Wednesday, March 29, 2006

Temasek & GIC Singapore - "Cain & Abel", "Donny & Marie" or.. ?



Temasek has been hogging the headlines for the past few weeks, and seems not to be shying away from the over-exposure. First, the situation with the purchase of Thailand's Shin Corp, and before the dust even settles, Temasek announced the purchase of the much sought after 11.55% stake in Standard Chartered from the Khoo family. So what's with Temasek, and how come GIC is so laidback compared to Temasek? Ask every person in Singapore, and probably 9 out of 10 could not tell you the difference between Temasek and GIC - saying that the PM's wife (Ho Ching) runs Temasek does not count, OK! Even the rural PAS members in Kelantan know that!

Temasek is the investment arm of the Singapore government. Initially important stakes were held by Ministry of Finance (in various sectors such as shipbuilding and manufacturing). Temasek is owned by one shareholder, Singapore's Ministry of Finance. The Government of Singapore Investment Corp (GIC) invests only the government foreign reserves. Hence GIC does not have a history of building up GLCs (government linked companies) like Temasek does. So naturally, Temasek is more powerful, owing to the stable of important GLCs in its grasp. However, the big difference is that GIC acts more like a proper portfolio manager, with proper allocations into real estate, currencies, commodities and bonds while Temasek seemingly answers to no one and engages in accumulation of strategic companies.

Temasek basically rides on its hold on big and important GLCs such as Singapore Telecom, DBS Bank (involved in the recent failed bid for Korea Exchange Bank), Singapore Airlines, PSA (involved recently in the failed bid for Dubai Ports), Singapore Power, Neptune Orient Lines, etc.. Plus it also owns my favourite place in Singapore, the Zoological gardens and holds a stake in Singapore Pools, the only legal betting company in Singapore. Though more than half of Temasek's holdings are in Singapore, eventually they want to see only one-third of that in Singapore. Hence the strong investment drive to go international.

Temasek is like a fully cloaked woman, mysterious... mainly because it need not report its financials publicly. However, to satisfy the legal requirements in issuing bonds to raise money from the public, it disclosed its financials in October 2004. For year ended March 2004, it reported a net profit of S$7.4 billion on revenues of S$56.5 billion. The 2004 report stated that Temasek managed S$900 billion (US$565 billion). Standards & Poor assigned Temasek with a AAA rating.

As for GIC, it was established in 1981 to manage the country's foreign reserves. They now have 6 offices worldwide. Its assets under management is dwarfed by Temasek, holding just slightly above US$100 billion. GIC acts more like a professional investing outfit and has a very long established relationship with the magnificent investment firm, the Capital Group. The Capital Group has a remarkable track record, beating S&P 500 for each of the past 30 years in each of its 6 funds.Now the Capital Group has more than US$750 billion under management. GIC places a lot of its funds under Capital Group's management, emphasised by the fact that GIC is Capital Group's biggest single client.

After PSA's failed tussle with Dubai Ports for P&O, GIC has just stepped in with Goldman Sachs and Borealis (Canada) to launch a takeover bid for Associated British Ports for S$5.6 billion (US$3.5 billion).

There is no doubt that there is a difference in perception with regards to Temasek and GIC. GIC is viewed as a very professional portfolio manager, quiet achiever... and somehow Temasek seems to be secretive and professionally ruffling more feathers wherever it goes. It may be that Temasek is a bit too arrogant in its dealings, not taking care and time to appreciate the nuances of investing in certain companies. It may also be that the stakes Temasek has been acquiring are more strategic in nature (than GIC's more prudent value/risk/return investment process). When I say strategic, it could mean having significant exposure to the banking and telco sector of developing Asian countries, etc... Still, Temasek could do with a bit better PR, the secrecy and "not-granting-of-interviews" just adds to the fear and and unknown side of things every time Temasek steps into a country to invests. The people of that country just don't know what Temasek stands for, is it an economic conquering ship, what will their strategy be, why are foreign interests controlling important assets, etc...? When no information is available, Temasek becomes an easy target for niche groups to use Temasek as a punching bag for their own causes.

Could Have Been Better

1) Temasek could have handled the Shin Corp deal a lot better. Temasek failed to recognise the sensitivity of Thai people, the potential backlash on Thaksin, the growing tide of resentment against Thaksin - it spells of arrogance by Temasek. Instead of doing a majority sale deal, could have broken it up in 2 or 3 tranches to assuage fears. Say 20% now and another 20% 12 months later if Shin Corp meets some targets, and the balance 2 years down the road. Plus it would have given more time to find a new owner for the stake in Thai AirAsia, instead of being seen as scrambling to find a new buyer right after the deal. Since Shin Corp became a foreign controlled entity, it no longer can own the controlling stake in Thai AirAsia. Now the stake was sold (finally) to Asia Aviation. It appeared that Temasek did not realise the contravention till after the deal has been sealed. Some knuckles needed to be rapped here.

2) The visibility issue is too threatening. People not from Singapore do not differentiate between Temasek and GIC, or the GLCs of Singapore for that matter. Even though you argue till the cows come home, authorities will still regard the whole grouping as one. Hence the visibility issue, the rapid flow of deals - just makes other people nervous every time GIC or Temasek or some Singapore GLC announces a takeover deal. Having the money is one thing, being seen as "new economic lords" taking over important assets of respective countries is an issue that needs addressing. Just because Temasek is satisfied with its own investment policies and transparency issues does not mean the deals will be well received. Especially when deals are occuring within the Asian backyard. Time to be the good neighbour.

For instance, these are the big deals in recent months. Just imagine youself as a person living in an Asian country other than Singapore, how would the rapid succession of these" deal flows / failed deals" affect you, or are you unaffected by them?
- PSA tussles with Dubai Ports to buy P&O for 2 billion pounds.
- Temasek purchasing a 5% stake in Bank of China for US$1.5 billion
- Temasek purchasing a 5% stake in China Minsheng Bank
- Temasek purchasing a 5.1% stake in China Construction Bank
- GIC bidding for Associated British Ports
- The Reserve Bank of India rebuffing Temasek from raising its stake in ICIC Bank (India's largest private sector bank) because the central bank viewsTemasek and GIC as related entities, and both companies cannot collectively own more than 10% of ICIC Bank
- GIC buys the Oakwood Appartments in Roppongi, Japan. The latest addition after purchasing Oakwood Akasaka, Oakwood Aoyama and Oakwood Shirokane. GIC also owns the Shidome City Center, Shinagawa Seaside Towers and Kawasaki Tech Centre. GIC also has a US$1 billion investment in ProLogis Properties which invests in high quality logistics facilities in Japan
- GIC bought the Intercontinental Hotel in Paris for 315 million pounds. GIC also bought the prime Chifley Tower and Chifley Plaza in Sydney, and the Royal Pines Resort in Gold Coast, Australia
- GIC is a key investor in China International Capital Corp (CICC), China's first joint venture investment bank
- Temasek buying Shin Corp from Thaksin's family
- SingTel buying 32% of India's Bharti Telecom (India's second largest mobile operator)
- SingTel buying 45% of Pacific Bangladesh Telecom for US$118 million
- DBS Bank failed attempt to buy Korea Exchange Bank
- DBS Bank buying a 37% stake in Indian financial firm Cholamandalam
- Temasek buying an 11.5% stake in Standard Chartered Bank
- Temasek putting in a bid together with Blackstone Capital (Merrill Lynch now) and the Carlyle Group for a strategic stake in Air Sahara
- Temasek's failed tussle with Taishi Financial to by a 22% stake in Taiwan's investment company Chang Hwa
- Temasek tripling its stake in Pakisatan NDLC-IFIC Bank
- Temasek buying a 30% stake in Vietnam's Pacific Airlines
- Temasek buying a strategic stake in India's Mahindra & Mahindra

Is it an envy problem, I think its more than that. Singapore may think of the twin terrors as "Donny & Marie" but to the rest its a bit like "Cain & Abel" but not quite. I think its closer to "Aykyrod & Belushi"! One is saner than the other but both are still dangerous...

2 comments:

Rohan_888 said...

How much transparancy is there regarding these funds? (and same question for EPF, PNB, Ministry of Finance etc)

Is it clear how the investments are valued, when new funds are brought in, what the benchmarks are, etc, etc, etc.

I remember that Temasek finally started to give some information last year, and that the results over the last 5 years were very disappointing (only a few percent a year or so).

These are public funds, so should be open to all scrutiny. If there is no transparancy, I always assume the worst, sorry, cant help it.

Salvatore_Dali said...

rohan

true, true... the thing is just because it is a govt agency does not mean it is free from scrutiny. People have to realise its the people who voted in the govt. Even when releasing, these agencies are likely to stop short of explaining why they did this or that - I hope its not a priviledge reserve for certain enlightened beings only, or that the general public need not know, or worse, that the general public is too dumb to understand and appreciate.