The pretzel palace of Singapore Inc’s state investor

Philip Bowring
Asia Sentinel
3 Aug 07

The Prime Minister’s wife has a lackluster year

The world’s markets may have been booming in unison, at least until the last week, but these are not easy times for Singapore’s giant state investor, Temasek. On August 2 it rather sheepishly announced that despite buoyant global economic conditions, profit for the year to March 2007 had fallen by 29 percent.

Chief executive Ho Ching, the wife of Prime Minister Lee Hsien Loong, and board chairman (ex-foreign minister) S Dhanabalan were both absent from the press conference called to deliver the news, which dents Temasek’s reputation under Ho Ching’s stewardship for being a smart, innovative and profit-oriented group, not the safety-first bureaucracy of the past.

Meanwhile Temasek has awakened to the fact that there is rising opposition in many countries to the control or major stakes that state-controlled Sovereign Wealth Funds are taking in foreign private companies. And Temasek has been going overseas with a vengeance, investing across a wide swathe of the planet from Australia to Russia to the UK. In fact, concern about the state investment arm itself might be rather greater if it were more widely realized that it controls a lot more than if commonly realized.

This opposition has been highlighted not just by critics in Thailand who resented the acquisition from former Prime Minister Thaksin Shinawatra of effective control (a 42 percent stake) of the major telecoms provider, Shin Corp, or the growing worries in Australia, where Singapore state entities will soon own US$25 billion (S$40 billion) worth of infrastructure assets. Such concerns have been voiced by a normally open Germany as well as by the French. Even the IMF and the US Treasury have been making negative noises just when lots of countries say they want to follow the Singapore model.

Such responses may be partly driven by nationalism. But they are also driven by lack of transparency on the part of the state agencies buying up the assets and the fact that much of the world, starting with Margaret Thatcher’s Britain, has spent 25 years privatizing, for good or ill, national state assets. So it goes against the grain for critics now to accept, in the name of open markets, foreign state entities acquiring the same assets.

This particularly applies to those states which do not offer reciprocity – clearly the case in Singapore where the government has never given any sign of willingness to give up effective control of most of the republic’s major companies. The government also has been known to use Temasek as an instrument of state policy as well as an investment vehicle – and China would likely do the same.

However, Temasek may deserve credit for creating an ownership structure which to some extent appears to disperse its ownership through separate vehicles and create a classic ownership pyramid which enables it to maximize control of assets while diversifying its investment portfolio. (Although it may in some cases create superfluous layers of management and high-paying jobs).

Temasek itself is not exactly a model of transparency. It is not listed and as an exempt private company under Singapore law, it is not required to publish audited accounts. What it does publish are figures drawn from summaries of audited accounts of its constituent companies, some of which are listed. Thus the published figures could be considered the truth but perhaps not the whole truth

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