The bull market tide goes out, leaving the lion city’s sovereign wealth firm gasping on the shore.
Nearly five months after its March 31 year-end, Singaporeans should be eagerly looking forward to the publication of the report of the guardian of so much of the national wealth, Temasek Holdings. The sovereign wealth fund run by Ho Ching, wife of Prime Minister Lee Hsien Loong, is not the biggest repository of money collected by the state on behalf of the people, but it is at least semi-transparent compared with its big brother the Government Investment Corp.
The lengthy wait for results could possibly be connected to issues of how to treat a series of rather spectacular disasters that Temasek faced last year, and that are continuing into the current year.
Even in 2006-07, when world markets were booming in unison, Temasek had to report a 29 percent profit fall. Neither chairman S. Dhanabalan nor Ho Ching were on hand at the press conference when these dismal results were delivered. So who will deliver any bad news for the latest year?
Of course, the bottom line for the year to March 2008 may be saved by the sale just before year-end of power station Tuas Power to China’s Huaneng Group for S$4.2 billion which should enable it to book a hefty capital profit. But selling local assets and buying foreign ones may not be such a smart idea, particularly if you are the kind of Singapore bureaucrat who has implicit faith in the masters of the universe on Wall Street.
Under Ho Ching’s leadership Temasek had supposedly been taken from being a safety-first bureaucracy to a smart, profit-oriented outfit, selling some assets and investing heavily overseas, particularly in the fast-growing emerging markets of Asia and Latin America. Almost fool can make money in a global bull market so for awhile Temasek seemed to prosper under Ho Ching’s dynamic leadership. But Temasek also swallowed plenty of bait on offer from Wall Street types.
In particular the government-owned investment vehicle vastly expanded its finance sector portfolio, buying banks and even setting up a Special Purpose Vehicle, Astrea, which borrowed US$810 million to invest in a slew of private equity and buyout funds.
It is hard to imagine that Astrea has avoided the hammering suffered by almost all buyout and private equity funds, some of which have had to close with large losses.
But Temasek seems to have compounded bull market errors by continuing to have faith in Wall Street deceptions when memory of the Asian crisis and the Japanese experience should have made it particularly aware that financial-sector problems almost always go deeper and last longer than those in other sectors. Temasek was keen to show how important it was so was among the first to jump in with equity bail-outs for distressed western banks, firstly with US$5 billion for Merrill Lynch at $48 a share.
The Merill shares are now worth about half that, and although under the terms of the deal Temasek has been partially compensated with additional shares it has had to also to put in new money – and must wonder just how long and deep the US financial crisis will be. Although it had recently increased its stake in the UK’s Standard Chartered, it also put ₤1 billion into Britain’s Barclays, a financial institution whose equity base remains perilously small compared with the weight of assorted instruments it carries and whose share price has fallen much further since the Temasek injection.
But it is not just the finance sector and in the west that gung-Ho Temasek has hit rough waters. The Shin Corp mess in Thailand may now be a thing of the past. But troubles elsewhere are many. In Indonesia it is being required to sell off its stake in Bank International Indonesia (BII) because it already owns Bank Danamon. But Malaysia’s Bank Negara (central bank) has vetoed an attempt by Maybank to buy the BII stake. Bank Negara evidently agreed with opinion in the market that Maybank was offering a silly price.
The best piece of luck Temasek has had was actually evidence of its own willingness to pay top dollar. Only the myopic greed of shareholders in China Eastern Airlines and hopes of a counter offer from China National Aviation Corp thwarted a generous joint offer by Temasek and Singapore Airlines for a 24 percent stake in the Hong Kong-listed company at HK$3.8 a share. They now trade at HK$1.80.
Real estate is not looking too hot either. Last month CapitalLand (part of the Temasek group) had to promise to inject A$300 million into its ailing listed Australian 54 percent owned subsidiary Australand Property. Without a huge capital injection, deeply indebted Australand might have gone under.
Temasek has also leaped heavily into one of China’s highest profile, and perhaps more vulnerable, property developers, Country Garden. When it went public in Hong Kong in April 2007, Country Garden was the second largest IPO in Hong Kong history, with Temasek joining local tycoons Lee Shau Kee and Robert Kuok as key investors. According to the mainland financial magazine Caijing, a subsequent S$800 million convertible bond issue in Singapore in February this year was made on terms which suggest the company is very stretched and badly needs to keep its share price from falling. It is now little more than half its initial price and down 75 percent from its peak.
Australia, once seen as a safe if unexciting location for Singapore cash, has also attracted top of the market deals from Singapore Power. Already well-established in Australia, it paid heavily in cash for the eastern Australia assets of pipeline company Alinta but with values in decline they have been unable now to flip them into their 51 percent owned local subsidiary SP Ausnet leaving SP meanwhile saddled with huge borrowings.
Even on home ground, things are looking sick for important parts of the Temasek empire. Chartered Semiconductor Industries has seen its shares fall more than 40 percent and its debt ratings have been cut so that its bond are no longer investment grade – otherwise known as junk status. Chartered has long been a state effort to make Singapore a semiconductor manufacturing leader but has never managed to keep up with the likes of Taiwan and Korea in technology and now also faces Chinese competition.
These various problems have not entirely dulled Temasek’s appetite for acquisitions. Its associate Neptune Orient Lines (NOL) is bidding to buy Germany’s Hapag-Lloyd just at a time when some commentators forecast huge problems looming for container lines. This time Temasek may be saved by German nationalism – Hamburg business is ganging up to keep it in local hands.
It remains to be seen who, if anyone, takes responsibility for Temasek’s blunders. Last year it was chief investment officer Jimmy Phoon who found he had better things to do, as did Jackson Tai at DBS, Temasek’s main banking investment, and the finance director of SembCorp who had landed the group with US$300 million in foreign exchange losses.
Meanwhile US former food and consumer products executive Simon Israel, appointed two years ago, remains CEO in conjunction with Ho Ching. And, despite everything, faith in Wall Street types is as strong as ever – Michael Dee from Morgan Stanley was last week been appointed managing director for international investments.
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Almost fool can make money in a global bull market so for awhile Temasek seemed to prosper under Ho Ching’s dynamic leadership..
Ha ha ha very funny…
Why the need to have a CEO in conjunction? Is it tat difficult to throw away money?
are singaporeans going to be poorer again ?
its easy for me to comment in retrospect now, but even when Ho Ching was appointed CEO many years back, i remember having a conversation with friends, saying that in any other democratic govt, this move would have been seen as a “conflict of interest”, where the wife of the Prime Minister is also the CEO of the country’s assets. Ho Ching also came from an operations role with a Defence-related background. any cynical observer would definitely question her creds to run Temasek.
Whats the point of putting in those FTs to co-run Temasek? Their hands are tied, and cant make decisions. I remember the first foreign CEO for DBS leaving after a short period saying that he cant do anything to turn DBS around, because his decisions are often vetoed.
Business, esp at that level, cant be run using SOP manuals.
In a public-listed company, the Board would have a say, as well as its shareholders. But Temasek – shouldnt the citizens have a say?
Thanks for raising that Capitaland investment in Australia. No wonder – that explains the Capitaland ad campaign i keep seeing on the cable channels and on Australia Network. They want Australians to be familiarised with the Capitaland brand down under.
SO – along with the huge investments, they also needed to run marketing campaigns to drive the Singapore Inc brand in those markets… i.e. there are other costs involved in making these investmetns.
From a nation’s useful cars going to scrap to the sale of Raffles Hotel, and to rushing in on western foreign purchases – what is really going on ?
My humble opinion with some principles to adhere to:
(1) The inconvenient truth is that a national icon or treasure must not be sold to foreigners ( how do you like if a “leasehold Singapore” were traded on the international markets ? Sorry, just a cheeky example – no offence intended, just to drive home the point)
(2) The assets of common citizens should not be encouraged to be wasted away; in contrast to pay and pay which will impoverise, spend and spend will bleed the future generation with debts and careless attitude
(3) Foreign western assets – look before you leap; they are mostly proving to be black holes as previous experiences can confirm. If their own people do not want to buy, then it will be prudent to take it slow unless there is a time line tendering process.
Nearer home – Indonesia, Thailand, Malaysia, etc, are political costly too with sensitive acquisitions.
Of course, staffers are paid to do their jobs and perform, and one KPI may be investment expenditure – how much money to spend with a hopely return based on assumptions and paperwork.
There is a difference too, from the websites, information shows that – Temasek is more like a fund manager whereas GIC do direct investments.
What about the past learning curve, and real life deal making experiences ?
I wonder what it will it be like if the late Mr Lim Kim San were involved today ? Also how about inviting the proven deal maker Mr Oei Hong Leong on board as a trading consultant for pure monetary gain type of acquisitions?
We can trust the investment protocol, due deligence and decision making – but an open mind is needed to listen to the other soft voice of concern.
Putting Temasek into perspective post March 2008
From Today’s FT Lex
“Warburg Pincus began investing its latest $15bn fund in October and, by June 30, had put $2.7bn to work. But investors may have been dismayed to learn in their half-yearly results letter that those stakes were worth only $2bn (thanks largely to a $600m drop in the value of a holding in monoline insurer MBIA). TPG recently delivered the message that an April investment in Washington Mutual had more than halved by the end of June. Unfortunately, with little sign of credit conditions easing, it will be some time yet before private equity investors look forward to opening their post.”
Hmmm, Merrill Lynch was at $28.65 this past Monday shortly after the Fannie/Freddie bailout, supposed to be ‘good’ news for banks, but then its share price has been hammered all week, and today it opened down 16% at $20. It slumped all day and is currently trading at $19.43 – so MER lost 33% in just 4 days! What is going on? Why did it lose 16% so suddenly, on a day when the Dow gained 165 points? Could it be the next Lehman Brothers?