Temasek, Capitalism, Singapore style
First Singapore, next the world
Aug 12th 2004
As it embarks on an international shopping spree, Singapore's Temasek
promises to become more transparent. Really?
FOR a company that is about to open its books to the world, Temasek
remains surprisingly shy. Ho Ching, the chief executive of
Singapore's state investment agency, has refused to give interviews
to journalists since she took the reins in May 2002. After a year of
requests, this notoriously sensitive company is still "not sure" it
can grant The Economist an audience with Ms Ho, who "doesn't see the
point of talking to journalists" explains its head of public
relations, politely. By chance, Ms Ho is also the wife of Lee Hsien
Loong, Singapore's prime minister since August 12th, and himself the
son of the city's founding father, Lee Kuan Yew. Perhaps such well-
connected folk do not need to sully themselves with the press.
Or perhaps they are just too busy. While others might take the summer
off, Temasek's people "work very, very, very, very hard" all year
round, says Cheo Hock Kuan, a managing director. There is plenty to
keep them at their desks at the moment. On August 3rd, Temasek bid
S$2.8 billion ($1.6 billion) for the two-thirds of Neptune Orient
Lines (NOL), the city state's shipping line, that it does not already
own. And by the end of the month, the group is to make public its
annual report for the first time in its 30-year history.
The moves are related. Aware that it has outgrown Singapore's small,
maturing domestic market, Temasek is moving overseas. So far, its
acquisitions and investments have mainly been in Asia, but it wants
to move further afield. "We will work to transform our portfolio from
a proxy for the Singapore gross domestic product, into a balanced
gross national product portfolio leveraging on the growth and promise
of Singapore, ASEAN, Asia and the world," declared Ms Ho, something
of a visionary, it seems, in February.
Founded in 1974 to hold the government's investments in various
businesses, Temasek, an old Malay name for "sea town", is an odd
company. It employs 170,000 people and controls more than a fifth of
the local stockmarket, including a large chunk of Singapore's
industry and infrastructure, and all or part of well-known companies
such as Singapore Airlines, SingTel, Singapore Technologies, and DBS
Capitalism, Singapore style
While governments elsewhere have mainly privatised their industries,
Temasek is still lapping them up. And now it is snaffling up firms in
other countries, too. It remains, however, wholly owned by the
finance ministry. Think General Electric owned by the American
Treasury. As Temasek spreads its wings abroad, the questioning of its
lack of transparency, as well as of its government support and
investment record, can only get louder.
To some of these questions and concerns answers might start to
dribble out, though since they may provide more fuel to Temasek's
critics, it would be foolish to expect much more openness. Too
little, and Temasek will find that investors are unwilling to give it
money; but too much might lead to questions about its raison d'être.
Temasek needs external capital to help fund its expansion. That will
require more transparency. Making public the annual report, for
example, is a step to getting a credit rating from Standard & Poor's
and Moody's, two big rating agencies, so it can issue international
But greater transparency would in turn mean that Temasek's investment
record can be better scrutinised. Superficially, it is good. The
company's enviable collection of assets, combined with what Temasek
claims is a management philosophy of maximising shareholder value,
has produced some notable successes. Singapore Airlines is one of the
best-regarded, most profitable airlines in the world; PSA its largest
container-port operator, with operating margins of 30%. And Keppel
and SembCorp are global leaders in specialised oil rigs and tanker
repair. In February, Temasek claimed that its total shareholder
return had averaged an impressive 18% over the past 30 years.
Following the appointment of Ms Ho, Temasek has been rapidly building
up its "external wing". Ms Ho sees banking, telecoms, transport,
education and healthcare (see article) 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
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
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,
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
Copyright © 2004 The Economist Newspaper and The Economist Group. All