2. Risk Factors

In this section, we have described the risks that we believe are
material, but there may be additional unforeseen risks or those which we
deem not to be material which may also affect our business and financial
performance.

The Company currently engages in 4 main businesses categorized as (1)
Mass transit business (2) Property business (3) Media business and (4)
Services business. The Company is exposed to risks in each of these
business categories as well as generic risks that apply to all business
categories. The key risks are outlined as follows:

1.  Risks related to Mass Transit Business

    1.  BTSC depends on passenger fares as its primary source of
        revenue.

The revenues and profitability of the Mass Transit Business are
substantially dependent on fare revenues from the BTS SkyTrain System’s
passengers. Accordingly, any factor adversely affecting passenger volume
or fares collected may have an adverse effect on the Company’s financial
performance.

Nevertheless, since the commencement of BTS SkyTrain System’s
operations, the fare revenue of BTS SkyTrain has continually increased
despite the effect of the civil unrest in Bangkok and the disruption in
economic activity in 2008 having caused a decrease in passenger volumes
as compared to the previous year, indicating a low susceptibility to
such factors. This is due to BTS SkyTrain System’s preeminent position
as the main mass transit system in the central business district of
Bangkok

2.  BTSC’s ability to raise fares is limited.

BTSC’s ability to raise fares to adjust to changes in market conditions
and trends or to compensate for increases in operating and other costs
is limited by competition in the industry and by the terms of its
Concession Agreement.

In the past, BTSC increased the Authorized Fare once in 1999; and
increased the Effective Fare once in 2008. Such increases were in
compliance with all procedures and rights of BTSC as specified in the
Concession Agreement.

3.  The Concession Agreement can be terminated by the BMA subject to the
    triggering of certain events specified in the Concession Agreement.

The BMA is entitled to terminate the Concession Agreement upon BTSC’s
bankruptcy or its willful, continuous and material breach of the
Concession Agreement. If the Concession Agreement is terminated, BTSC
may not be able to operate the BTS SkyTrain System, which would have a
material adverse effect on BTSC’s business and financial performance.

In the past no event of default has occurred which has caused the BMA to
inform BTSC of any breach of the Concession Agreement.

4.  Failure to extend the Concession Agreement or to be granted
    concessions relating to future expansion, or delays in the
    government’s execution of its expansion plans, may adversely affect
    BTSC’s growth prospects.

If the BMA wishes to build any new or additional lines during the term
of the Concession Agreement or to expand, or to provide services at the
extension of the existing SkyTrain System, BTSC has a right of first
refusal to negotiate with BMA on such extensions on condition that BTSC
accepts the best offer BMA has received from other bidders. However,
BTSC cannot give assurance that the government will proceed with its
current plans to expand Bangkok’s mass transit systems, or that if they
do, that BTSC would be granted a concession for any such extensions.

In addition, in order to extend the Concession Agreement, which will
expire in December 2029, BTSC must give BMA advance notice of its
intention to extend of at least three years and not more than five
years. Such extension is subject to the consent of the Ministry of
Interior. There is no guarantee that BTSC will be granted additional
concessions in the future. In the event that future concession extension
is not granted, or is granted on less favorable terms, BTSC’s business
and financial results may be adversely affected.

BTSC has considerable advantages against any other private parties in
bidding for any concession on any extension, including, operational
experience and potentially lower operating costs as it has already
invested in depot, maintenance and control center facilities which can
be shared with further extensions. Therefore, it may be considered
difficult for any other private party to submit a better bid than BTSC.
Also, in the past, BMA has proceeded with some Green Line Extension
projects, with the first extension line completed and opened for service
being the 2.2 km Silom Line Extension on which BTSC was engaged by BMA
to provide operation and maintenance services.

5.  BTSC may not be able to successfully implement its growth strategy
    in the public transportation business which is dependent upon
    various factors including government approval.

BTSC growth strategies in the public transportation business include,
among others, bidding for operating contracts with respect to extensions
to the SkyTrain System and participating in other new mass transit
system projects. BTSC’s success in implementing these strategies will
depend, among other things, on the government’s decision and execution.
In the event that BTSC is not able to successfully implement its growth
strategy, BTSC’s future business and financial results may be adversely
affected.

Nevertheless, whether or not, BTSC is able itself to participate in the
new mass transit system projects, the Company may still receive benefits
in revenue from the increase of the mass transit systems due to the
increase in the number of riders of other mass transit systems which may
be able to use BTS SkyTrain System whose routes strategically serve the
central business district of Bangkok and several other major
destinations for travelers.

6.  BTSC faces competition from other forms of public transportation
    that may result in fare pricing pressures.

BTSC has a variety of competitors, including, but not limited to,
government-subsidized buses, microbuses, and vans, some of which may
offer cheaper travel alternatives than the BTS SkyTrain System. Such
competition could have a material adverse effect on BTSC’s business and
financial results.

Nevertheless, BTS SkyTrain compares generally favourably against other
mass transit systems at the present day, in relation to speed,
reliability, punctuality, convenience and the high safety record it
offers its travelers on routes located in the central business district
of Bangkok.

7.  BTS SkyTrain System currently offers a limited coverage area and
    interchange stations, and relies on feeder systems to which it is
    linked by other forms of transportation.

The BTS SkyTrain System and the Silom Line Extension currently run along
25.7 km of rail lines with 25 elevated stations, including one common
interchange or central station at Siam Station.

The BTS SkyTrain System has a limited service route based on its
elevated track which relies on other transit feeder systems for a
substantial portion of its ridership. BTSC’s future growth may be
adversely affected if these feeder systems are discontinued, delay their
services or breakdown which may result in reduced ridership and
revenues.

Nevertheless, BTS SkyTrain does not materially rely on any single form
of feeder system and is fed by several diverse forms of transportation.
In addition, BTSC will continue to expand linkages to commercial
buildings and increase the number of BTS stations which link to other
mass transit systems, for example, BRT stations and an airport rail link
station, in order to facilitate and promote increases in ridership.

8.  BTSC currently relies partially on Siemens to provide maintenance
    services and reliance on this single contractor may decrease BTSC’s
    bargaining power.

Siemens has been contracted as the main maintenance contractor for the
machinery and equipment under a maintenance agreement for a period of 10
years, expiring in December 2014. In the event that Siemens is unable to
provide satisfactory service in accordance with the terms of its
agreement, or in case of termination of the agreement, or if Siemens
seeks to amend the terms of its agreement in a manner that is not
favorable to BTSC, BTSC’s business and financial performance may be
adversely affected.

At present, BTSC maintains with its own personnel some parts of BTS
SkyTrain System, such as the automatic fare collection system,
telecommunication system, Civil Works and the signaling system on the
2.2 km Silom Line Extension, as well as developing its personnel
continually, to reduce the Company’s reliance on the manufacturer for
maintaining the machinery and equipment. In addition, BTSC has prepared
itself in respect of future maintenance for an additional 12 four-car
trains, totaling 48 cars, manufactured by another manufacturer, being
CRC, the leading manufacturer of trains and electric trains in the
People’s Republic of China. Such additional trains are being imported
into Thailand by CRC in June 2010. Similarly, BTSC has also prepared in
respect of future maintenance for the upgraded signaling system, which
is deemed as an important part of operating the BTS SkyTrain System by
itself. Moreover, BTSC has a policy to enhance the capability of its
engineering and maintenance departments in maintaining the machinery and
equipment related to the electric train system in order to reduce its
reliance on the electric train manufacturing company.

9.  BTSC is exposed to fluctuations in operating costs beyond the
    control of BTSC and an increase in operational costs may adversely
    affect its financial performance.

BTSC has certain obligations to maintain, renew and replace the
operating assets and infrastructure of the BTS SkyTrain System to meet
the standards prescribed by the BMA under our Concession Agreement; this
together with any increase in mandatory employee benefits or any change
in government fiscal, employment or other policies that adversely affect
transportation operations or demand may lead to a decline in BTSC’s
profitability.

In the past, no event has ever occurred to cause a material increase of
the operating costs of BTSC or affect the profitability of BTSC. BTSC
continues to seek to decrease its operating costs where possible e.g. by
increasingly maintaining more of its machinery, equipment and systems
with its own personnel rather than by external providers. In addition,
the Concession Agreement specifies that BTSC is entitled to adjust the
fare on certain special occasions based on increased operating costs, in
addition to the right of adjustment of fares in line with the consumer
price index.

10. Power is critical to BTSC’s operations and BTSC is dependent on the
    Bangkok Metropolitan Electricity Authority (the “MEA”) for power
    supply.

The operations of the BTS SkyTrain System are dependent on the
availability of power. Power to the BTS SkyTrain System is currently
supplied from the MEA. Two supply distribution stations are used, one at
the depot at Mo Chit and the other at Soi Paisingto, Rama IV road. The
BTS SkyTrain System was designed to operate from both or from either of
the supply stations so that the BTS SkyTrain System can continually
operate in the case that either supply station is unable to supply
power. In addition, in the case that both supply stations are unable to
supply power, emergency power supplies are available for purposes of
maintaining the operation of security systems, preserving certain data
and the data system necessary for the resumption of services, and the
movement of trains to the nearest station in the event of a normal power
interruption. However, auxiliary power supplies are not sufficient to
restart the operations of the trains. As the MEA is the sole supplier of
power, power outages, or any significant interruption or delay in the
supply of power or its inability to supply power in the required amounts
in a timely manner would disrupt the BTS SkyTrain System’s operations.

Nevertheless, the power supplied from only one supply distribution
station is sufficient to service the operation of the BTS SkyTrain
System. Therefore, if any problem occurs to any one of the supply
distribution stations, BTS SkyTrain is still able to provide normal
services. In addition, there has never been an event whereby both supply
distribution stations were simultaneously incapable of supplying power.

2.  Risks related to Property Business

2.2.1 The Property Business is a highly competitive business.

The property business is highly competitive. While there are a large
number of players, there may be limited demand or demand may be growing
at a rate slower than additional supply, either in the hotel,
condominium or office supply sector. The Company faces strong
competition in Bangkok and its vicinity. Some of our competitors are
large companies with greater financial, technical and marketing
resources than the Company. The high competition may lead to a
significant price increase for the land available for development or
real estate available for sale, or to competition on selling price or
competition for financial or other resources for project development,
any of which could put the Company in a disadvantageous position
compared to its competitors some of whom are larger or have more
resources and thus could have a material adverse effect on our business,
financial performance, results of operations and prospects.

The Company’s Management takes into account this risk. However, the
Company has had property activities since its inception, and through the
recent acquisition of BTSC, the Company will be able to offer products
that are differentiated from its competitors.

2.2.2 Brand Recognition and Reputation is important for the property
business.

Brand recognition and reputation is critical to attracting and
maintaining the Company’s customers. While many competitors are already
well known and accepted among the target customers, the Company is in
the process of developing and establishing the Company’s new brand for
current and future projects, which may occur additional costs and
expenses for the Company, and there is no assurance that our new brand
will be successfully introduced to our existing or future customers. Any
inability to maintain our brand recognition and reputation or to
establish our new brands successfully could have a material adverse
effect on the success of the Company’s current and future projects,
market share, business, financial performance, results of operations and
prospects.

2.2.3 The Price of Construction Materials may fluctuate or significantly
increase.

Cost of construction materials is a critical component of construction
cost in developing property projects. Prices of construction materials
tend to fluctuate in line with various factors such as demand and
supply, rising oil prices and growth of the property sector.
Construction cost of the Company’s projects may increase in the future
as a result of this fluctuation in supplier price and consequently may
negatively impact the Company’s profitability since the Company may not
always be able to pass on the increased costs to customers by adjusting
the selling price.

However, the Company has in the past effectively managed construction
costs by including the cost of construction materials and labour in its
contracts. By using this policy, construction contractors become
responsible for any fluctuation in the cost of construction materials.
However, the major contractor of the Company is our subsidiary, 51% of
whose shares are held by the Company. As for construction materials that
are the Company’s responsibility, the Company has a qualified Project
Development Department with experience and good relationships with
suppliers. The Company has strong bargaining power and is able to
control the cost of construction materials at an appropriate level. The
Company always plans its construction in detail and assesses the amount
of each construction material required for its projects prior to placing
orders.

2.2.4 Our Projects may be subject to delay and non-completion.

Our projects are at various states of development. Property development
and construction activities are subject to significant risks of delay
and non-completion due to certain factors:

-   budget overruns;

-   potential inability to obtain financing on favorable terms; and

-   potential liability under environmental law and other laws.

The occurrence of one or more of these factors could materially
adversely affect our business, financial results of operations and
prospects.

2.2.5 Risk from Managing Baan Aur-Arthorn Project

The Company signed a contract with National Housing Authority to
construct Baan Aur-Arthorn project on 25 April 2006. However, due to
uncertainty of public policy, no new project has been started, and hence
future revenue and performance of the Company may be affected.

At present, from the total of 20,000 units which the Company was
originally engaged to construct, the number of units that the Company
have been approved to construct has been reduced from 9,584 units to
8,048 units since the National Housing Authority has terminated the
project at Bang Bor (1,536 units). The Company has completed the
construction and handed over 4,216 units to the National Housing
Authority. Presently, 2,108 units are under construction and the
remaining 1,724 units are awaiting the order from the National Housing
Authority to start the construction. The Company is confident that it
will be able to handover the project within the required timeframe.

1.  Risks related to Media Business

    1.  The media business may be adversely impacted, if the Concession
        Agreement is terminated.

VGI entered into a License Agreement to Manage Marketing Service with
BTSC (the “License Agreement”) by which VGI has the rights to manage the
advertising and commercial spaces on the trains and on the stations
pursuant to the License Agreement for a 10-year period (starting from
1999) and VGI has exercised its right to request an extension of the
term for an additional 5 years until 2014. BTSC’s Board of Directors has
also approved the extension of the License Agreement to expire at the
same time as the Concession Agreement (December 2029), and the License
Agreement is in the process of being amended. Under this Agreement, BTSC
has granted VGI an exclusive license to manage marketing services with
respect to advertising space, merchandising areas, exterior train areas
and other areas related to the BTS SkyTrain System. If the Concession
Agreement with BMA is terminated, BTSC will not have the right to manage
or earn benefit from managing the advertising and commercial space on
the SkyTrain System, and the License Agreement with BTSC will also be
terminated, which would have a material adverse effect on VGI’s
business, financial condition, results of operations and prospects.

Nevertheless, the termination of the Concession Agreement requires the
occurrence of an event of default and would only take effect in
accordance with the Concession Agreement as described in Clause 2.1.3
above.

2.  Media business revenue is highly dependent on mass transit revenue.
    Any reduction to BTS SkyTrain ridership may adversely impact media
    business revenue.

The majority of VGI business is derived from managing the advertising
space on the BTS SkyTrain System, both trains and stations. Should the
ridership of the BTS SkyTrain System fall for any reason, the
advertising budget that clients allocate towards advertising on mass
transit could be reduced or clients may choose to use other media, which
in turn would reduce the revenue that VGI would receive and have a
negative impact on the prospects of VGI and the Company.

Nevertheless, since commencement of BTS SkyTrain System’s operations,
ridership has decreased in only one year. In addition, in the past 5
years, VGI Group has expanded its scope of advertising business by
obtaining the right which covers management of advertising spaces in the
modern trade such as Tesco Lotus and Tesco Express, Big C Supercenter
and Carrefour.

2.  Generic Risk Factors that May Affect the Company

    1.  The Company will significantly depend on distributions from
        certain principal subsidiaries.

The Company will be dependent on dividend distributions from certain of
its principal subsidiaries. The determination of the amount of
distributions, if any, to be paid to our Company by our subsidiaries
will depend upon several factors, including the terms of each
subsidiary’s indebtedness, if any, each subsidiary’s financial
condition, results of operation, cash flow investment and capital
expenditure plans and future business prospects. If the Company does not
receive the distributions in the sufficient amount from certain
principal subsidiaries, it could have an adverse effect on the Company’s
ability to meet its debt and interest obligation, its financial
condition, business and the ability to pay dividend.

2.  The Company and the subsidiaries have substantial indebtedness and
    will continue to have substantial indebtedness and debt service
    obligations.

The Company and its subsidiaries have substantial indebtedness, as of 31
March 2010, in the total amount of Baht 2,979 million (excluding the
long term loan related to the acquisition of shares in BTSC which has
the outstanding amount, as of 16 June 2010, of Baht 8,656 million and
the long term debentures issued by BTSC in August in the amount of Baht
11,873.6 million.) If we are unable to repay or refinance our
outstanding indebtedness, we may be unable to implement our development
plans and our financial condition, results of operations and prospects
may be adversely affected.

Furthermore, after the completion of its business rehabilitation plan,
the Company still has a certain amount of debt outstanding (however
these debts are non-interest bearing debts and thus the Company is not
affected by the risk from interest rate volatility).

The Group is primarily reliant on operating revenues in order to repay
these liabilities as and when they fall due, and secondly reliant on
equity issuance (warrant exercise) and divestment of non-core assets to
support the repayment. If market conditions are such that the proceeds
from the sources of repayment are insufficient to cover the repayment
schedule, then the Company will have to find other sources for
repayment, not limited to refinancing of existing debt. Such alternative
sources of funding may have a high cost and may have terms unfavorable
to the Group and may have an adverse impact on the Group’s business,
financial status, performance and prospects.

3.  Continued political upheaval, terrorist attacks or any unrest in
    Thailand could adversely affect our business, financial condition,
    results of operation and prospects.

In recent years, there have been several rallies in the Bangkok area
which led to violent events during April to May 2010, which caused BTSC
to close its services and reduce its operating hours for a certain
period, although there had not been any major damage to BTSC’s assets.
There can be no assurance whether on not there will be any political
protests or unrest in the future or, if there is, whether it will cause
or how severe will be any damage to the BTS SkyTrain System. In
addition, there can be no assurance that there will be no negative
impact on the other businesses of the Company, i.e. the numbers of
tourists and travelers to Thailand, the advertising budget of
corporations, the condition of the money and capital markets or the
Company’s ability to service financing, which may materially and
adversely affect the Group’s business, results of operations and
financial condition.

Moreover, in 2005, terrorists targeted and attacked public
transportation systems around the world, including those in London and
Madrid. Any such attacks in Thailand may have a material and adverse
effect on BTSC’s and the Company’s business, financial condition,
results of operations and prospects. Nevertheless, BTSC procured
terrorism insurance covering property damage incurred from terrorist and
business interruption, the coverage of which may help reduce the
material effect of such events on the Group. In addition, BTSC has
prepared security measures, e.g. simulation of certain events to ensure
the readiness of its personnel, as well as increasing its internal
security measures, e.g. setting up close circuit television (CCTV),
increasing the number of security guards and randomly inspecting
carriages with metal detectors at the entrance and exit of the stations
etc. BTSC also arranged co-practice with the officers and departments
related to disaster prevention and mitigation in order to improve the
Company’s efficiency in resolving such situations.

4.  Fluctuation in interest rates may increase the borrowing cost of the
    Company and reduce profitability.

On the acquisition of BTSC on 4 May 2010, the Company drew down a loan
amounting to Baht 20,655.7 million in order to finance the acquisition
of BTSC shares. As of 14 June 2010, the outstanding loan had been
reduced to approximately Baht 8,655.7 million after repayment using the
proceeds from a Rights Offering and a Private Placement. Interest
expense on this loan is based on the rate of Minimum Lending Rate (MLR).
As such, any increase to MLR will increase the cost of funding of the
Company, which may have an adverse effect on the results of operation of
the Company.

However, the Company takes into account this risk when undertaking
project evaluations and performs sensitivity analysis for the impact of
higher interest costs on its projects.

5.  The Group may encounter a lack of liquidity if the Group does not
    obtain a credit facility or source of funds for its operations and
    investments.

The Company and/or its subsidiaries has or may have additional
investment plans in respect of its business which may require additional
funds. If the Company and/or its subsidiaries are unable to obtain funds
by issuing debt instruments, through borrowing from financial
institutions or through the increase of its capital within the expected
timeframe, the Group liquidity, financial condition and its investment
or expansion plans could be adversely affected.

Nevertheless, for any investment in respect of its business which may
require additional funds, the Company and/or its subsidiaries will
prepare a feasibility study and plan of the project and the procurement
of funds before making any decision. Therefore, if the Company and/or
its subsidiaries are unable to obtain sufficient funds or facilities for
the particular project, the Company and/or its subsidiaries may consider
delaying, amending or terminating the investment plan.