Temasek to take active role in investments after assets drop

August 25, 2009
Singapore Democrats

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Joyce Koh & Netty Ismail
Bloomberg

Temasek Holdings Pte said it will take a more active role in managing investments as it increases overseas holdings after the value of assets slumped by S$40 billion ($27 billion) last fiscal year.

Singapore’s state-owned investment company may increase, reduce or hold investments in companies or other assets or create products such as listed funds to maximize shareholder value, the company said today. The latest review comes a month after Charles “Chip” Goodyear’s appointment as chief executive officer to replace Ho Ching was aborted over strategy differences.

The review of Temasek’s seven-year-old charter reflects the transformation of the fund from a passive holder of stakes in government-controlled companies to an international investor in companies including Merrill Lynch & Co. and Barclays Plc.

“It sounds like shareholder activism, which is one thing they haven’t explored,” said Melvyn Teo, associate professor of finance at Singapore Management University, who holds a Ph.D. in economics from Harvard University. “But this can be done in a friendly way, and more likely to be actions taken at the board level to unlock value.”

Investments in financial companies including losses on Merrill Lynch dragged down the firm’s performance. Ho, who’s the wife of Singapore Prime Minister Lee Hsien Loong, announced the plunge in value of Temasek’s assets for the year ended March, from S$185 billion a year earlier.

Review

The fund is reviewing the charter, first published in July 2002, on its role in portfolio companies after having bought stakes in Merrill Lynch, acquired by Bank of America Corp. this year, Barclays and Standard Chartered Plc in the last few years.

“We have refined our charter to more clearly articulate our focus as a value-oriented investor, and also as a shareholder focused on achieving sustainable returns by engaging with the boards and management of our portfolio companies,” said Temasek Chairman S. Dhanabalan at a briefing in Singapore today. “In addition, we have made explicit our commitment to contribute part of our returns to encourage the growth and development of our wider community.”

Two-thirds of Temasek’s portfolio is now outside of Singapore, compared with “a predominantly Singapore portfolio” in 2002, Dhanabalan said. Temasek said it will continue to review its charter to ensure it remains relevant to its investments.

Long-term value

The state-owned fund, set up in 1974 to foster development of Singapore’s banks, airlines and ports, now holds stakes in financial services, real estate, telecommunications, energy and transportation companies in at least four continents. It is the biggest shareholder in five of Singapore’s 10 biggest publicly traded companies by market value including Singapore Telecommunications Ltd., Southeast Asia’s biggest phone company, and DBS Group Holdings Ltd., the region’s largest bank by assets.

Temasek will continue to “create and deliver sustainable, long-term value for our stakeholders,” including the Ministry of Finance, the fund said.

“In the medium term, we believe this can be achieved with a clear focus on Asia, including Singapore, while we add exposures to new geographies like Latin America,” Temasek said in a statement delivered before the briefing.

Asia focus

Temasek had previously articulated a portfolio mix of 10:20:30:40. That is: maintaining investments in the rest of Asia at 40 percent, keeping Singapore at about 30 percent, reducing holdings in more developed countries that are members of the Organization for Economic Cooperation and Development to 20 percent and increasing investments in Latin America, Russia and Africa to as much as 10 percent of its portfolio.

The investment company has increased its financial service holdings to 40 percent of its portfolio. It holds stakes in India’s ICICI Bank Ltd., China Construction Bank Corp. and lenders in Indonesia, South Korea and Pakistan.

Ho said today Temasek will still invest in Western financial institution “if the opportunities come and look attractive.”

“It just depends on the opportunities,” she said.

The fund, in the first quarter, sold its 3.8 percent stake in Bank of America, which it got after the bank bought Merrill Lynch, at a loss that may have totaled $4.6 billion. Temasek sold its stake in London-based Barclays at a loss in December and January, Reuters reported on June 3, citing people familiar with the matter.

‘Financial discipline’

Temasek will work with its portfolio companies to ensure “financial discipline and sound governance” in growing their businesses outside the city-state.

The company is still considering an initial share sale for PSA Corp., Ho said, adding there was no deadline. PSA Corp. is a unit of PSA International Pte, the world’s second-largest container port operator.

“That is a possibility that we still leave on the table,” Ho said.

Temasek allocated S$100 million in June to help the poor and disabled in Singapore.

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