A growing power in the East

Brian O’Connor
Daily Mail
28 Dec 07

Low profile Singapore investment fund Temasek is set to become a major force in global banking after stepping up the pace of its expansion in Western markets this month.

First the state owned fund agreed to inject £2.5bn into investment bank Merrill Lynch, bolstering the Wall Street bank’s coffers after sub-prime write-downs.

Then it lifted its stake in Standard Chartered bank to 18%, where it is by far the biggest single investor. Earlier this year it paid £1bn for 2.1% of Barclays, to boost Barclays’ attempt to buy ABN Amro.

In a year when sovereign wealth funds have extended their global reach, Temasek also topped the list of private equity investors in India, ahead of US giants Blackstone and Goldman Sachs.

All this raises the question of where it will strike next. Up to now its major investments have been in Asia, with only one fifth of its funds going elsewhere, but clearly Western banks are on the menu.

The group is wholly owned by the Singapore government and holds a 55% stake in Singapore Airlines and 56% of telecoms group SingTel. It also owns 5% of Bank of China, 7% of Indian bank ICICI, and a larger stake in Indonesia’s PT banking group.

The deal it struck with Barclays in July shows both its firepower and its readiness to buy for the long term. It was ready to pump in a total of £2.5bn if the ABN Amro bid had succeeded.

It bought its initial stake at 720p per Barclays share. They are now 512p, suggesting Temasek is now sitting on a paper loss of £290m.

Some of its moves are controversial. In 2006 it paid £1.9bn for 49.6% of Thai Prime Minister Thaksin Shinawatra’s Shin Corporation. Shinawatra’s huge windfall from the sale caused a political storm and he was ousted from office, though he is still a force in Thai politics. He owns Manchester City football club.

Temasek’s stake in Indonesian telecoms attracted criticism from the local competition regulator.

The group defends its good name fiercely. Three years ago it obtained an apology and damages from The Economist magazine over allegations of nepotism in the appointment of chief executive Ho Ching.

She is married to Singapore Prime Minister Hsien Loong, son of ex-Premier Lee Kuan Yew. The magazine accepted that she was appointed on merit.

Ho, an engineer, is credited with streamlining Temasek – whose name means ‘sea town’ – selling off non-core companies and turning it into a modern asset management group, recruiting high calibre graduates to boost its 300 staff. Return on capital averages 18% over the group’s history.

This year Forbes magazine ranked Ho the third most powerful woman in the world, ahead of US Secretary of State Condoleeza Rice.

Temasek has several stakes in power companies, suggesting a UK utility might be attractive. Most water and power companies have already been bought, but it is easy to see Temasek taking a stake in, say, British Airways.

The firm is likely to keep investing in banks and financial services. That gives it plenty of room to expand in the UK, the US and Europe, where the ravages of the credit crisis have left many bank shares on the floor.

Temasek’s researchers are surely crunching the numbers already.