Negative Bonuses For Temasek's Staff

To be fair, Temasek does have one of the fairer compensation system among "investing companies". In fact someone should recommend to Obama to adopt Temasek's bonus pool policy in his administration's attempt to revamp pay and bonuses on Wall Street.

The Straits Times: Temasek Holdings' portfolio lost more than S$40 billion in value in the last financial year, said chief executive Ho Ching yesterday. The exact figures for the 12 months to March 31 are not available yet, but the headline number indicates how the company has fared in the financial crisis. Temasek's next annual report, due out next month, will shed more light on the portfolio's performance.

In February, then Senior Minister of State (Finance and Transport) Lim Hwee Hua told Parliament that between March and November last year, Temasek had lost S$58 billion. Its portfolio value fell 31 per cent from S$185 billion to S$127 billion. It is unclear if Temasek managed to recoup any of those losses between November last year and March this year. But analysts say Ms Ho's comments yesterday indicate that even if Temasek did narrow its losses, it may not have been by much.

In a speech to the IPS Corporate Associates Lunch yesterday, Ms Ho said that Temasek had reported an amount of S$40 billion as its annual 'value-at-risk' for its financial year between April last year and March this year. This means there is a 16 per cent probability that the portfolio would drop by S$40 billion in the period, she said, adding: 'Indeed, it had turned out to be so, and more.'

Global stock markets plunged to record lows in early March, but have rallied strongly since. Nomura analysts estimated last month that Temasek had recouped a considerable amount of its losses between November and mid-May. They said the portfolio likely rebounded 13 per cent, or S$16 billion, in that time. But it is possible that most of these gains were made between March and May and will not be seen in the latest annual report.

The entire staff of Temasek Holdings are taking personal financial hits, with annual bonuses likely to be slashed in the wake of the investment firm's losses over the past year. Part of every Temasek employee's bonus goes into a pool that is paid out over a number of years rather than at the end of each year. When Temasek meets its internal performance benchmarks with higher-than-targeted returns, the pool of bonuses to be distributed grows and each employee gets a bigger slice. But when it fails to do so, employees get 'negative bonuses': They get no money from the pool, or the value of the overall pool shrinks. This compensation structure is based on a key principle of having staff 'share in the institution's performance, both for positive and negative results', said chief executive Ho Ching yesterday.

In her speech at the IPS Corporate Associates Lunch, she said: 'We share gains and pains alongside our shareholder. This is in essence having an owner's approach to our business and operations. Temasek came in below its targets last year as well as this year, which means staff get 'negative bonuses. From CEO to office attendants, all our staff were allocated negative bonuses last year, and will be allocated more negative bonuses this year,' said Ms Ho.

If Temasek achieves above-target returns, known as Wealth Added and reported in the annual Temasek Review, it will have gains to share with its staff. 'It is a tough challenge to share negative bonuses...it is even tougher to deliver a positive Wealth Added every year,' she said.

p/s photos: Linda Onn

Temasek's Team Under Ho Ching

I guess in an attempt to deflect criticism that it is a one-woman team, the cynical me would try to see through the "approved media blitz" via The Straits Times on the Temasek's senior management team. See how easy it is to twist words and intentions. It can be an exercise in transparency or propoganda to rebuild goodwill.

1 Charles Ong
Senior managing director and chief strategist

Formerly Temasek's chief investment officer in charge of overseeing all investment decisions, he became chief strategist in December 2006 while Temasek was grappling with the fallout from its takeover of Shin Corp earlier that year. Mr Ong, formerly with Lazard Freres & Co in New York, joined Temasek in 2002.

2 Tow Heng Tan
Senior managing director and chief investment officer

A chartered accountant, Mr Tow took over as chief investment officer after Mr Ong's replacement, Mr Jimmy Phoon, quit in 2007. Mr Tow also sits on the boards of Keppel Corp and ComfortDelGro, and was formerly senior director of DBS Vickers Securities.

3 Gan Chee Yen
Senior managing director and co-chief investment officer

The former director of finance for Singapore Technologies, Mr Gan joined Temasek in 2003 and heads the transportation and logistics investment group. He has served on the board of other companies, including Neptune Orient Lines.

4 Manish Kejriwal
Senior managing director, investment, international and India

A former partner at McKinsey and Company, Mr Kejriwal holds an MBA from Harvard University and was named a Baker Scholar, the top academic honour at Harvard Business School. He joined Temasek in 2004 and is in charge of investments in India and in financial services.

5 Cheo Hock Kuan
Senior managing director, corporate development and special projects

She joined Temasek in 2002 from Singapore Technologies, where she was head of executive resources and corporate human resources. A former military officer, she now oversees leadership dynamics, board governance and compensation for executives and board members, among other things. She is also a director of Fullerton Financial Holdings.

6 Leong Wai Leng
Chief financial officer, senior managing director (corporate development)

Appointed Temasek's first chief financial officer in 2006, she studied engineering at Cambridge University. She moved to Temasek after leaving Raffles Holdings - where she was the deputy chief executive and chief executive of Raffles International- after Raffles sold its hotel business.

7 Goh Yong Siang

Managing director, international and strategic relations

The former chief of the Singapore Air Force, Mr Goh retired in 1998 and went to work in the United States, first as president of ST Engineering and then in private equity. He was a partner in and chief executive of a Dallas, Texas-based charter airline, Patriot Air, which filed for bankruptcy less than two years after it was formed. Mr Goh joined Temasek in 2006 and was asked to head the Thai office that Temasek opened following the Shin Corp debacle.

8 Simon Israel
Executive director since 2006

Mr Israel is the chairman of the Singapore Tourism Board and sits on several other company boards, including SingTel, NOL and Fullerton Financial Holdings. A Singaporean, Mr Israel was previously Danone Group's Asia-Pacific chairman and spent 22 years with the Sara Lee Corporation.

9 Hiew Yoon Khong
Senior managing director, special projects

Previously CFO of CapitaLand and CEO of its commercial and financial units, Mr Hiew joined Temasek in 2003 and is now also the executive director and CEO of Mapletree Investments. Prior to that, he was managing director of Temasek's private equity investment funds portfolio.

10 Ng Yat Chung
Managing director, corporate

Less than four months after stepping down as Chief of Defence Force in 2007, Mr Ng joined Temasek in the newly-created position of managing director of portfolio management. A Cambridge University graduate, Mr Ng was also previously Chief of Army.

11 Michael Dee
Senior managing director, international

Formerly a Morgan Stanley investment banker and regional head, Mr Dee was recruited to join Temasek's newly-formed international division last year. He advised Temasek-backed Singapore Power when it bought the Australian business of energy giant TXU for $3.7 billion in 2004.

12 Vijay Parekh
Senior managing director, special projects

After 18 years with American Express, Mr Parekh joined Temasek in 2005 and became a director of Fullerton Financial Holdings in October 2006.

13 Jimmy Phoon
Senior managing director, strategy

Mr Phoon joined Temasek in 1999 but resigned in September 2007, less than a year after he was made chief investment officer following the Shin Corp incident. Formerly from Standard Chartered Merchant Bank Asia, Mr Phoon rejoined Temasek on Nov 1 last year.

p/s photos: Moe Oshikiri

How To Hire Well by Temasek

Temasek should really come out with a guidebook on "How To Hire Well", a follow up on "How To Maintain Your Ego While Losing Tons Of Money", completing the trilogy of books aka Lord of The Sing$ was "How To Buy Mega Companies Without Ever Visiting Them". I don't know what to say. Firing a CEO after hiring him, without him even officially starting is poor form. Wtf was the interview or interviews like??? Wasn't Chip even asked about his strategic mindset. I am certain Chip would have asked Temasek what their objectives were, short and long term. I am certain the interviewees would have asked Chip how he would go about achieving that, what his management style was, etc...

Suddenly, Chip is not the guy after all after just 4 months, but somebody who was supposed to be leaving ... is still hanging around. I am sure Chip would be fuming if not for the probably "excellent severance package" for just 4 months of work. Probably the package would need to be excellent enough in order to remind Chip not to speak "off the cuff" about his experience at Temasek over the last 4 months.

Is the culture clash so bad at Temasek? I didn't know Temasek is so inbred!!! Either somebody is not acting professionally, I am loathed to guess who. I mean Chip has run BHP Billiton, so I think Chip would know the decorum and "best global practices" on Senior Management 101.

Obviously, Chip did not really get to call the shots. Chip does not need the aggravation or somebody looking over his shoulder. Chip has made his money. Chip is outta here. Chips Ahoy!

----------------
Finance Asia:

Charles (Chip) Goodyear will not, after all, become the first foreigner to run Temasek Holdings, the Singapore government investment company. The surprise announcement comes just four months into the leadership transition period, which should have ended with Goodyear taking over the reins from Ho Ching on October 1.

According to a statement released by Temasek late yesterday afternoon, the board of directors and Goodyear have "concluded and accepted that there are differences regarding certain strategic issues that could not be resolved". Hence they both decided that "it is in their mutual interests" to end the leadership transition process from August 15, at which time Goodyear will also step down from the board. Goodyear was appointed a member of the Temasek board on February 1 and CEO-designate exactly a month later.

"It is with much regret that both Chip and the board have accepted that it is best not to proceed with the leadership transition. We wish Chip all the best in his future endeavours, and are happy that Ho Ching has agreed to continue as executive director and CEO," Temasek's chairman S Dhanabalan said.

Goodyear added that he too was sorry that we are unable to continue with the leadership transition. "Temasek has a fantastic platform and I wish the board, Ho Ching and the team all the best," he said. Temasek was unable to comment on any compensation package agreed with Goodyear.

Meanwhile, Ho Ching praised Goodyear's albeit brief contribution, but left open what those "strategic issues" might be, saying that, "in the short time with us, Chip has started a number of initiatives which I believe will help strengthen the Temasek platform. I am sorry he is unable to continue with the leadership transition, and hope to complete the initiatives that he has started".

Goodyear is the former boss of leading Anglo-Australian mining group BHP Billiton, and would have been the first foreigner to run Temasek, the smaller of Singapore's government investment companies. He left BHP Billiton in early 2008, having started as chief financial officer in 1999 after a career as an investment banker at Kidder Peabody.

His appointment to head Temasek had indicated that a redirection of the firm's investment policy towards the natural resources and energy sectors was likely. But Temasek said yesterday that any inference of a change in focus had merely been a rumour, and that the fund would continue to invest in several sectors, and seek various opportunities.

But it looks as if it's back to square one for Temasek in terms of the search for a new boss. In a further statement yesterday, chairman Dhanabalan said the board, including Ho Ching, has been engaged on the issue of CEO succession since early 2005. "This involves an annual review of both external and internal candidates over various time horizons [and] Temasek will continue with this annual succession planning process," he said.

Ho, who is married to Singapore Prime Minister Lee Hsien Loong took the helm at Temasek in 2004, and had aimed to diversify the fund's portfolio with about one-third invested in Singapore, one-third elsewhere in Asia, and the rest in developed economies. A clear investment philosophy was to invest in industries which should grow in tandem with an expansion of the region's middle class, such as healthcare and education providers. Banking and telecoms also entered the fund's radar.

In the financial sector, Temasek bought a 19% stake in Standard Chartered since 2006, but it was its combined $5.3 billion investment in Merrill Lynch in December 2007 and July last year, and its £1.2 billion ($1.9 billion) investment in Barclays in 2007 that attracted most attention and which have caused the most pain. The fund made losses of more than $4 billion when it sold these stakes earlier this year.

The release of the fund's fiscal 2009 results in August will show how badly it was damaged by the collapse in stockmarkets last year. Temasek's portfolio lost $58 billion in value in the eight months to November 2008, leaving it with total assets of $84 billion, Singapore finance minister Tharman Shanmugaratnam said in May.

p/s photo: Suparksorn Chaimongkol

Temasek's Future Under Goodyear

Saw the article in FinanceAsia on Temasek. Its an analysis by Nomura:

Charles Goodyear is slated to take over as chief executive officer of Temasek from Ho Ching on October 1. This has prompted Nomura to review the Singapore-based investment firm's track record and strategies under Ching, and to draw inferences from Goodyear's background as to how he will manage the firm. Its conclusions were published in a research report last week.

The analysis of Temasek is what Nomura terms an anchor report, in which it examines the key themes and value drivers upon which it is basing sector views and stock recommendations. Temasek did not talk to Nomura for the report.

Temasek has succeeded in geographically diversifying its portfolio, Nomura commented, with Singapore now accounting for one-third of its exposure, down from 50% five years ago. However, despite the diversification, Nomura estimated the portfolio was down 23% by May 2009 compared to March 2008.

Nomura questioned whether Temasek is over-exposed to the financial sector, as its exposure to the sector has doubled to 40% in 2008 from 21% in 2004. Given that a significant portion of the investments in financials are held by Fullerton Financial Holdings, Nomura speculated that Goodyear could consider an initial public offering of Fullerton. Nomura has suggested that Temasek might create a special purpose vehicle to allow other investors to co-invest alongside Temasek. This would enable Temasek to continue to invest in attractive opportunities without significantly increasing its financial exposure, while other investors could tap into Fullerton's operational expertise.

Goodyear's past track record led Nomura to suggest that Temasek could gear up the balance sheet as the cheapest form of raising financing, a strategy he adopted at BHP Billiton. As is now widely predicted, Goodyear is also likely to increase investing in natural resources assets, given his own familiarity with the sector. Under Goodyear's stewardship, Temasek could also enhance its focus on China, either through expanding existing representative offices or by making further investments in local private equity funds. Nomura also suggested that under Goodyear Temasek could play a more active role in Temasek-linked companies.

"We think Temasek's performance over the tenure of [Ho Ching's] term has been respectable," wrote Nomura, referring to the increase in the portfolio value to S$185 billion ($127 billion) in March 2008, from S$90 billion in 2004.

Temasek measures total shareholder return (TSR) by market value and by shareholder funds. During its 34-year history, Temasek's TSR by market value has been 18%, but Nomura noted that its performance has weakened in recent years, with one-year TSR by market value falling to 7% as of March 2008. Nomura suggested Temasek could see a further dip in TSR in the fiscal year to March 2009 due to losses on the Merrill Lynch investment and the worsening of the financial crisis, though it added that these may be cushioned by the sales of three Singapore power generating companies during the course of the year.

Nomura analysed in detail Temasek's "unprecedented loss" from the investment in Merrill Lynch, terming the firm's decision to exit the resultant stake in Bank of America in the first quarter of calendar 2009 as surprising. Nomura referred to street estimates that Temasek lost between $2.3 billion and $4.6 billion. It fielded the criticism that Temasek realised the paper loss in an untimely manner, just as the overall market was recovering, by highlighting that Temasek freed up capital and sectoral limits to increase its stake in China Construction Bank.

Among the Singapore companies in its portfolio, DBS Group Holdings, Singapore Airlines, ST Engineering and Neptune Orient Lines are likely to be strategic investments for Temasek which it will continue to own, said Nomura. Its holdings in SMRT Corporation, SembCorp Industries, Singapore Telecom and StarHub could be trimmed, while PSA International, Mapletree Investments, Mediacorp, Changi Airport and Fullerton are potential IPO candidates.

A merger between DBS and Standard Chartered does not seem likely in the near future, Nomura said, as it is complicated by domicile, legal and regulatory jurisdiction, and accountability. But Nomura suggested that in the longer run it is an idea worth exploring as it would be in Singapore's best interest to have a regional financial powerhouse.


p/e photo: Sowelu

Dissecting Temasek

Temasek now has a professional outsider as CEO following Ho Ching's resignation. Of course you can put a spin on the motivations and pressures and developments which led to that. Herein lies the trouble with many big asset management unit. Is it a personality driven outfit? Is there just one person dictating matters? Safe to say that Temasek have very well paid sector leaders managing their portfolio. How does the asset allocation strategy work? Every company has their own culture and ways of doing things. For a proper fund manager to work well, they have to believe what they bought and believe that when they sell, its their call. Anything else that gets in the way would diminish the "empowerment" element.

Good fund managers need to have the autonomy, yes they can be part of the strategy exercise on capital, currency and asset allocation meetings... but when the decision to buy and sell arrives, it has to be the fund manager's call. If everything is collective, then in the end, there will be no responsibility, as it is collective. Fund management is such that somebody has to take the blame or the glory. If you pay someone good enough, they won't mind doing things collectively.

How strong a personality in dictating matters, will somehow cloud the brilliance and contribution of top fund managers. Good fund managers have to be accountable, and to be accountable you have to let them live and die with their decisions. The decision to appoint an outsider, Charles Goodyear (ex-BHP) as CEO indicates to me that the powers to be want to make the entire organisation more like a proper fund management unit. That proper processes and boundaries properly laid out in making investment decisions.

Rightly or wrongly, too many investing decisions by Temasek have been on "relationship basis" such as the Indonesian banks and the ill fated Shin Corp deal. I am guessing here but those looked like decisions being mainly pushed and promoted by one person. The second part was that there was no understanding and appreciation of the "cultural nuances" when investing in sensitive big companies in your neighbouring countries. You cannot just treat these decisions purely on assets and liabilities, and expect the rule of law to fall into place. Certainly a fund as big as Temasek should know what they can do, should do and should tread carefully ... to me, thats where Temasek failed spectacularly over the past 10 years.

-------------------------------------

Hence when markets fall, it is not surprising to see the value of Temasek’s portfolio falling as well. The figure above shows major global stock indexes – nearly all of them have dropped more than 30 percent in 2008, with some losing more than 40 percent. The (not shown in figure) MSCI (Singapore) and MSCI (Asia ex-Japan) stock indices are good benchmarks for Temasek’s performance: 31 percent loss against the 44 and 45 percentage losses suffered respectively. Furthermore, Temasek’s drop “is exactly in line with the MSCI world share index”.

Temasek is also not the only ‘sovereign wealth fund (SWF)’ to lose money. According to The Economist’s report on 22 January this year, “Gulf foreign-reserve funds and SWFs (the distinction is often blurry) lost $350 billion last year, or 27% of the value of their assets”. Though Temasek has failed to produce results, it has not failed spectacularly, giving assurance to the public their money has not been squandered away. In fact a 31-point loss is arguably a better performance, given the context of the market.

Finally, Temasek is not plagued with structural financial problems. While it may have bled money in Barclays and Merrill Lynch, and also encountered problems with Shin Corp and the Indonesian government, it has made other sound investments too, such as in the Bank of China and China Construction Bank. Its losses are likely to be reversed once the recession ends, the banking system is fixed, and investors are once again confident in the markets. Public anger directed at Temasek over its losses, if any, is unreasonable – Temasek is not an immediate failure.

While the Western financial world fears an onslaught of SWFs with hidden agendas, Singaporeans fear that Temasek has skeletons in its closets. There are three broad categories of problems which Singaporeans can express some reasonable suspicions: Temasek’s lack of transparency, soundness of its investment strategy and Temasek’s relationship with the giant local companies here.

The first problem is a recurrent theme. A recent Wall Street Journal article summed it up nicely

“it has never provided historical financials to back up its claim of an 18% compounded annual “total shareholder return” by “market value,” nor has it released detailed results showing how money flows among its subsidiaries, the holding company and its government shareholder. Temasek outlines its compensation arrangements but doesn’t say how much it pays its top executives”.

What is the definition of ‘transparency’? Should Temasek publish its consolidated financial report like any other listed company, not just its summary – which is already quite detailed in stating its goals and investments? What stuff do Singaporeans want to see which is not publicly available?

The essence of this transparency issue is not regarding Temasek’s financial status, but more on its vague goals and the perception that it is a government-run body.

Temasek should be transparent for its own good – a pragmatic and financial purpose. Together with the GIC, they can detail their internal workings, goals and strategies to create a force of certainty and stability in the financial market. If Temasek, for no known reason, decides to give up its stake in a company, it will lead to speculations, rumours and uncalled panic, and Temasek will eventually be affected. More importantly, political tensions can be reduced in sensitive investments, as it has learnt in Thailand. Surely such benefits of transparency can better achieve its bureaucratically-crafted goal, “maximise long-term shareholder value as an active investor and shareholder of successful enterprises”?

The second problem is the soundness of Temasek’s investment strategy. Some have criticised it for pursuing a ‘high-risk strategy’, and so expose Singaporeans’ money to unnecessary losses. Temasek is not a low- or high-risk investor. Stashing money in fixed deposits or bonds are safe, but may not secure high returns. Similarly, pumping money into hedge funds or real estate speculation may offer higher returns, but Temasek is unlikely to be doing that. It is more likely Temasek is a mid-risk investor which made some bad decisions in Barclays and Merrill Lynch (Temasek’s losses cannot be fully attributed to just these two banks; as mentioned, it depends on the performance of stock markets worldwide).

Temasek holds stakes in companies in diverse sectors, ranging from financial services to consumer lifestyle to technology. Critics will jump at this again, arguing that diversification ought to act as a shock-absorber. However, 2008 was an unprecedented year where everything seemed to be going downhill. Even diversification may not work in such exceptional times, when confidence level is zilch in the market; but it will probably work once the economy recovers.

With the appointment of Charles Goodyear as chief executive, it looks set to diversify into asset classes such as commodities, where he has had experience. Benefit of the doubt can be extended to Temasek over its investment strategy, and Singaporeans need not be anxious that aggressive, high-risk investments will bleed them.

The third problem is the consistent link drawn between Temasek and companies where it is a stakeholder. Singapore’s commanding heights – the telecommunications, energy, industrial, transport and banking sectors – are anchored by local firms such as Singtel, Mediacorp, Singapore Power, SembCorp, PSA, SMRT and DBS. Some of these local firms were originally owned by the Singapore government to stimulate the growth of new industries, which then cut a route for private capital once viability was shown. As the economy grew, the government transferred part or all shares to Temasek, which is supposed to be an investment manager for the Ministry of Finance.

Temasek has stated clearly it is not involved in the commercial running of its companies. The evidence suggests so: in 2002, a battle was fought between DBS and 98 Holdings for NatSteel. Though Temasek owned shares in all three firms, there is no evidence to show it was the puppet master of this saga. Furthermore, Temasek firms such as SembCorp and Keppel compete actively against each other in their respective fields. Yet there are lingering doubts, especially when one of Temasek’s ‘investment themes’ is to ‘deepen comparative advantage’ – one can guess it means the ‘national champions’.

Singaporeans should be more rightly concerned at the government’s tendency to pick winners. The government’s current role in the economy is most prominent in their attempts to nurture dynamic comparative advantage in promising industries. Other countries do so through protectionism or creating state-owned enterprises to monopolise the industry, but Singapore does it through fiscal incentives and infrastructure investments to attract FDI. Electronics, pharmaceuticals, tourism, digital media etc – these industries are not grown from the bottom, but deliberately nurtured from the top.

The problem with this is not the government’s inability to pick winners – pharmaceutical output was partly responsible for vigorous growth before last year – but economic development in Singapore has reached a stage where orderly planning may not lead to the next frontier. Technological innovations and capital stock accumulation are required to expand the economy’s productive capacity; attracting FDI has done a fine job, but the next step must be taken. Singapore needs to unleash the local, so-called ‘creative forces’ for long-term growth.

Temasek is a prime example of the government’s belief of orderly mobilisation of resources to tap on market forces. Temasek’s grip on some local giants such as Mediacorp and Singapore Power may be essential for national security reasons, but ownership and control of the vital companies by foreign firms can be limited through regulations. But from a commercial perspective, Temasek owns shares in them simply because they are profitable. Not everyone believes so, again, due to their image problem of being government-directed.

Temasek and the local giants symbolise the sometimes unfathomable economic thinking of the government. On one hand, it says it does not interfere in the commercial running of national champions; on the other hand, its continued stakes in them evokes a nagging feeling the government believes such firms should still be tied to their aprons, for unknown reasons. The Singapore government combines a strange mixture of socialist and free-market thought in the economy –national champions, state-led planning, heavy public subsidies on housing, healthcare and education; free-trader, fiscally conservative and aversion to welfare as to polyesters.

To be sure, Singapore’s development can be identified as ‘dirigisme and free markets’. But it is time the state reduces its direct influence. Signs have been encouraging; the government decided on two casinos, and both are now being built by foreign firms, not TLCs or GLCs. The ‘creative forces’ can come from both local and foreign, but it’s unlikely they will come from the government.

p/s photos: Reiko Azechi

Gov Of Singapore Investment Corp's State Of Affairs

Investors and the general public whacked Temasek and GIC royally over their portfolio losses over the past 12 months. Please search and distinguish between GIC and Temasek (you can get previous postings on that by keying in Temasek or GIC on this site's search button above). I was very severe on Temasek, and rightly so, they performed well when the wind is beneath their wings, and they made rather exceptional sector bets. For all the good brains and minds money can buy, not ONE was able to predict the banking crisis, the property loans debacle, the excessive credit card debt phenomenon, etc... That indicated to me that they just read analyst reports with no desire to walk the data (the need to go to the ground, talk to the participants and see how things were done). All they needed to do was talk to some of those new borrowers, check with ratings agencies on how they rated the papers, how did the papers got their triple A rating, etc. If you are going to invest $1bn into IOI Corp, you should not only talk to management, but walk around the plantations, see how they actually managed them, how the staff behaved, what they do to stop pilferage, how do they hedge their positions, how do they do their forward sales, how they go upstream and downstream, talk to a few of their major suppliers and clients, etc... Temasek and to a certain extent GIC, did not do the dirty work.

Again, Temasek hastily sold its Bank of America stake recently, and the share price has almost doubled what they sold at within weeks. At least GIC had the good sense to ride out bad decisions. If anything, one should be looking to buy now, not sell. Yes, they should NOT have bought before, thats too late to rectify, now they should be looking at their prospects moving forward. Unless Temasek really thinks that Bank of America has a greater chance of going to $4.00 than $25.00 over the next 2-3 years, then sell... what Temasek is doing to cutting off both limbs to get rid of an ugly mole.

Anyway, here is a more tolerant view on GIC and how they do things a lot better than Temasek. Take note of the personalities behind these two vehicles to understand the nuances in management and genuine ability.


The Government of Singapore Investment Corporation (GIC) says it will maintain its investments in Citigroup and UBS, despite the gloomy outlook for Western financial institutions.

This comes days after news that Temasek Holdings had sold its stake in Bank of America (BOA), resulting in an estimated loss of several billion dollars.

GIC currently has an 11 per cent stake in Citigroup, while its stake in UBS amounts to about nine per cent.

Observers say UBS and Citigroup have significant holdings in Asia and other high growth regions, which could recover more quickly from the downturn. And this could benefit GIC in the long term.

Arjuna Mahendran, Head of Asia Investment Strategy, HSBC, said: "By investing in these two very large investment banks, an investor who has a strategic holding in the equity of those banks would perhaps have access to the deal flow that emanates from their investment banking operations. And that is a huge positive if you are running a large sovereign wealth fund."

• GIC manages well over $100b from country's forex reserves and fiscal surplus - estimates of its assets under management range from $140- $300 bn. A plausible estimate is $220b in mid 2008
  
• Lee Kuan Yew suggested that GIC's assets had fallen by 25% from the peak and GIC invested too early in Citi and global banks. It's equity allocation has fallen to 45-50%. Other estimates suggest it lost $33b in 2008. It started to possess 7% more of cash in mid-2007
• A 25% losses would actually mean it outperformed global equity and had losses perhaps slightly less than other SWFs with similar portfolios
• Returns: It has averaged annual returns of 7.8% for last 20 years (slightly above the benchmark MSCI global with 7% returns) with Asian crisis, tech bust and credit crisis depressing returns in recent years. Average annual return in 25 years ending in 2006 was 9.5%
• Investment approach: Primarily a portfolio investor but has taken some larger stakes more recently including $6.9 b in Citigroup, Plans to increase investment in UBS in spite of losses on $10 b investment made in Jan-08; invested $1.5b in Sintonia and several property joint ventures in Europe and Asia. It is also rumored to be the lead investor in a new TPG fund. About one-third of the assets are managed by external managers, with two-thirds managed internally
  
• Investments in the U.S., EU and Japan still make up 80% of its portfolio, despite increase in exposure to Emerging markets. Equity share fell to 44% of its portfolio from about half two years ago, investments in alternative assets such as private equity and real estate rose to 23% from 20%. Cash made up 7% as of March.
• The shift to cash early in credit crisis meant it had cash on hand to invest in UBS.
• Regional: The Americas made up 40% (34% U.S.) of its assets, down from as much as 45% two years ago. Investments in Europe rose to 35% from 25%. Asia now accounts for 23% of its investments, with Japan making up almost half of them
  
• GIC: Uncertain global economic growth and financial market prospects and falling global liquidity make high returns challenging. Plans to increase investment in emerging markets via private equity funds to avoid political backlash
• Based on Singapore's balance of payment and international investment position AUM of around $220b seems plausible
• GIC along with ADIA recently agreed on code of conduct for SWF with U.S. and was a key player in IMF code of conduct: SWF decisions should be based solely on commercial grounds rather than geopolitical goals; More disclosure of strategies would reduce uncertainty and build trust; Recipient countries should have predictable, proportionate investment frameworks not protectionist barriers, nor should they seek to direct SWF investment.

p/s photo: Cherrie Ying Choi Yee

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

Reassessing Indonesia (Part 2)

The largest local groups with annual revenues of more than US$1bil include:

Salim: consumer goods, agriculture / US$7.3bil

Sinar Mas: pulp and paper, agriculture / US$4.7bil

Djarum: cigarette, Bank Central Asia, Cipta Karya Bumi Indah / US$3.7bil

Gudang Garam: cigarette, plantations, paper packaging / US$3.5bil

Bakrie: coal, Bakrie Brothers / US$3.1bil

Lippo: regional property developer, healthcare, financial services / US$2.7bil

Raja Garuda Mas: pulp & paper, plantations, energy / US$2.4bil

Triputra: coal, agro-industry, manufacturing / US$2.3bil

ABC: consumer goods, battery / US$2.1bil

Saratoga Capital: coal, Adaro, CPO, infra / US$1.9bil

Para: consumer goods, property, mining, financial services / US$1.6bil

Sampoerna: agro-industry, telecommunications, forestry and property / US$1.4bil

Ometraco: animal feed / US$1.2bil

If we were to include state owned companies, they will include:

Pertamina: energy / US$43bil

PLN: infra / US$12.7bil

PT Telkom: telecommunications / US$6.6bil

Bank Mandiri: banking / US$2.7bil

Bank BRI: banking / US$2.6bil

Bank BNI: banking / US$2.1bil

If we were to compare the Malaysian companies with annual revenues of at least US$1.8bil (RM3.4bil), they include:

1) Tenaga Nasional US$6.8bil

2) Sime Darby US$6bil (pre-merger)

3) Petronas Dagangan US$5.7bil

4) Telekom Malaysia US$5.2bil

5) Maybank US$4.4bil

6) MAS US$4.3bil

7) MISC US$3.3bil

8) UMW US$2.9bil

9) Public Bank US$2.8bil

10) Bumiputra Commerce US$2.6bil

11) IOI Corp US$2.6bil

12) Genting US$2.4bil

13) UEM World US$2bil

14) RHB Capital US$1.8bil

15) PPB US$1.8bil

The big difference is that many of the biggest companies in Malaysia are GLCs but Indonesia’s list comprises mainly entities owned and run by entrepreneurs.

The Arab Connection

Petrodollars have been making a beeline to the shores of Indonesia in recent years. There is an underlying motive to help fellow Islamic countries. Indonesia has the most populous nation in Asia following China and India, and has enormous untapped potential. The biggest investment to date is by Saudi Arabia’s Bin Laden group which invested US$4.3bil into 500,000 ha of planned rice estates in Merauke, Papua.

The world class Emaar Property (Dubai) will be building an 1,200 ha integrated resort project in Lombok, West Nusa Tenggara. The projects is estimated to be US$2.6bil. Emaar is the builder of the Burj Dubai tower, the world’s tallest building. Emaar also plans to invest in other sectors such as rice plantations in east Indonesia, power plants in South Sumatra, and a satellite town in either Purwakarta or Jonggol.

Another Dubai investor is Ras Al Kheimah Investment Authority (RAKIA) which is planning to develop a US$400mil 130 km railroad connecting Palembang and Tanjung Api-Api port in South Sumatra.

Qatar Invetsment Authority has committed US$1bil in infrastructure related projects. Another investor from the same company, Qatar Bahrain Company, has committed US$400mil to a power plant project.

Dubai Drydock and Dubai World have planned to invest US$500mil in a ship building yard.

Sensitive Treatment of Investors

However, the Indonesian government seems to have a different set of rules for its neighbours, Malaysia and Singapore. Singapore has had to deal with request to lower or eliminate stakes in one of their telecommunications holdings.

In Malaysia, Maybank’s brush with the regulators over its BII purchase looks laughable. Perhaps, the Indonesians do not want to lose so many key strategic assets to Malaysia and Singapore. It’s a bit like how Australia hates to lose to New Zealand in rugby and cricket, and well, almost everything else. Misplaced nationalistic pride? Pettiness? Venting frustrations and displeasure over the treatment of Indonesian workers in Malaysia and Indonesia (maids, construction, palm oil)?

Maybe that’s why when Arab investors buy strategic assets, there is so much less negative press. For example, Qatar Telecom has acquired a 40.8% stake in PT Indosat for US$1.8bil. Saudi Telecoms has also bought a 51% stake in PT Natrindo, another telecommunications giant which operates the country’s newest cellular phone system.

Middle East investors have been big in Malaysia over the last five years. But is the tide turning in favour of Indonesia? I think not. Malaysia is still a preferred destination as the infrastructure and business logistics are comparatively simplified and easier. Till today, Indonesia is still working out the double taxation agreement between Indonesia and Middle East governments. But the gap is closing.

The Legacy Issues

Just like Malaysia, Indonesia practises a lot of subsidy. Subsidies account for 11.7% of the government spending in 2007, (US$13.6bil or 2.1% of GDP) and are expected to rise to over 13% in 2008. Government spending on infrastructure is expected to increase ahead of next year’s elections. Indonesia plans to sell US$12.8bil bonds in 2008 to fund infrastructure and fiscal deficit.

The good news is that the ratio of government debt towards GDP in 2009 is expected to drop to 30% from 54% in 2004. President Susilo Bambang Yudhoyono said Indonesia, which had fully repaid its foreign debt to IMF, continued to enjoy an increase in its foreign exchange reserves. In July this year the foreign exchange reserves have reached over US$60bil.

The Corruption Eradication Commission (KPK) has carried the people’s wishes as it aggressively pursues powerful political figures, and even plans to take on the House of Representatives. KPK chairman Antasari Azhar has in the past eight months overseen arrests on corruption charges of five members of parliament, a former national police chief and ambassador to Malaysia, a senior government prosecutor, and three central bank officials, including the governor.

The Main Factor

What prompted me to write about the need to reassess Indonesia was the entrepreneurship that resides in the many mega business entities, which were mentioned earlier. A country’s economic success can be charted by sound long-term financial, social and economic policies €“ e.g. Singapore and HK. Or it can rise up thanks to an open economy and strong entrepreneurship in its people €“ e.g. HK, China.

To be fair, while the Indonesian government is headed in the right direction, it still has some way to go. What is more significant is the level of entrepreneurship that resides in the very big companies in Indonesia.

There is a big difference to a professionally trained CEO helming a big company in Singapore and someone who is building a billion dollar empire from Indonesia. It used to be that to be very rich in Indonesia, you need very strong ties to the right people. While that is still important, there has been a significant change in the way Indonesian companies have been growing over the last five years.

Was it due to the end of the Suharto-era? Was it due to a more democratic process? Are there more opportunities now for more people instead of a select few? Maybe all of the above, and throw in a suggestion that many Indonesians are just simply superb businessmen.

Let’s just examine a few of the major business groups:

* Lippo: It is not only big in Indonesia but in Asia as well. Its property arm, Lippo Karawaci, currently has US$2bil in projects and assets under management. Its strategy is to grow that to US$10bil over the next five years. Its recent major succeses include the US$880mil Kemang Village and the outstanding US$1.2bil St Moritz development in west Jakarta. In healthcare it plans to add 15 new hospitals around the country. To ensure they have things covered up the value chain, it has tied up with international institutions in Singapore, Australia and Universitas Pelita Harapan.

The company owns the largest landbank in the country, and will be developing new townships modelled after the highly successful Kemang Village and Lippo Cekarang, in Tanjong Bunga water front project in Makassar. It has two REITs in Singapore with US$900mil total in assets under management, with a target to bring that to US$5bil in 5 years.

* Salim: Helmed by Anthony Salim. Has the world’s largest instant noodle maker in Indofood Sukses Makmur, and the HK-listed First Pacific Co. Over the last three years he has increased its palm oil plantations by 224,000 ha to 387,000 ha though not all is planted with palm oil yet. Compare that with arguably Indonesia’s largest CPO planter Astro Agro Lestari which has only 300,000 ha. By 2015, Salim aims to produce 1 million tonnes of CPO a year. Salim is also the industry leader in cooking oil, margarine and flour.

* Sampoerna: Sold the country’s second largest clove cigarette maker to Altria for US$5.2bil in 2005. However, the family has quickly bounced back, redeployed the cash to acquire stakes in agriculture, telecommunications, mining and property. Its Ceria telecommunications brand saw subscribers growing from 300,000 in 2007 to more than 700,000 this year with a target of 1 million by end of 2009. Sampoerna has expanded into forestry as well, owning controlling stakes in Sumber Graha Sejahter, Sumalindo Lestari Jaya and the Singapore listed Samko Timber. In property, the company owns Sampoerna Strategic Square, a 3.2 ha development with two towers of 32 floors each.

If you wish to do business in Indonesia, you cannot go wrong by talking to Benny Subianto. Probably, the closest the country has to a version of Warren Buffett. Not many would recognise his name, but he was the founder of two monster companies in Astro Agro Lestari and United Tractors, and he also played a big role in Astra International. In 2003, Benny started his own investment firm Persada Capital Investama. PCI has interests in Interra Indo Resources, and was an early substantial shareholder in the highly successful Adaro. His current portfolio include Adaro, Kirana Megantara, Sapta Indra Sejati and Truputra Agro Persada - all corporate giants or giants to be.

I can go on and on and list the achievements of Eka Widjaja (Sinar Mas), Budi Hartono (Djarum), Aburizal Bakrie (Bakrie Brothers), Teddy Rachmat (Triputra), Chairul Tanjung (Para), Handojo Santosa (Ometraco), Eddy Katuari (Wings), Paulus Tumewu (Ramayana Lestari Sentosa), Jakonb Oetama (Kompleks Gramedia), Kartini Muljadi (Tempo Scan Pacific) and Tomy Winata (Artha Graha). They are just a handful of the many highly adventurous and risk taking businessmen, and they are very good.

If we were to compare, we will find that these Indonesian business leaders tend to do a lot more corporate deals every year. They tend to make big investments more frequently. They are also not averse to selling assets for the right price.

Many have made money from their successes in Indonesia. Many will now have their eyes to parlay their expertise to conquer parts of Asia. That is the one major thing which large Malaysian companies have been able to do much better. Can they translate their success into other countries? It would take a brave person to think that they will not succeed.

SOEs Privatisation The Kicker

There are 37 state owned enterprises slated to be privatised. Though there had been some obstacles, we will see five going for IPO soon: Krakatau Steel, Bank Tabungan Negara, National Plantation Enterprises III, IV and VII. Just imagine Tenaga and Telekom Malaysia being listed in one year. That alone would charge up its corporate scene and equity markets. Just spreading the list of 37 over five years would propel global investors interest to no end in Indonesian equities. The choices would increase and these giants would allow for good liquidity as well.

Hence if the government continues to play their cards right, the outlook for Indonesia is bright indeed over the next few years.

p/s photos: Tavia Yeung-Yi (one of the better up and coming talent)

Reassessing Indonesia (Part 1)

Malaysia and Singapore have a unique relationship. We are like squabbling in-laws, but we know we cannot and will never divorce each other.

You live with the tension and exchange of barbs. The ties between Malaysia and Indonesia are quite different. The animosity at times can boil over. Grudges are harboured and allowed to fester. There is a genuine fear of, and sometimes loathing for, each other.

Most of that is at the political and policy levels. Many Malaysians and Indonesians love to visit each other’s country. Indonesia to Malaysians in general, is a bit of an underachiever. Naturally, Malaysia to Singaporeans, is also a bit of an underachiever.

It’s time to reassess Indonesia. In many ways, the country is moving in the right direction business-wise.

Recently, Qatar and Indonesia set up a US$1bil fund to invest in energy and infrastructure. Qatar is the world’s largest exporter of liquefied natural gas (LNG), while Indonesia is third. Both countries are also members of the Organisation of the Petroleum Exporting Countries (OPEC), though Indonesia has just opted out.

Qatar will contribute 85% of the funds for the new fund and Indonesia the remainder. Qatar’s state investment fund, the Qatar Investment Authority (QIA), has teamed up with Abu Dhabi state enterprise International Petroleum Investment Co in March to launch a US$2bil fund.

The QIA has also set up joint funds with Oman and Dubai.

Indonesia is pro-Western, much like Malaysia, and could be a model for a modern Muslim nation, provided nationalist Islam (not radical Islam) doesn’t become too powerful a force in Indonesian society.

Following the aftermath of the Sept 11 attacks, many were outspoken on the various failings of Muslim nations. Indonesia is a dominantly Muslim nation, with the largest Muslim population in the world, but it also has small but strong Hindu, Christian and Buddhist communities.

Malaysia has generally enjoyed a better perception in the eyes of international travellers and global investors.

Indonesia has had to contend with thorny events such as the Bali bombings and the East Timor massacre. If investors are to be influenced just by these events, they would be doing Indonesia and themselves a disservice.

There is still pockets of “nationalistic fervour” among the political voices in Indonesia.

Health Minister Siti Fadilah Supari commented in April that regional governments in Indonesia should be on their guard whenever they dealt with international investment proposals.

She said the following should be considered by provincial governors and regents in respect of foreign investment plans:

· Would the international investors take control of Indonesian resources?

· Would the foreigners be prepared to be on an equal footing with Indonesian partners, or would they adopt a lordly, colonialist stance?

· Would a particular foreign investment benefit Indonesians or harm them?

· To what extent would Indonesians gain from the investment? Foreign investors often lie about this matter.

For example, South Kalimantan’s coal needs were less than 1 million tons per year and there was an electricity shortage crisis. Yet, at the same time, 70 million tons of coal was taken out of the province and sold internationally.

Indonesia has been beset by an autocratic regime for a long time. We need to reassess the country now as the country is certainly moving away from the authoritarian system to a more democratic one.

It is still taking baby steps but press freedom and the media’s brutal honesty and bravery has paved the way for a more civil society. This is an important aspect of a decentralised power system, which accords more voice to a wider spectrum of leaders and the disenfranchised.

Meanwhile, according to an AT Kearney study of the top 25 most attractive investment destinations in the world, Indonesia ranks 21st. The rankings for 2007 are based on a survey of 1,000 CEOs around the world. In 2006, Indonesia did not make the top 25. Thanks to a well-respected Finance Minister in Sri Mulyani Indrawati, there has been significant economic liberalisation.

Quasi-monopolies have not been protected and are expected to compete with new foreign companies.

The boom in commodities over the last five years has helped the country infuse more strength into its underlying economy. Indonesia is at or near the top in palm oil, rubber, base metals, coffee and cocoa.

Sustainability of global investments

Corporate investors across all regions are concerned about the sustainability of the global economic order. Is Indonesia the flavour of the month only because of the commodities boom? I think not, as most experts can see a sea of change enveloping the country.

The commodities boom only hastens the benefits of such changes.

The country is confident enough to implement several years of mandated increases in minimum wages. While some industries may have shifted or closed operations because of these new rules, these measures have also forced investors and businesses to move up the value-add curve.

There has also been a decentralisation of budgetary systems, which has allowed local leaders to better manage resources and spending to their localities.

Over the last three years, Indonesia has managed to enjoy more stability politically, in its currency and in economic viability. This lessens the discount on businesses in valuation models, thus resulting in better confidence among foreign investors going forward.

Corruption is still a problem but one can easily see a more transparent era for Indonesia. More bigwigs have been hauled up and tainted politicians have lost their seats with greater frequency.

Major business entities

Since beginning of 2007, there has been more than US$20bil in mergers and acquisitions and capital raising, which drove the corporate sector to new levels.

The corporate sector is no longer dominated by seasoned players from the Suharto era. If you put the top business groups next to Malaysia, the latter pales in comparison.

The Salim group tops the ladder with US$7.3bil (RM24.8bil) in revenues annually and is in agriculture, distribution, property management, financial services and telecommunications in Indonesia, Hong Kong, China and Singapore.

Next is the Sinar Mas group with revenues of US$4.77bil (RM16.2bil), which was forced to sell Bank Internasional Indonesia (BII) following the 1997 financial crisis but has since rebuilt itself in banking with the acquisition of Bank Shinta.

The Sinar Mas group can be said to have been most affected by the 1997 financial implosion as their Asia Pulp & Paper had a staggering debt load of US$14bil. Following years of negotiations and restructuring, the company has thrived. It is also the biggest national player in palm oil, with land bank of more than 1 million hectares.

I could go on and on, but a summary of local companies with annual revenue of at least US$1bil each would be better for now (major assets/annual revenues):

Salim: consumer goods, agriculture/US$7.3bil

Sinar Mas: pulp and paper, agriculture/US$4.7bil

Djarum: cigarette, Bank Central Asia, Cipta Karya Bumi Indah/US$3.7bil

Gudang Garam: cigarette, plantations, paper packaging/US$3.5bil

Bakrie: coal, Bakrie Brothers/US$3.1bil

Lippo: regional property developer, healthcare, financial services/US$2.7bil

Raja Garuda Mas: pulp & paper, plantations, energy/US$2.4bil

Triputra: coal, agro-industry, manufacturing/US$2.3bil

ABC: consumer goods, battery/US$2.1bil

Saratoga Capital: coal, Adaro, palm oil, infrastructure/US$1.9bil

Para: consumer goods, property, mining, financial services/US$1.6bil

Sampoerna: agro-industry, telecommunications, forestry and property/US$1.4bil

Ometraco: animal feed/US$1.2bil

Khazanah Nasional Bhd has a hefty profile in Indonesia. The businesses under Khazanah has an annual revenue of US$1.8bil. Its stakes include those in Bank Lippo, Bank Niaga, Excelmindo Pratama and infrastructure joint ventures (JVs).

Surprisingly, Temasek’s holdings in Indonesia has only a total annual revenue of US$1.5bil. It has stakes in Bank Danamon, BII, and various property and energy JVs.

Still, the key point here is the number of business entities that have substantial revenues. How many Malaysian businesses have combined revenue of more than RM3.4bil annually? Size matters, especially when they are headed in the right direction with the proper masterplan.

State-owned enterprises (SOEs)

The government has also planned to privatise a number of SOEs, which in itself is a grand plan to better manage resources, inject competition and promote efficiency in government. All in, 37 SOEs have been identified for privatisation and/or restructuring. There has been some delay in that certain factions of the government have been delaying the process.

Last year, 10 SOEs were scheduled for privatisation. However, only five are now ready to go to IPO this year: Krakatau Steel, Bank Tabungan Negara, and National Plantation Enterprises III, IV and VII. Needless to say, intense lobbying by the affected SOEs and maybe even “vested interests” must have been a large part of the delay.

Still, it’s hard to deny that the country is moving in the right direction.

p/s photo: Son Ye Jin

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...