments”).

The IPO Issuer’s Qualifications Amendments, which became effective on 1 February 2023, are related to the qualiﬁcations of a company applying for an IPO, which shall have some requisite characteristics, e.g. not involved with businesses which severely violate the law, e.g. money laundering, drug trafﬁcking, human trafﬁcking, etc. These amendments alleviate the ambiguity of the previous regulation, which only prescribed that the Company must not be involved in any illegal businesses, in respect to which concrete guidelines were never launched.

With respect to the PP Amendments, the following key changes will be effective from 1 July 2023.

Cancellation of the SEC approval application procedure which will be changed to a deemed approval procedure, but other requirements still remain, including requirements for approval by a shareholders’ meeting;
Requirement for an opinion from an independent ﬁnancial advisor (IFA) in the event of major changes, e.g. the offer price is lower than the market price, the offering of PP shares will cause the earning per share or the control dilution to be not less than 25%, etc.;
Permittance of the remaining shares from a preferential public offering (PPO) to be offered through PP; and
Revision to the market price calculations to avoid any inconsistencies due to different criteria for different types of securities offerings, and revision to the offer period for the offering of PP shares, which are listed out for each relevant case to improve clarity and practicality.

Other Updates

Many companies also carry out fundraising by way of a Real Estate Investment Trust (REIT). Recently established REIT IPOs have invested in new types of assets; for example, the Bangkok Airways Real Estate Investment Trust (“BAREIT”). BAREIT invested in the Bangkok Airways Samui Airport-based asset. This is the ﬁrst REIT in Thailand to invest in an airport asset. BAREIT will receive income from the sublease of its assets to Bangkok Airport Management Co., Ltd. (a subsidiary of Bangkok Airways)

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Much time and effort are often spent in M&A negotiations in terms of what matters are covered by the seller’s representations and warranties (Warranties), and whether and to what extent the reservation is made “to the knowledge of the seller” and “in a material respect”. It is also often a matter of contention as to when a breach of the Warranties can be found, how long it can indemnify the seller (time limit), and how much it can indemnify the seller (maximum amount).

Warranty & indemnity insurance (W&I Insurance) is an insurance product intended to cover any economic loss suffered by a purchaser or a seller resulting from a breach of the Warranties. Generally, there is a (i) seller’s policy whose coverage is like a back-to-back with the seller’s liability under the sale and purchase agreement; and (ii) buyer’s policy whose coverage is broader and extends beyond the limitations of liability provided in the sale and purchase agreement.

The biggest beneﬁt from the seller’s point of view seems to be that it minimizes the risk of being claimed by the purchaser after completion of the transaction and may enable a clean exit from its investment. This is particularly signiﬁcant when a seller is a PE fund that wishes to distribute exit returns promptly. In some cases, it may not be possible to agree on risk allocation, and negotiations may be disrupted; then W&I Insurance comes into play. Another major advantage is the possibility to obtain a considerable amount of insurance proceeds regardless of the creditworthiness of the seller.

The scope of insurance disclaimers adhere to the principle that ‘known risks’ are excluded and should be covered by a speciﬁc indemnity set out in the sale and purchase agreement. The maximum amount of insurance claim depends on the agreement with the insurance company, but it is rare to set 100% of the total purchase price. Generally, the deductible retention and de minimis is about 1.0% and 0.1% of the purchase price, respectively. Basically, the larger the deductible, the smaller the premium.

The period of insurance depends on the agreement with the insurance company. However, for breaches of fundamental Warranties, including tax matters, the period is often around seven years, and for a breach of other Warranties, around two to three years, while taking into account the prescription period in respect of tax liabilities of the relevant jurisdiction.

M&A transactions in Thailand are similar to M&A transactions in other jurisdictions in respect of the need to conduct an initial antitrust review at the early stage of a transaction since the 2017 Trade Competition Act of Thailand (TCA) came into existence. There are two key aspects: (1) pre-merger approval ﬁling and post-merger notiﬁcation ﬁling under merger control regime, and (2) cartel risks during and after the due diligence process. As TCA and its enforcement are relatively new, some operators might not yet have a full grasp of what TCA requires on these two fronts, particularly the cartel risks.

Merger Filing

The TCA captures corporate amalgamation, share acquisition and business/asset acquisition. TCA prescribes three doors for a prospective merger to go through. If the merger would result in a creation or an enlargement of a dominant operator, the parties must file a pre-merger approval application with the Trade Competition Commission of Thailand (TCCT). If the merger would cause a material reduction of competition, the acquirer or resultant entity must ﬁle a post-merger notiﬁcation report to the TCCT. Each requirement has its own statutory timeline that may have a signiﬁcant impact on the transaction timeframe and legal costs. If the merger falls under neither of the two categories above, the parties would not be required to make any ﬁling. Cartel Risks

Besides merger ﬁling requirements, the parties should be cautious of cartel risks arising from an exchange of certain information during the due diligence period. The risks might materialize if the transaction does not proceed as expected, as both sides, or at least one, would leave the negotiating table with sensitive commercial information of the other party, which could be used to create a cartel. Even a lawful benchmarking activity could inevitably lead to a costly, although defensible, investigation. It should be stressed that the TCCT and its ofﬁcers would generally look for common pricing strategies and trade conduct as a sign of a possible cartel, and any amendment of practices by one or both sides to the prospective or failed M&A transaction could lead to a suspicion. Therefore, the merging parties must ensure that both sides are aware of the risks and institute necessary contractual provisions to deter a use of such sensitive information, to protect conﬁdentiality, and to employ appropriate measures such as Chinese walls to safeguard information between business units.

Mr. Wongsakrit Khajangson, Mr. Panupan Udomsuvannakul, Ms. Tantigar Hutamai, Mr. Kanchana Suchato

Introduction

Digital assets (including cryptocurrency and digital tokens), currently governed by the Emergency Decree on Digital Asset Business B.E. 2561, have been adopted widely in Thailand both as a means of payment (“MOP”) for goods and services, and investments. The dramatic growth of the use of digital assets has been a concern for the Thai authorities, particularly the use of digital assets as a MOP. From the authorities’ point of view, the use of digital assets for such purpose may lead to various negative impacts, including cyber espionage and money laundering. Thus, on 18 March 2022, the Thai Securities and Exchange Commission issued a new Notification of the Capital Market Supervisory Board to regulate such matters (the “New Regulation”), which came into effect on 1 April 2022.

Overview of the Regulation

From the New Regulation’s effective date, regulated digital asset business operators under the law will be prohibited from undertaking the activities of operating and facilitating the use of digital assets as a ‘MOP’ (the “Prohibited Activities”). The operators that engaged in Prohibited Activities must have ceased such activities before 30 April 2022.

Prohibited Activities include:

advertisements, solicitation, or expressions of readiness to provide services to accept digital assets as MOP;
providing systems or tools that facilitate the use digital assets as a MOP;
providing digital-asset wallet services for the use of digital assets as a MOP;
providing services of transferring Thai Baht from customers’ accounts to account of others;
providing services of transferring digital assets from customers’ account to the account of others that are not the customer’s account for the use of digital assets as a MOP; and
any other services having the characteristics of supporting the use of digital assets as a MOP.

If a digital asset operator discovers that their clients use their digital asset accounts for payments of goods and services, they must notify the customer of the misuse and violation of the terms of services of the operator. If such action continues, the digital asset operator must take actions against such customer (e.g., temporarily suspend services, cancel the services).

The enactment of the New Regulation requires a dramatic change in the relationship between digital asset business operators and their clients. Investors exploring operations in Thailand should be aware of how the New Regulations may impact their operations.

1 - Mr. Wongsakrit Khajangson, Partner
2 - Mr. Panupan Udomsuvannakul, Counsel
3 - Ms. Tantigar Hutamai, Senior Associate
4 - Mr. Kanchana Suchato, Associate

Chandler MHM
17th & 36th Floors, Sathorn Square Office Tower
98 North Sathorn Road, Silom, Bangrak
Bangkok 10500, Thailand

W: www.chandlermhm.com

Almost two decades from the ﬁrst introduction of the concept of environmental, social and governance (ESG), ESG issues have now become one of the core values of not only project owners, but also ﬁnancial institutions across the globe. In considering, whether to ﬁnance the development of a project, ﬁnancial institutions normally scrutinize a project from various perspectives to ensure the project’s viability and, if required, impose measures to be implemented by the project in order to minimize the negative impacts of the project on the surrounding environment. In this connection, it is helpful that ﬁnancial institutions have internationally recognized guidelines to refer to.

The Equator Principles (EP) are intended to provide a minimum standard of due diligence in supporting responsible decision-making when assessing risk. They are designed to be a ﬁnancial institution’s benchmark for determining, assessing, and managing the environmental and social issues related to projects. Equator Principles adopting ﬁnancial institutions (EPFIs) are committed to follow certain requirements and comply with ongoing reporting obligations of their project lending activities and resulting outcomes. The adoption to EP is completely voluntary and open to those who meet the relevant adoption requirements.

EP applies to ﬁve types of projects across all industries. Those ﬁve projects are: project ﬁnance advisory services, project ﬁnance, project-related corporate loans, bridge loans, project-related reﬁnance, and project-related acquisition ﬁnance. In order to comply with EP, EPFIs must implement ten EPs through their internal environmental and social risk management policies, procedures and standards. Commencing from the point at which the ﬁnancing of a project is proposed, the EPFI will review and categorise the project based on the magnitude of the potential environmental and social risks and impact. The assessment will be in accordance with the International Finance Corporation (IFC)’s environmental and social (E&S) categorisation process. Accordingly, the level of each of E&S assessment process, applicable E&S standards, E&S management systems, EP action plan, stakeholder engagement, grievance mechanism, independent review, covenants, independent monitoring, reporting and transparency required for each project will depend on its categorisation.

Currently, 129 financial institutions from 39 countries have ofﬁcially adopted EPs. On 31 January 2022, The Siam Commercial Bank Public Company Limited (SCB), one of Thailand’s leading commercial banks announced that it had become a signatory of the Equator Principles. This marks the ﬁrst ﬁnancial institution of Thailand adopting EP and is therefore a signiﬁcant step towards the adoption of ESG by Thailand’s ﬁnancial institutional sector.

Financial institutions around the world have been reminded of the importance and practicality of promotion of ESG through EP adoption. Given the recent announcement by SCB, it will be interesting to see whether other Thai ﬁnancial institutions will follow suit. To that end, we hope to see EP becoming an increasingly important component of project ﬁnancing by Thai ﬁnancial institutions in Thailand and elsewhere, therefore bringing about more sustainable and responsible lending practices.

Jessada Sawatdipong
Co-managing partner
E: jessada.s@mhm-global.com

Sarunporn Chaianant
Senior Associate
E: sarunporn.c@mhm-global.com

Chandler MHM
17th and 36th Floors
Sathorn Square Office Tower
98 North Sathorn Road, Silom
Bangrak, Bangkok 10500, Thailand
W: www.chandlermhm.com