Wednesday, November 26, 2008

Temasek, Tide's Out, Skimpy Speedo

I usually do not bash Temasek (that much) except for when they irked the Thais and then the Indonesians. Temasek lost almost US$2 billion of a badly-timed US$3 billion in Shin Corp at a peak of 49.25 baht (Shin shares are now trading at around 15 baht) in 2006. The investment was not a bad one but the way they handled it (same in Indonesia) was appalling.

Being neighbours, Temasek should have known that certain assets will be viewed as sensitive and incursions will be seen as colonisation somewhat. You cannot stand behind the guise of being a professional asset manager when you are buying critical companies. Its the arrogance, its the attitude, we've got the money, so we can buy ... just like the way Singaporeans do not know how they appear in the eyes of their neighbours everytime they go traveling in the region ... we all cringe when some bloody tourists would exclaim "Waahhh, so Cheeaappp"... we know they have to be Singaporeans.

Its CEO, Ho Ching committed S$401 million in ASX -listed
ABC Learning Centres at near the peak price of A$7.30 and then averaged down at between A$1.20 and A$4.00, bringing its commitment to over S$500 million. That investment is now essentially worthless although Temasek has yet to write it down. If you examine the biggest bust ups owing to the current financial crisis in Australia, its not the usual mining company or even the highly leveraged Macquarie or Babcock & Brown which are hogging the headlines. Its ABC Learning Centres - the company is not very big, but the audacity, excesses and sheer inept management in the company that brought about its implosion are now fodder for bar talk. Temasek does not have many Australian listed assets, hence it must be close to striking the lottery for them to be persuaded to pick ABC Learning Centres. What is galling is that with the many highly paid experts in Temasek, they did not manage to uncover anything in the due diligence. Though I was loathed to believe it when Buffett said "its dumb money", but I am persuaded now.

The company also bought 19% of LSE- listed Standard Chartered in 2006 only to see the market value of that stake melt 55% by November 21st. More bank stakes include a 975 million pound stake in Barclays Bank bought at the peak of 740 pence (with a further 100 million to subscribe for a rights issue at 282 pence), which have now sunk over 70% at 138 pence.

Their stake in Merrill Lynch got converted into Bank of America, that was OK, but there are rumours that Bank of America might not be able to go through with the buyout because Merrill's assets are too toxic. Most heinous of all is its US$6.88 billion stake in Citigroup bought with a minimum conversion price of $31.34.
Citigroup has since plunged 88% to $3.71 (even though it has now rebounded to $6.30), single-handedly delivering almost S$9 billion of red ink to Temasek's books.

What all this showed is that NO ONE in the whole of Temasek saw the early subprime imploding, or the credit excesses, or the CDOs danger, or the CDS potential liability. NO ONE. You mean no one warned about even ONE OF THE ITEMS? Well, obviously not in the past 12 months, not in the past 24 months, heck, not even in the past 5 years. I am not trying to be hindsight harry here. The point I am trying to make is that Temasek has chalked up supernormal gains every year from 2004-2007 thanks largely to their global banking stakes. China, the US, India, Indonesia... you name it..they have a bank or two there. Many have lauded Temasek's superior performance then, what about now? This showed me one major fault with Temasek: its outperformance was largely the wave and trend which carried them rather than from superior stock-picking or market strategy.

If you cannot read sectors properly or have solid equity strategy or stock picking skills or market timing ... what have you then... just a bunch of overpaid people. Which is why I always say that most analysts, economists and investment bankers have one big fear when they go off to bed at night... they all have the same nightmare (I hope no one finds out how average I am!!!). Good night and sleep tight.

Overall, the paper loss on these investments has exceeded S$35 billion as of October 21st. On a population of 3m, that works out to be about S$11,666 for every man, woman and child - a household of 4 might have had S$46,666. Could be worse I guess, could have been from my country.

p/s photo: Son Dam Bi


Jasonred79 said...

2 things to note Dali:

1. Citigroup isn't 3.77 anymore. Though at an entry of $31, $6 isn't that much better...

2. Read Mark Lewis. I pretty much agree with his theory: these so called experts are making it up as they go along. Heck, I personally know several Finance Graduates, who don't even know what PE ratios are. ... YES, I am serious! Admittedly these jokers are from some weird local colleges, but... still.

It's not a matter of them being average. You would be surprised how many of these guys are actually STUPID. or below average.

Seriously, what % of rising to management position would you allocate to BRAINS and how much to PERSONAL SKILLS? ... In fact, personal skills will be more important 80% of the time, due to nowadays huge corporate structures and relying on delegating responsibilities... however in the event of bubble bursts, you want the genius eggheads making decisions, not politicians!

yj said...

so, still got enough "lui" for our iskandar project or not ? eh don't play play ah !..u promised already one.. in Peru...still remember or not ??

Ivan said...

shall we suggest Temasek top management such as CEO, CIO, COO come visit Dali blog as well? come always have meeting? Better take a 5 minutes break to vist this blog ma. .. aiyo . .

After this tsunami, perhaps EPF can tell Temasek. . let us compare the return from the "investment" ... c who are higher ? :D

easystar said...

See if Temasek will be true to the Singapore's integrity, efficiency and honesty moto and fire its current executives..

ONI said...

Singaporeans didn't name her "Ho Jinx" for no reason.

She has been a real jinx to the country! :)

solomon said...

Generally, better efficiencies may made a person ego higher or behave more superior than others. Anyway where ever you go, you can find such person. Well, I do agree certain truthness in the fact but I do respect my neighbour as well.

On "Waves and trend investment, rather than the superior investment strategy..", except for ABC Learning, I do believe there is more than investment in some of the investments, especially Banks.
Strategically, you could see in depth of other countries financial systems.

Nonetheless, we have to recognise the fact that a typical sovereign fund investment will need the Board approval, not solely on a person shoulder. Whether they are overpaid or not, it is more of the justification at the period they employed. By then maybe, but obviously now they have to follow their govt pay cut move??

KoSong Cafe said...

There is a difference between when you are flush with funds looking for investments and when you have little to spare for investments.

Sometimes, to get a foothold in a certain industry in a foreign country, criteria and rules are relaxed. What about playing politics with foreign politicians as in entertaining them like Lee's promise to Najib in Peru?

I would agree with most of your points and as you have admitted, it is easier with the benefit of hindsight. With government policies, I always sense there is more to it than investing for best returns. Then there is also the possibility of personal preferences of Ho Ching! Do you think her subordinates are likely to point out anything they are unhappy about?

see said...

Ho Ching should be sacked like any other non performers whether related to the PM or not. This would be in line with meritocracy they always trump isn' it?

Tunku said...

Nearly Two years ago, I discuss the subprime problem (Yes it started two years ago!) with some of the managers because some buddies of mine shorted the subprime lenders in NY then. They started moving big into hedge fund then. I thought given how they all try so hard to look smart, someone would at least try and do a detailed analysis BUT none did...

Monsoon said...

I wonder how other sovereign funds perform compare to Temasek, for example Norway?

Anonymous said...

You wrote: Overall, the paper loss (for Temasek) on these investments has exceeded S$35 billion as of October 21st. On a population of 3m, that works out to be about S$11,666 for every man, woman and child - a household of 4 might have had S$46,666. Could be worse I guess, could have been from my country.

The fictitious Wall Street character Gordon Gekko said, "Greed is good."

You know what I'll say? Let me declare: Suffering is good.

I guess I could be accused of a touch of schadenfreude. OK, so what if it is? ;)

For many years Singapore has been hugely successful in the economic arena so much so that it has now been elevated to First World status for some time already.

With extraordinary success comes pride and ego. Though this will be vehemently denied, but many Singaporeans have been looking down their noses at their less well-off neighbours, and probably privately writing them off as dumb country bumpkins.

Suffering improves character.

Like suffering the death of loved one in the family could make a person more compassionate and sympathetic to those who are less fortunate. So similarly, suffering massive financial loss brings to the sufferer a much needed dose of humility - a quality that seems to be in short supply among the noveau riche and the moneyed types.

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