Just to pause the Temasek and GIC bashing for a short
while...
I am quite surprised that everybody just focused on the fact
that Temasek is investing another $3.4 billion into ML but not
remember the fact that Temasek has been compensated $2.5
billion by ML due to an anti-dilutive clause.
Anyway, Temasek had little choice but to pump in $900 mil more
into the company. The story is simple, as long as ML doesn't go
bankrupt or gets taken over there's a very high chance (~90%) that
the trade will breakeven or make profits no matter how low ML stock
drops due to this clause. That's why Temasek is throwing in more
money to save the sinking ship, coz if they don't and ML goes down.
Temasek management will definitely have to face a lot of issues on
accountability.
At this stage, by not pumping in more money and staving off ML's
bankruptcy, that would be the worst decision Temasek would probably
have made! What's the chance of a big US bank like ML failing? The
risk/reward ratio probably justifies the liquidity injection and I
agree with the decision.
However, to rush head in during the midst of the credit crunch
and invest 10-20% of the whole fund in the financial sector, though
armored with protective clauses may still be a tad aggressive for a
sovereign fund answerable to the people.
But to give Temasek or GIC some credit, they had the option of
injecting liqudity into Bear Sterns, Citigroup, ML and UBS during
the height of the credit crunch. And intelligently they didn't
choose Bear Sterns which of course got bought over a couple of
months later.
Ok guys, you all can continue bashing Temasek and GIC now =)
Below are the details:-
July 29 (Bloomberg) -- Temasek
Holdings Pte., the biggest shareholder
of Merrill Lynch & Co., agreed to invest a further $900 million
in the securities firm after getting compensated for its initial
investment in December.
The Singapore state-owned investment company will use a
$2.5 billion so-called reset payment for losses
from its earlier purchase toward buying $3.4 billion of Merrill
stock, it said in a statement today. Merrill said it will book the
reset as an expense, as well as $5.7 billion of additional
writedowns.
``It looks like a good deal for Temasek,''
Teng Ngiek Lian, who manages $2.6 billion as chief executive
officer of Target Asset Management in Singapore, said today. ``It's
quite cleverly structured to protect their interest from future
dilution and lower price placement.''
Merrill's shares
have fallen 55 percent since Dec. 24, when it announced that
Temasek, which manages more than $100 billion, would invest as much
as $5 billion in the third-biggest U.S. securities firm. The sale
would push Temasek's stake beyond the 10 percent limit for foreign
investors, and the Singapore company said a portion of its new
stock requires regulatory approval.
Merrill was contractually bound to compensate Temasek and the
other investors who bought shares in offerings in December and
January. ``You must have some reward for the risk they are
taking,'' Teng said. ``That deal was done under exceptional
circumstances. It was a scary time.''
Shoring Up Capital
Merrill Chief Executive Officer
John Thain is pushing to shore up capital as banks including
Citigroup Inc. were forced to sell assets and seek new investors
amid a global credit contraction that triggered more than $468
billion in writedowns and losses.
Other than Temasek, Government of Singapore Investment Corp.,
which manages more than $100 billion of the country's reserves, has
invested about $18 billion in UBS AG and Citigroup following
writedowns by the two banks.
Thain, 53, is trying to stave off credit-ratings downgrades and
demonstrate to regulators that the firm can withstand losses.
Standard & Poor's on June 2 cut Merrill's rating to A from A+
and assigned a ``negative'' outlook, indicating additional
downgrades were possible.
Korea Investment Corp., a Seoul-based fund that manages part of
the country's foreign-exchange reserves overseas, also said today
that it converted $2 billion of preferred shares in Merrill bought
in January into common stock at half the price it had initially
agreed to.
Merrill on July 17 reported a second-quarter net
loss of $4.65 billion, or $4.97 a share, on $9.7 billion of
credit- market writedowns that totaled about $46 billion before
today.
Thain cut about 4,200 jobs in the first half of the year and is
selling assets to replenish the firm's capital. Merrill completed
the $4.43 billion sale of its stake in Bloomberg LP this month and
said it signed a letter of intent to sell a controlling interest in
Financial Data Services Inc., a mutual- fund administrator valued
at $3.5 billion, to an undisclosed buyer.
