Temasek portfolio lost $39.91 billion

Se Young Lee and Costas Paris
Wall Street Journal

Singapore’s state-owned investment company Temasek Holdings Pte. Ltd. lost 58 billion Singapore dollars (US$39.91 billion) from the end of March 2008 to November 2008, or a little over than half of its portfolio-value gains from the previous five years, the city-state’s finance minister said.

Singapore’s finance minister, Tharman Shanmugaratnam, shown in May, said a downturn in global equity markets contributed to Temasek’s losses.

Tharman Shanmugaratnam, speaking in parliament, said Temasek’s investment portfolio grew by S$114 billion during the market cycle from 2003 to 2007.

Temasek’s portfolio-value fall from March to November 2008 was in large part due to the decline in value of investments in Singapore amid a sharp downturn in global equity markets, he said. He didn’t disclose the fund’s losses from the recent sale of its holdings in Bank of America Corp.

“Of the S$58 billion decline, S$32 billion was attributable to the drop in market value of just the 10 largest publicly listed Temasek-linked companies in Singapore,” Mr. Tharman said.

He said share prices of these companies fell by about 41% on average from end-March to November.

Temasek-controlled companies in Singapore include Keppel Corp., the world’s largest rig-builder; Singapore Airlines Ltd.; property developer CapitaLand Ltd.; and Singapore Telecommunications Ltd., Southeast Asia’s biggest telecommunications operator by revenue.

Mr. Tharman said the S$58 billion fall also includes “all unrealized losses” including mark-to-market losses from Temasek’s investment in Merrill Lynch.

He said the full-year accounts to end-March 2009 shouldn’t be fundamentally different from the losses disclosed given the lack of major changes in global equity markets from the end of November to March of this year.

Temasek bought 14% in Merrill beginning in December 2007. Its stake was converted into shares of Bank of America following Merrill’s acquisition by the U.S. bank in September.

Temasek said this month that it divested its entire stake in Bank of America during the first quarter of the year. Two people familiar with the matter said at the time that Temasek lost about US$4.6 billion from its original investment in Merrill.

“The sale of its [Bank of America] stake does not signify a shift in Temasek’s investment orientation, from long term to short term,” Mr. Tharman said. “Temasek may divest an investment, even at a loss, to get a better mix of risks for its overall portfolio or to position itself to take advantage of opportunities elsewhere.”

He reiterated Temasek’s earlier comments about the divestment, noting that the acquisition of Merrill by Bank of America meant a “different investment proposition” given the latter firm’s “linkage to the broader U.S. economy” and that the risk-return environment had changed substantially.

“Temasek learned of the Bank of America-Merrill merger after all was said and done despite being one of Merrill’s biggest investors with a 14% stake,” one person familiar with the situation said. “They put money in an investment bank [Merrill] and suddenly found themselves owning part of a commercial bank [Bank of America]. They never wanted to be part of Bank of America.”

Mr. Tharman said Temasek makes riskier investments compared with the Government of Singapore Investment Corp., which invests Singapore’s foreign-exchange reserves, and in turn is expected to generate higher returns.

“While Temasek has performed better than many other large investors over this six-year market cycle, it is not realistic to expect it to outperform in every cycle,” he said. “It is also not realistic to expect it to avoid losses on every individual investment, or losses on its overall portfolio when the markets go through sharp corrections.”

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