Disclosure

Connected Transactions

The Securities and Exchange Act B.E. 2535, amended version, effective on August 31, 2008 (Section 89/12), prescribed the Securities and Exchange Commission (SEC) to lay out details and oversee connected transactions of the listed companies. Therefore, SEC issued SEC Announcement Tor.Jor.21/2551 on connected transaction rules for the listed companies to abide by.
When the listed company is doing a transaction with connected person, it may lead to the conflict of interests. To make the conduct transparent and fair to all shareholders equally, the listed company should be adhering to the following principles:
  • The transaction must be approved through a transparent process by the directors and executives performing their duties with responsibility, caution, and honesty without beneficiaries involved in the decision process.
  • The transaction must be for the sake of the company’s benefits, similarly to any transactions done with the third party.
  • There must be a monitoring and audit system to ensure that the transaction has gone through the right process.
Definition
Connected transactions refers to transactions made by a listed company or its subsidiary with the person connected with the listed company.
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Definition

Connected transactions refers to transactions made by a listed company or its subsidiary with the person connected with the listed company.  
Connected person refers to a person who may have led to the conflict of interests of the company’s directors or executives, causing a conflicting situation to make a decision based on personal or corporate benefits. This includes 
  1. The directors, executives, major shareholders, controlling person, person to be nominated for directors, executive, or controlling person position, as well as their related persons and close relatives.
  2. Any juristic person with major shareholders or controlling persons in (1).
  3. Any person whose actions can be identified as proxy or under the influence of (1) and (2).
  4. The director of a juristic person with controlling power.
  5. The spouse, underage offspring or adopted child of the director in (4).
  6. A juristic person under the controlling power of the person in (4) or (5).
  7. Any person taking action under the perception or agreement that if such action is to bring the financial benefit to the person, the following person will also gain similar benefit:
          7.1 The company’s director
          7.2 The company’s executive
          7.3 The company’s controlling person
          7.4 The director of the person with controlling power over the company
          7.5 The spouse, underage offspring or adopted child of the person described in 7.1 to 7.4
Connected transactions refers to transactions made by a listed company or its subsidiary with the person connected with the listed company.  

Connected person refers to a person who may have led to the conflict of interests of the company’s directors or executives, causing a conflicting situation to make a decision based on personal or corporate benefits. This includes 
  1. The directors, executives, major shareholders, controlling person, person to be nominated for directors, executive, or controlling person position, as well as their related persons and close relatives.
  2. Any juristic person with major shareholders or controlling persons in (1).
  3. Any person whose actions can be identified as proxy or under the influence of (1) and (2).
  4. The director of a juristic person with controlling power.
  5. The spouse, underage offspring or adopted child of the director in (4).
  6. A juristic person under the controlling power of the person in (4) or (5).
  7. Any person taking action under the perception or agreement that if such action is to bring the financial benefit to the person, the following person will also gain similar benefit:
          7.1 The company’s director
          7.2 The company’s executive
          7.3 The company’s controlling person
          7.4 The director of the person with controlling power over the company
          7.5 The spouse, underage offspring or adopted child of the person described in 7.1 to 7.4
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Executive refers to the manager or the first four top-ranking executives after the manager level as well as all other 4th ranking equivalent, and accounting or finance executives of department head level and up.
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Major shareholder  refer to a direct and indirect shareholder of a juristic person with more than 10% holding of voting shares of the juristic person. This includes the holding of related person as follows
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Related person refers to the person relating to the connected person, which means the person or the Ordinary Partnership described as per Article 258 (1)-(7) of the old Securities and Exchange Act B.E. 2535 as follows
  1. Spouse 
  2. Underage children
  3. Ordinary Partnership where the person as well as (1) or (2) are partners
  4. Limited Partnership where the person as well as (1) or (2) are partners with unlimited liability or with limited liability provided that their holdings are over 30%
  5. Limited company or public company where the person plus (1) or (2) or (3) or (4) collectively hold more than 30% stakes
  6. Limited company or public company where the person plus (1) or (2) or (3) or (4) or (5) collectively hold more than 30% stakes
  7. Juristic person as per Article 246 and 247 (of the Securities and Exchange Act) authorized to take actions on behalf of the juristic person
Group 18366_en
Controlling persons refer to the person with the controlling power over the company, which means
  • Holding the voting shares of a juristic person more than 50% of the company’s total voting shares
  • Having control over majority votes at the juristic person’s shareholder meeting, either directly or indirectly or by any reason
  • Controlling an appointment or discharge of more than half of the directors, either directly or indirectly
Close relatives  refer to the person having blood relations or legal relations by registration, who are
  1. Spouse
  2. Father
  3. Mother
  4. Siblings
  5. Offspring and spouse of the offspring
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Type of the connected transactions

The connected transactions can be categorized into 5 types
TypeDescriptionExamples
1. Ordinary business transactions
 Commercial transactions that a listed company or its subsidiary normally makes to operate business under general commercial conditionsSelling goods, buying the raw materials, and providing services
2. Ordinary business support transactionsTransactions made to support ordinary business under general commercial conditionsA hire for goods shipment, advertisement production, management contract, and receiving technical assistance
3. Real estate rental transactions for a period not longer than 3-year spanRental transactions with no more than 3-year contract period, and without proof of general commercial conditions Renting a building as office, or renting a building or land for warehousing
4. Transactions relating to assets or servicesTransactions about the acquisition or disposition of assets, or the right to get or receive the serviceBuying the machine, buying investment capital, selling a building, selling the land leasehold or concession 
5. Providing or receiving financial assistance

Providing financial assistance
Offering the loans or guarantee
Receiving financial assistanceBorrowing loans, paying fees for the connect persons’ credit line used by the company, paying fees to connected persons regarding the loan guarantee
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Calculation of the transaction size and how to handle it

  • Value used for the calculation of the transaction size
TransactionsValue used for the calculation of the transaction sizeExamples
1. Asset or service
 Highest of transaction value, book value, or market valueThe sale of land at agreed upon value of  200 million Baht, when its book value was at  150 million  and the appraisal value by independent appraiser was  198 million Baht, the value to be used to calculate the transaction size would be 200 million Baht.
2. Providing financial assistanceThe principal and interested throughout the loan period, or the guarantee value in line with potential damages when the connected person becomes defaultIn case of  20 milion Baht loan for a period of two years, at 5% interest, the value to be used to calculate the transaction size would be 22 million Baht as per this formula (20+(20x5%x2)).
3. Receiving financial assistanceThe reward or benefit to be paid to connected persons through the period of the financial assistance.In case of 20 milion Baht loan for a period of two years, at 5% interest rate, the value to be used to calculate the transaction size would be 2 million Baht as per this formula (20x5%x2).
4. Disposition of capital investment to the extent that the subsidiary or affiliate no longer existsTotal rewards to be gained including borrowed money (principal plus interest), the guarantee, or other liabilities that the listed company or its subsidiary has to be responsible for.In case the company has sold all of its investment in the subsidiary to the major shareholder at 100 million Baht, when the subsidiary has 50 million Baht liability (loan plus interest) accrued to the listed company, the value to be used to calculate the transaction size would be 150 million Baht 
  • Multiple connected transactions can be included into one if the transactions have been intentionally separated to avoid the rules. An inclusion should be for all other transactions made six months prior to an agreement to do the transaction by the same person, his/her related person or close relatives. Nevertheless, this would not include the connected transactions approved by the shareholders.
  • The company should measure the size of transaction to prepare for the case of any possible connected transactions and how to handle them. The company should compare the transaction value against the higher one between the two references as per the latest financial statement (X is the transaction value)
Transaction sizeChoose the maximum value between
Small  X ≤  1 million BahtX ≤ 0.03%NTA*
Medium1 million Baht < X < 20 million Baht0.03%NTA* < X < 3%NTA*
LargeX ≥  20 million BahtX ≥ 3%NTA*
* Net total assets (NTA) refers to Total assets – intangible assets – total liability – non-controlling interests (if any) (Intangible assets are, for example, the goodwill and deferred charges. Exceptions are for intangible assets that generate major income such as the concession and patent permit.)
In case of consolidated financial statements, NTA value from the consolidated financial statements will be used
  • Size of each type of transactions and how to process
Type of transaction
Authority
SmallMediumLarge
1. Normal business transactions/ 
2. Normal business-support transactions
- General commercial conditions
 The company’s board of directors approve in principal and lay down the framework for the management to proceed
- No general commercial conditionsThe ManagementBoard of directors + Information disclosure to SETShareholders
3. Rental or rented real estate for not longer than 3-year period, and under no general commercial conditionsThe ManagementThe Management + Information disclosure to SETBoard of directors + Information disclosure to SET
4. Transactions relating to products or servicesThe ManagementBoard of directors + Information disclosure to SETShareholders
5. Transactions on offering or receiving financial assistance   
- Providing financial assistance to connected person or the company where the connected persons hold more shares than the listed companyBoard of directors (Less than 100 million Baht or 3%NTA, whichever lower)-Shareholders (Over 100 million Baht or 3%NTA, whichever lower)
- Providing financial assistance to a company where the listed company hold more shares than the connected personsThe Management Board of directors + Information disclosure to SETShareholders
- Receiving financial assistanceThe Management Board of directors + Information disclosure to SETShareholders
Remark
General commercial conditions refer to the commercial transactions under fair pricing and conditions, which do not lead to the benefit transfer. This includes
  • The prices and conditions which the listed company or its subsidiary gain or offer to general people
  • The price and conditions which connected person offer to general people
  • The price and conditions which the listed company can prove that similar business operators have offered to general people as well.
Gaining an approval from the shareholder meeting must be from three-quarter of participating and voting shareholders, excluding interested shareholders. In doing so, IFA (independent finance advisor) must be appointed and express views regarding the transactions including the rationality and benefits to the company, fairness of prices and conditions, as well as risks
In case the connected person is a state agency, juristic person established by specific law, or the business owned by state agency or by juristic person stabled by specific law, the company will not be required to gain approval from the shareholder meeting once the board of directors have already approved.  
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Transactions exempted from the connected transaction rules

bullet_check-blackLoan offering as per the employee welfare rule
bullet_check-blackTransactions of which the counterparty of listed company, or both parties are
   A subsidiary in which the listed company hold no less than 90% stakes
   A subsidiary in which the director, executives, or related persons hold shares or has the interest in, directly or indirectly, no more than the rate determined by the Capital Market Supervisory Board, or has the required qualifications.
bullet_check-blackThe listed company has made the transactions with its subsidiary, in which the connected persons holds no more than 10% stakes and has no controlling power over the subsidiary.
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bullet_check-blackConnected transactions between the listed company’s subsidiaries, in which the connected persons hold no more than 10% stakes and are not the controlling person over the subsidiaries.
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bullet_check-blackThe listed company or its subsidiaries has issued new securities to connected persons in the following manners
  • To transfer to other persons; The price of newly issued securities must not be lower than the market price, and must not increase the shareholding of the connected persons
  • The connected persons receive the securities in line with their right and shareholding (Right Offering))
  • The connected persons are the underwriters or sub-underwriters for the listed company or subsidiary with firm underwriting commitment.
  • Securities are allocated to the employees or executives (ESOP)
bullet_check-blackThe transactions which were made by the listed company or subsidiary with a juristic person, in which the listed company or subsidiary has sent someone to take control.
Group 18154_en
bullet_check-blackThe transactions proven to be fair and did not lead to the benefit transfer.
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Information disclosure

  • The company has to notify, via SETLink, about the board resolutions on the connected transactions immediately upon making the transaction (normally on the day the board has given an approval), that is within the day the board has made the resolution or prior to the first trading hours of the next business day at the latest. 
  • Key information of the board resolution are
  1. Date, month, year of the transaction and the name of counterparty
  2. Description about the assets, services, financial assistance to be provided or received, and in case of investment capital, the name and type of business must be specified as well as the business operations, summary of the financial statements and operational performance, list of major shareholders, and the directors.
  3. Total value and the measurement of total value, total transaction value, payment method, conditions, interest rate, interest payment terms, and the guarantee (if any)
  4. Names of the connected persons and how they are connected.
  5. Description and scope of the connected persons’ stake in making connected transactions.
  6. The source of fund for buying assets, and financial assistance and the fund adequacy. In case of loan, possible conditions that may affect the shareholder rights must be specified such as the limitation to pay dividend.
  7. Specify the names of directors having the interest and/or directors who are connected persons, and specify that the mentioned persons had not attended the director meeting and had no voting right.
  8. The views of the board of directors about an agreement to enter into the transaction in terms of the rationality, the company’s optimum benefit compering a transaction with an outside independent person, as well as associated risks.
  9. The opinion of an audit committee and/or the directors that differ from the board of directors.
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Comments of independent financial advisor (IFA)

  • IFA has to express his/her views regarding the transaction to the board to directors on
  1. The rationality and benefits to the listed company
  2. Fairness of the price and conditions
  3. Reasoning about whether the shareholders should vote for an approval of the transaction
  • The company must send the IFA’s comments along with an invitation to shareholder meeting to the SEC and SET to consider about an adequacy of information. The submission can be in either one of these two ways
  1. Sending the documents at least 5 business days before sending them to the shareholders
  2. Sending the documents at the same time as with the shareholders
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Sending an invitation to shareholder meeting to the shareholders

  • Submitting period An invitation letters must be sent to shareholders at least 14 days ahead of the meeting date
  • Information to be included in the invitation are the IFA’s opinions and the following documents
  1. Information disclosed to SET once the company agrees to enter into the transaction
  2. Summary of company information e.g. list of executives and major shareholders, business operations and trends, inter-company transactions, 3-year financial summaries and latest financial statement with MD&A , risk factors, and financial forecasts (if any).
  3. Names and number of shares held by shareholders who has no voting right
  4. Opinions of independent experts such as the asset appraiser
  5. The company must nominate at least one audit committee member to be a proxy of the shareholders
  6. Views of the board of directors regarding the rationality and optimum benefits toward the company comparing to making a transaction with an outside party.

Process of getting approval on connected transactions from the shareholders’ meeting

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*  SP sign is posted 3 days prior to the book closing date until the capital reduction is completed. Also, SET has been informed and provided with complete documents

Related Regulations

  • Securities and Exchange Act B.E. 2535 (Section 89/12)
  • Notification of Capital Market Supervisory Board No.TorChor 21/2551 Re: Rules on Connected Transactions
  • Circular SEC.Chor. (Wor) 38/2551 Suggestion on procedures according to article 89/12 (1) of Securities and Exchange Act. (No.4) perusal of general commercial terms.
Type of informationDownloadTiming of disclosure *
1. Connected transactions pdf-btnImmediately

* Immediately: information to be disclosed by 9 a.m. on the next working day or on the event date (The date of the board of directors or shareholders meeting's have resolution) 3 working days: Information to be disclosed within 3 working days after the event date

Connected Transactions