Transparency - more or less?
Monday, 9 June 2008, 8:04 am | 150 views
Foreign reserves: More transparency may not be good?
I refer to the article “SWFs to reveal investment size and formation - However, their strategies will not be disclosed: IMF” (BT, May 13).
It states that “Sovereign wealth funds may agree to reveal the size and composition of their investments though not their strategies as part of a voluntary code being developed with the International Monetary Fund (IMF)”.
In this connection, I also refer to media reports about the Prime Minister’s remarks that GIC will not be as open as its sister fund, Temasek, in disclosing details about its portfolio, despite pressure from Western lawmakers, and the Minister Mentor’s recent remarks that there are good reasons for GIC not to be too transparent.
(“GIC will not be as open as Temasek: PM”, New Paper, May 7, and, “MM: Good reasons for GIC not to be ‘too transparent’”, ST, May 1.)
The Minister Mentor has made a very good point, that being too transparent may allow others to anticipate the GIC’s moves.
I would like to suggest a balance to satisfy the call for more transparency and the need to forestall others anticipating GIC’s moves - why not disclose on a delayed 2-year basis ? Historical information which is more than two years old, are of no use to others, and will also improve Singapore’s international standing and reputation for disclosure and transparency.
MM’s point about being too transparent may raise people’s expectations for the Government to spend GIC’s returns is also a valid concern. However, the fact that GIC and Temasek’s returns were 8.2 and 18 per cent, for the last 25 and 33 years, respectively, may have raised the people’s expectations even more, such that even MPs have been asking in Parliament for more of the returns to be spent.
By disclosing annual returns and more information, people may then realise that the returns actually fluctuate and can be negative. So, this may even temper expectations and calls to spend more of the reserves.
This may also help Singaporeans appreciate the difficulty of managing our foreign reserves as highlighted by Dr Tony Tan, deputy chairman of the GIC (“Managing foreign reserves gets tougher: GIC”, ST, May 10).
So, the above may, in a way, be like “the best of both worlds”.
Since the legislation already allow half of the GIC’s returns to be spent, more transparency may make this rule even more acceptable to the people. After all, being less or more transparent may not make any difference at all, in this regard.
According to the book “Banking, Finance & Monetary Policy in Singapore”, by Luckett, Schulze and Wong, “Unfortunately, GIC operates in extreme secrecy and does not circulate its annual reports to outsiders. No data is available to assess its financial position or to analyse the breakdown of investment types and their returns”.
The numbers
The above book cites data from the Yearbook of Statistics, 1991, that Singapore’s Official Foreign Reserves 1981 - 1991, was $ 15.5 billion in 1981 and $ 55.8 billion in 1991 (Total Official Foreign Reserves).
GIC’s return was 8.2 per cent over the 25 years, to March 2006 (According to GIC’s web site).
Even assuming zero injection of new funds, at 8.2 per cent, the $ 55.8 billion would have grown to $ 213 billion, by 2008.
If we assume just an average injection of $ 1 billion of new funds every year, at 8.2 per cent, it would have grown to $ 250 billion now.
According to the article “UBS to sell stakes after $ 10 billion in writedowns” (Bloomberg, Dec 10, 2007), “Singapore’s GIC, (which) oversees the island nation’s foreign reserves of more than $ 100 billion.” (S$ 135 billion)
According to a Channel News Asia (Jul 12, 2006) report, the foreign reserves was US $ 128.9 billion (S$ 174 billion) in May 2006.
So, although the amount of foreign reserves is secret, I guess and estimate that it is probably around $ 250 billion now.
However, the Minister Mentor said in the high profile court case with Dr Chee Soon Juan and Miss Chee Siok Chin:
Global financial services assess Singapore to have sovereign wealth funds of over $300 billion.
Therefore, the average annual injections to GIC may be about $ 2 billion, instead of the $ 1 billion estimate I used in my above computation.
Transparency and debate on sale of power companies?
I refer to Temasek’s sale of Tuas Power Ltd to China Huaneng for S$4.2 billion.
I understand that Singapore power companies have been very profitable, making almost record profits practically every year.
At least currently, such profits may be deemed acceptable, because they belong to Temasek, which ultimately flow back to the Government and citizens.
By this sale, does it mean that future profits will accrue to the new foreign owners?
In this connection, Temasek plans to sell all its three power generating companies eventually.
Tuas Power alone has a capacity of 2,670 megawatts and accounts for about a quarter of Singapore’s electricity generation.
The three companies together generate about 90 percent of Singapore’s power.
I understand that most countries may be quite sensitive about the sale of utility companies to foreigners.
Will this issue be raised for debate in Parliament?
In this connection, “under Japan’s national security laws, foreign investors are required to seek approval if they want more than a 10 per cent stake in companies deemed crucial to national security and public order such as power and military-related firms” (“Japan accused of blocking foreign funds”, ST, May 5).
For the financial year ended 31 March 2007, Tuas Power Ltd’s Net Profit for the Year was $ 177 million, an increase of 70 per cent, over 2006.
Isn’t this increase very high ?
For financial Year 2006/07, Singapore Power Group’s Net Profit After Taxation was $ 905 million.
Its ratio of Net Profit After Taxation over Revenue ($ 5.24 billion) was 17 per cent.
Isn’t this quite high ?
If the profits of Singapore Power and just one of our power generation companies is already more than $1 billion, how much in total are the profits of all power and utilities companies?
The Straits Times reported:
If your latest power bill gave you a jolt, you had better get used to it because there is more to come. Soaring crude oil prices drove the benchmark market price of electricity to a record last month, and there is not much relief in sight.
(“Expect to pay higher electricity bills : No relief soon as high oil prices push up costs for power companies”, ST, May 9)
As oil prices rose over the last two years or so, with consumers reeling from higher electricity tariffs, and now inflation at 26-year highs, why is it that power generation companies, like Tuas Power’s profits can increase by 70 per cent ?
Not asking for subsidies but temporary halt to ever-growing profits
In the Philippines, the Government is asking businesses, like power companies, to try to charge lower electricity prices to the lower-income (“Coping with rising costs: Manila may act to cut power rates”, ST, May 16)..
So, can we try to ask Singapore power companies, to try to earn a little less now?
The Minister Mentor recently said:
Singapore’s problems cannot be solved by giving subsidies, but by having a dynamic economy… I read many letters in the press urging subsidies for all manner of things – seat belts for school buses, food for the poor, medical fees and so on.
(“MM Lee says giving subsidies will not solve Singapore’s problems“, CNA, May 25)
I think Singaporeans are not asking for subsidies for food, transport, utilities, etc, but just a temporary halt to the ever-growing profits of our transport, utilities companies, etc, to help us cope with rising inflation now.
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Mr Leong, is a good try to ask the government to show us the book of GIC but it will never going to happen because it will open a can of worms. To ask the those public listed companies to earn less so we can have some breathing space is going to be a huge challenge. More and more ministers come from the background of well-to-do families and they will not understand how inflation affect the daily lives of the poor.
Questions:
1) How many countries in this world are truly transparent in their SWF investment strategy and its composition?
2) Can we find a publicly available documentation of such regarding every country’s SWF investment strategy and its composition?
I am no investor or a financial analyst. However, I think is common knowledge to any working professional that in a competitive world investing arena, no sane mind will want to disclose its investing strategies. Why only target SWF investment? How about those publicly listed companies around the world? Are we able to obtain a publicly available documentation of every company’s investment strategy and its composition? (I could be wrong)
Personally, I felt that more transparencies on how Singapore SWF profit returns are put in good use is keyed to allow the public to have a better understanding of the health of our state. The suggestion of a 2-year delayed disclosure is only achievable for mid-term investments. However, if any SWF investments that are longer that this period, it is not a very wise decision if adopted.
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Is it LKY’s dictat or is there a law somewhere that prescribes the corporate governance of GIC? What is the President and his council doing? Jia liao bee? or is that also under LKY’s control, I forgot?
“Is it LKY’s dictat or is there a law somewhere that prescribes the corporate governance of GIC?”
In Singapore, LKY is law and law is LKY. The law is been manipulated by LKY to his advantage and judges been bought over as not to jeopardised their jobs.
According to Morgan Stanley report quoted in the Business Times, GIC has about US$320 billion under management. Another report in the Business Times also reported that Temasek has about US$140 billion under management. So add them together the total of Singaporean Wealth under management by the pap government is about US$460 billion. This is not counting the huge reserves held by the Statutory Boards and other government agencies. The stock of properties and lands directly owned by the government could be worth US$trillions. Some reports suggested that the Singapore Government owned about 70 % of the land. Singapore is a very rich country. Much richer that most of us expected. The return at 8% is more than enough to support the total annual budgeted expenditures. That is why Lee Kuan Yew is very fearful that this information is known to Singaporeans. The Singapore Government can certainly afford to be more generous. I think they will be more willing to throw a few US$billions more to make the Singaporeans happy just before the GE than to reveal the full extent of our wealth to us.
one of GIC’s values n strategy is to invest in a long-term orientation. tt is why the 2-year disclosure is not feasible.
lulu,
Please wake up LULU! Stop being ignorant.
What strategy is that? UBS, Citibank, PT Indosat, Shin Corp and many more. You call that values and strategy and long term?? I firmly believe that people’s hard earned money kept in GIC should be disclosed annually. With good accountablilty improves the investment responsbilities of the GIC ’s executives. When no singaporeans can ask critical questions about GIC investments will they care to be cautious. Long term my foot!
Who
320billion for a population (Singaporeans that is) of say 3 million equals 100,000 for every S’poreans, man, woman and child. That’s a lot of money.
I do not approve of the sale of our power generation capacity. It only means the new owners have to recoup their purchase price, national security issue aside. How it can be in the interest of the people to sell this to foreigners and allow for a possible higher tariff I simply cannot comprehend and did our MP’s raise this in Parliament?
1st of all, why was the power generation facility in Temasek’s hands anyway?
Uniquely Singapore… public utilities owned by private companies.
The SS,
if people telling me that this is not corruption, I do not know what it is .
where is the money of $3.2 billions arising from sale of national asset. Who give the Temasek the right to sell nation asset ? Government ? Oh, I forget, Government = LKY = LHL = PAP , and Temasek = HoJinx. What ? A family affair ? Is the money in Temasek again ?
Thasin can be overthrown because of selling a pathetic telecom national asset then our own coffers will be multitude of time been overthrow because selling national asset has been their practice in the excuse of commerical interest.
Singapore be damn again because the coffers might have promised the foreign company of price hike to make the sale profitable in the first place. After all, will a foreigner buy it if it does not generate potential profit ? Did the government give the foreigner the right to raise the electricity bill ? What right has the government to do that if they are Singapore Incorporated not acting as government ?
Freak government, please stop blundering and selling national asset to foreigner without the accountability and responsibility to people of Singaporean. The country don’t belong to you, it’s belong to the republic.
Sell for
http://uk.reuters.com/article/basicIndustries/idUKSP10284220080317
“SINGAPORE (Reuters) - In the largest overseas purchase by a Chinese power firm, Huaneng Group has agreed to pay S$4.2 billion ($3.04 billion) to buy Tuas Power from Singapore state investor Temasek Holdings [TEM.UL], the latter said on Friday.
Tuas generates about a quarter of Singapore’s electricity and is the first of three generating companies which the city-state hopes to sell by mid-2009.
“This transaction represents a major step for China Huaneng in its goal to diversify its assets across geographies and technologies,” Huang Long, vice president of China’s largest independent electricity provider, said in a statement.
“The Singaporeans have got themselves a good price,” said Simon Powell, head of power research at CLSA in Hong Kong.
“The Chinese have got the money, the desire and the capability to go outside their home market,” he said. “There’s an overarching trend of Chinese power companies expanding outside China.”
Huaneng’s will pay about 24 times the S$177 million net profit Tuas reported for the 12 months to March 2007.
The sale follows a three-month bidding process that saw Huaneng beat firms including India’s GMR Infrastructure (GMRI.BO: Quote, Profile, Research) and Bahrain’s Arcapita.
Others including Li Ka-shing’s Hongkong Electric (0006.HK: Quote, Profile, Research) and Malaysia’s Tanjong (TJPL.KL: Quote, Profile, Research) withdrew from the bidding”
No wonder these clowns can even sell Singapore for greed of money. Moral authority ? Which taste better to them ? MOral or billion dollar ?
lulu on June 9th, 2008 10.07 pm
“one of GIC’s values n strategy is to invest in a long-term orientation.”
Sounds so chic with all the right words to impress (confuse) those who are ignorant about the wider & complex financial world.
In short, they are betting on your behalf. Good if they win - with a little bit being distributed back to you here and there in the form of ang bao and the bulk going to themselves for good performance.
That is how it works in the corporate world and they are applying it to the last letter. The top get more and the bottom get the crumb.
Well, if they lose, the costs will be socialised either directly / indirectly - if you know what I mean. Sometimes, knowing this possibility just makes you sick.
Look at US, I think the country with the best & most economics & financial wizards - with their own inherent problems - creating all sorts of financial intruments which do not reflect the real value of actual brick and mortar work but mostly virtual / paper / speculative value.
“tt is why the 2-year disclosure is not feasible.”
Aiyoh. How about revealing all details for performance before 2003. Historical data of more than 5 years should be ok right. I do not think they are now providing it right ? Now internet age where business or change or whatever cycle is getting shorter and shorter, sometimes anything more than 1 year is already considered history.
Anyone cares to debunk my assumption.
Uniquely Singapore is an” acquisitive society” than a “democratic society”!!!
Capitalism is practised in every conceivable way here. Directly, Temasek reaps a lump sum profit through the sale which undoubtedly, will fatten the bonus for those greedy seat warmers. As pointed out, the purchaser will have to milk Singaporeans to recover their cost and profit in the long run.
When electricity bills start to jump faster than usual, Temasek (the govt) can claim that its a private matter. Therefore, Singaporeans will be sacrificed again to pay up the advance profit taken by Temasek.
Another case of profiting at the expense of citizens.
Long-term investment? Lets reason this.
GIC invest $10 billion in failing banks. LKY said we’re prepared to wait for 5, 20-30 years for them to bear reasonable fruit. The investments have lost easily more than 30% of its value since then.
1. We’ll need a miracle for those banks to recover their losses over 5 years. Therefore, the probability of the invested capital regaining its principal value (not factoring profit) are as good as zero.
2. LKY realised that he’s fooling himself. Therefore, he said prepared to wait 20-30 years. Why?
After this sub-prime episode, banks will not be able to grow as before because many new regulations will be in place to prevent a recurrence of this debt bubble created by unscrupulous bankers and their cronies. Growth and profits will be more in line with economic activities rather than through speculation. It will be many years before these banks can even recover to the value of GIC’s porportionate investment in them. To realise the desired profit will take longer and when factoring in opportunity cost, could make 30 years even untenable.
These investments were totally unjustifiable and highly controversial. Therefore, accountability with transparency is not an option. it should be mandatory.