Gangasudhan
Temasek Holdings released its annual report on 17th September 2009 which was duly highlighted in the best possible light with a bold header of ‘Temasek Rebounds’ (Straits Times, September 18). Unfortunately, Temasek Review 2009 seems to have more questions than answers (not necessarily a surprise), some which would serve the interests of the fundamental shareholders to be answered – and we are not talking about the Ministry of Finance which is its sole shareholder.
The focus in the report has again predominately been the Portfolio Value which refers to the market value of the various assets under its charge. These include local heavyweights such as Singtel, Standard Chartered, DBS Group and CapitaLand, as well as other overseas entities based in China, India, US and even Brazil. This Portfolio Value has risen steadily over the years from $90 billion in 2004 to $185 billion in 2008 (and in between consecutive years too) before spectacularly dropping by $55 billion in 2009 to $130 billion.
The information from the press and Temasek Holdings contrasts this single drop in portfolio value against previous years’ stellar values and puts the blame of poor performance squarely on the global financial crisis which has taken the world by (thunder)storm.
Value vs Wealth
However, the Temasek Review 2009 (pages 21 and 22) also reveals another figure which is termed ‘Wealth Added’ and reports this value as a ‘negative $68 billion’ (a positive way of saying the ‘Wealth Deducted’ was $68.1 billion) which certainly does not tally with the reported drop of $55 billion in Portfolio Value. The description of the Wealth Added component according to the Temasek Review 2009 includes various components such as operating cost and capital charges, among others.
However, this component conveniently includes any capital injections (whose exact amount would be hidden here) and thus the Portfolio Value of $130 billion which is overemphasised by the parties concerned could very well be lower had the capital injection (if any) not been included in estimating this value.
Illustration
- $68.1 billion includes the market value change (-$55 billion)
- The remaining $13.1 billion ($68 – $55 billion) includes operating costs, capital charges, any opportunity cost involved, and capital injections
- Thus the capital injection could have theoretical been as much as $13.1 billion (if there had been no other charges or expenses) with a probable estimate being $10 billion (based on Temasek Review 2008 – page 19)
Although this may be creative accounting at its best, the implications of not knowing these figures are rather significant. Without knowing whether there was a capital injection and if so, how much, we are left to speculate on the actual loss of the Portfolio Value. Using the figures available in Temasek Review 2009, we can estimate that the ‘true’ Portfolio Value could have been as low as $116.9 billion ($185 – $68.1 billion) as contrasted against the reported $130 billion.
Interestingly, the Wealth Added for 2008 was also a negative value ($6.3 billion) which seems to suggest that any growth in Portfolio Value (for any year’s performance) may not necessarily translate into ‘wealth’. Thus, there is a need to relook the wisdom of using Portfolio Value as a measure of success or performance instead of Wealth Added.
Illustration
Imagine buying your home for $200,000 and boasting about the current market value of $300,000 (implying a profit of $100,000 should you sell). However, if you were to actually sell your home and the various levies, loan interest charges, fees and CPF account reimbursements are then deducted, the net returns may very well be just a few thousand dollars. In this example, the Portfolio Value would be the buying and selling prices of the home and the Wealth Added would be the actual money that you get in your pocket. As can be seen through this example, the price of your home (i.e. Portfolio Value) is hardly anything more than a bragging right and the net returns that you (can) get (i.e. Wealth Added) is what really matters.
Rephrasing 101
This year’s annual report also included the new term ‘retraced its value’ (Temasek Review 2009, page 8 & 18). A rose by any other name may still be a rose but it is apparent that the Temasek Review still holds positive spin above all else. Not content with just one creative adjective, it goes on to add ‘retracted its value’ (Temasek Review 2009, page 6) to further reinforce the implied notion that the drop in value is not a drop in value.
A retracing or retraction of value seems to imply that it was a mere reversal or a rewind to 3 years earlier (2006), but notably, operating costs are NOT at these levels – in fact they are 3 times more in 2009 (Temasek Review 2009, page 28). Also, if the drop in Portfolio Value symbolises a return to 2006, then logic would dictate that salaries paid in 2006 and 2007 should be recovered in tandem. Thus, a play on semantics is not always a good idea, especially on the back of such a catastrophic financial performance.
Illustration
What if you had to take a pay cut that amounts to 3 years’ increment? Could you go around to your creditors and tell them, “Sorry my salary retraced by 3 years.” Would that change anything in the eyes of these creditors?
Signs of desperation
Finally, the Straits Times’ Alvin Foo was more than happy to pen down,
“The portfolio sank from a peak of $185 billion on March 31 last year to $130 billion on March 31 this year, according to its annual report, which was out on Thursday. It also showed that the portfolio had rebounded to $172 billion as at July 31.” Temasek Rebounds (18 September 2009)
However, the reporter failed to realise that the annual report (Temasek Review 2009) made no reference to the ‘magic’ $172 billion and, in fact, this figure appears only in the CEO’s Opening Remarks (page 2). It is therefore very erroneous to suggest that the annual report reports such a figure as the auditors (whose sign off dates 16th July 2009) could not and have not verified this figure to be true, accurate or reliable. It is also quite amusing that Temasek Holdings which prides itself in ensuring that it is always quoted properly has allowed the misrepresentation to exist without corrections – and it is hard not to speculate that the reason is due to the positive inclination of said misrepresentation.
Nevertheless, the discussion on Temasek Holdings’ (non-)performance should revolve around the substantiated facts ($130 billion) instead of an unverified number ($172 billion) which was mentioned in a single sentence involving a mere 16 words out of 1,786 that the speech comprised.
Illustration
If a child takes an exam and is unable to answer a question but later on gets the answer, is he or she able to go back and include this information and improve his final score? Here, the ‘exam’ for Temasek Holdings ended on 31st March 2009 and it is thus meaningless to talk about any issue after the fact.
At the end of reviewing Temasek Review 2009, we would urge Temasek Holdings to;
a) issue a correction to the misrepresentation by Straits Times attributing the reported July 2009 Portfolio Value to its annual report
b) reveal its monthly Portfolio Value for at least the last 3 years for an adequate comparison of the July figure of $172 billion (which incidentally is featured prominently on the homepage of its website)
c) disclose the exact components (especially any capital injection) and their accompanying figures involved that resulted in the Wealth Added figure of negative $68.1 billion
These are the critical factors that enable the ultimate shareholders (citizens of Singapore) to assess and understand the actual performance of Temasek Holdings in the financial year ended 31st March 2009, and the speculative performance in the four months thereafter.
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Temasek Trivia
Temasek Holdings has been reporting an annual report since 2004 and TOC made an attempt to secure these reports online. While the reports for 2004 and 2005 were nowhere to be found, the 2006 to 2009 issues were (eventually) located on the Temasek Holdings website. Quizzically, each Temasek Review is placed on a different URL as follows:
2006
http://www.temasekholdings.com.sg/2006review/files/Temasek%20Review%202006.pdf
2007
http://www.temasek.com.sg/pdf/Temasek%20Review%202007_Full.pdf
2008
http://www.temasekholdings.com.sg/temasekreview/2008/pdf/TR2008%2018-08-08%20Bookmarked.pdf
2009
http://review.temasek.com.sg/wp-content/uploads/pdf/temasek-review-2009-colour.pdf
The link on the Media Centre webpage of Temasek Holdings’ website meanwhile links directly to Temasek Review 2009 and offers no other access to the previous annual reports. This begs the conclusion that the IT department employed by Temasek Holdings to manage its online annual report files and website is rather incompetent and sloppy or that the organisation is being purposefully vague about keeping its previous annual reports accessible.
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Two different headlines from the Straits Times, one day apart:
Hi, thanks for a good analysis! :)
Temasek Holdings certainly has some explaining to do with regards to that 68b
Just one point. Using your example of a flat, if my flat is now valued at $300,000, then my assets HAD appreciated by $100,000. If it dropped in value by $50,000 to $250,000, well, my assets still appreciated by $50,000. At least I hope so!
And of course as long as I do not sell my flat, I do not have to factor in the costs of doing so. Let’s say I do sell it, and the costs incurred in the sale is $5,000, then, my realized wealth – really a fancy way of saying I convert flat into cash – is $45,000. I would still have done rather well.
But it does not mean that the value of my asset (if I hadn’t sold it) didn’t really increase by $50,000!
And, of course, we don’t really know if there really was any cash/capital injection. It’s a possibility, but possibility is not proof. :)
Our govt are all liars. No wonder we’ve ppl like Ris Low who had committed crimes & speak bad English still so thick-skin & shamless to go ahead to take part in Miss Spore World.
“Many Singaporeans appreciate the fact that the TH loss was perhaps inevitable in the face of the global economic meltdown. ”
Many more do not appreciate the Buy High Sell Low strategy of BoA shares, the lack of due diligence on ABC learning, and the disregard of advice from highly regarded fund managers like Jim Rogers.
And the nearly universal opinion that CEO Ho Ching is not qualified.
34)
All I can say is that I know quite a few people in both places. The GIC recruitment process is quite rigorous while some people in Temasek get in because of connections.
Having a rigorous recruitment programme does not necessarily mean that GIC will get the best in the world but they certainly do get some pretty smart and talented people. Again, that does not guarantee success. But it sure helps to cut the odds of poor investment decisions by a whole lot when you have some brainy people around. This sort of explains why we see Temasek reeling from ill advised investments eg, ABC Learning, Merrill Lynch, Shin etc. Temasek also suffers from very poor timing of their entry and exits from the markets, in other words, buy high, sell low. It just shows that their investment and execution processes are not of very high standards.
No worries, thank to this Financial Crisis. lossing Multi-Trillion of USDollar.
no way to escape or cover up . More news will automatically pop up.
The longer the crisis the more appreciation take place.
So they will get to “Hell”
Nail Them or even the whole LEE regime.
At 44)
For the past three to four years multiply thousand of our young citizen has imgrated. Till now U are slow to open your mouth. Less of U one person not a dig duel. We’re the patroitic people, we stay on and fight for our Rights. Not like Francis Seow or Tang Liang Hong have to run. JBJ don’t have to run.
Singapore is a unique place where the garmen sucks up to the FTs at the expense of its citizens, because they can continue to do so as the citizens can’t do anything to them.
For now, the old man is still around to hold it all together, through his stature as an elder statesman and the people still respect him because of what he has done for the country. But once he is gone, the so call 3G leaders might not be able to hold it together and all hell will break loose.
All of this remind me of ENRON and WORLD.COM Style of Accounting Reporting
If investment can be a guaranteed win.
there will be no poverty.
if investment result has uncertainty,
who can guarantee our future?
Yes, this may be so, but if they are going to throw a figure out, then it should be described in further detail at the very least.
Yes, I would like proof too that clearly denies or confirms this possibility.
Check out this scathing video report on one of Temasek’s recent ‘investments’, ABC.
According to the report ABC deep financial troubles were clear to see in the financial accounts by the end of 2007, yet Temasek went ahead with a further investment in the company in 2008?
What did they see that prudent accountants could not in deciding to pump in more money?
Oops forgot the video link:
http://www.youtube.com/watch?v=YYF6JW9vJKo
What did they see that prudent accountants could not in deciding to pump in more money?
Just like the rest of all the other losses by both TH & GIC, how come almost all of their foreign investments LOST SO MUCH BILLIONS OF OUR TAXPAYERS’ MONEY??? Mistakes or somethng else which is yet to be discovered????