An extract from the Economist, 12 August 2004
http://www.singapore-window.org/sw04/040812e1.htm
TEMASEK :
First Singapore, next the World
Following the appointment of Ms Ho, Temasek has been rapidly
building up its "external wing". Ms Ho sees banking, telecoms,
transport, education and healthcare as areas ripe for
consolidation.
Since her arrival, Temasek has spent $1.5 billion buying stakes in
banks in Indonesia, South Korea and India, a 5% holding in Telekom
Malaysia, a controlling 62% stake in Global Crossing, an American
telecoms firm, and a chunk of Quintiles, an American clinical-drug
trial company.
But there may be less to Temasek's track record than meets the
eye.
A study earlier this year by LEK, a consultancy, found that
Temasek's 22 major listed companies had made an average return of
only 1.7% a year since their respective listings. And Ms Ho herself
has admitted that Temasek's return had
dropped to 13% a year over the past decade.
By contrast GE, which does not receive the same favourable
treatment from a friendly government, managed 27% a year over the same
period.
Moreover, many of Temasek's best-performing investments are either
monopolies or operate in protected markets with favourable
regulation.
The capital costs of the city's metro system, for example, have
been borne directly by the government, allowing SMRT, the operator,
to undercut its private-sector rival ComfortDelgro.
Chartered Semiconductor, Singapore's attempt to get into making
microchips, has been given lots of tax breaks.
Given such support, the crown jewels in its portfolio, the
zealousness with which they have been protected, and the rapidity
with which Singapore grew in the 1970s and 1980s, it should have made much more
money.
Worse, when Temasek or its subsidiaries have ventured overseas or
had serious competition, they have often flopped.
DBS overpaid for its purchase of Hong Kong's Dao Heng Bank, argue
analysts, while SingTel's acquisition of Optus, an Australian
telecoms company, and NOL's of American President Lines, a rival
shipping company, have taken years to come right.
Singapore Airlines's investment in Air New Zealand was a disaster
and had to be written off after the latter went bankrupt, as was
SingTel's in C2C, an underwater-cable operator.
The biggest lossmaker, however, has been Chartered Semiconductor
which, with inferior technology to Taiwanese rivals, has bled money
for much of the past three years and had to be bailed out by
Temasek in 2002.
Fed up with complaints from outside shareholders, and concerned
that her chastened executives would no longer seize opportunities,
Ms Ho has started using 100%-owned subsidiaries to expand.
The NOL bid is the latest example.
The container-shipping industry is consolidating and NOL, as the
seventh largest, is too small to survive on its own. Owning the
whole company will make it easier for Temasek to control its
destiny.
But buying out other shareholders and delisting companies' shares
fly in the face of the privatisation strategy espoused a few years
ago. They also sit oddly with Temasek's talk of becoming more
open.
Buying up entire companies rather than investing in listed ones
will, if anything, make Temasek more opaque, not less. And even the
rating agencies are struggling to understand what goes on at the
company, which will not obviously reassure outside investors nor,
indeed, Singapore's taxpayers.
Temasek says it is becoming a competitive and transparent global
investment company. But at heart it is still a prime example of
Asia's paternalistic capitalism: a government-owned collection of
assets that operate largely in protected markets with a whiff of
nepotism, and one that will find its addiction to secrecy very hard
to break.
