Should Ho Ching be running Temasek?
Feeling Thailand's heat
Uncertainty Singapore government doesn't need as election approaches. By Seah Chiang Nee. littlespeck.com
Mar 27, 2006
By nature, what Temasek Holdings, the government's US$80bil investment arm, does abroad usually has little direct impact on the daily lives of Singaporeans. Not this time!
Its latest - and biggest - investment in Thailand has caused a backlash against the republic, with daily demonstrations outside its Bangkok embassy and a public call for a boycott of its products.
It has resulted in 6,000 worried Singaporeans cancelling plans to visit Bangkok. Meetings have been put on hold, and businessmen are assessing potential losses.
"Can go, but don't let people know you're Singaporean," suggested an online letter. "Tell them you're from Malaysia."
The local media has avoided playing up the burning of pictures of Prime Minister Lee Hsien Loong and his wife Ho Ching, who is Temasek chief executive, by the Bangkok crowds.
By and large, Singaporeans are baffled by the Thai reaction and do not understand how one minute everything was peaceful and the next, Singapore has become a villain just because Temasek bought a Thai company.
The US$3.7bil Shin purchase, the biggest single investment in the country, could also turn out to be its most controversial overseas foray so far.
Apart from the bad politics, the uncertainty and the boycott call have caused the share to plunge by 24%, resulting in a paper loss to Singapore of about S$1.45bil.
It is a problem the Singapore government doesn't need as it approaches one of the toughest general elections in many years.
In the wake of the crisis, Singapore's founding father Lee Kuan Yew said, during a visit to Moscow, that governments could not run businesses as well as individuals could.
He wasn't referring to the Shin fiasco, but the timing of his remarks raised eyebrows. Lee Senior is a careful person, who generally weighs what he says and when he says it.
To the Thais, the Shin deal is not an ordinary business decision as Temasek explains but smacks of questionable and unethical, even corrupt, tactics.
"Singapore has no corruption, but is encouraging corruption in Thailand," proclaims a large poster.
The crisis was sparked off by its purchase of 49% of Shin for US$1.9bil owned by the Thaksin family in private discussions. The Thai government had just passed a law that enabled the prime minister to escape paying a single baht in tax for the deal.
The Thais are also enraged that he had sold a national asset to a Singapore government arm.
At best, Temasek Holdings or its CEO Ho Ching could be accused of a lack of sensitivity and poor anticipation of Thai politics before putting in so much money.
Professor Thitinan Pongsudhirak of Bangkok's Chulalongkorn University said, "Temasek underestimated the political fallout. The deal has not been transparent ... Temasek has made itself a player in Thai politics and that puts its investment at risk."
Temasek eventually made a general tender, ending up with 96.12% of Shin for about US$3.7bil. Since then, the shares had fallen 24%.
It has since announced an intention to sell some of the shares to keep Shin publicly listed.
Some analysts believe the decline is temporary and business normalcy should return once the political storm blows over.
Others are, however, less confident, saying that Singapore's continued ownership of a "sensitive" entity in a tainted deal may continue to cast a shadow on its future growth.
Shin is just one of several recent setbacks for Temasek, which has had a credible annual growth of 6% during the past decade.
In the last five trouble-ridden years, its performance had stumbled, yielding only a dismal 1% yearly. This below-market yield came under criticism in Parliament.
It suffered another blow last month, when the Port of Singapore Authority (PSA) was beaten in a bidding war by oil-rich Dubai to take over Britain's port operator P&O. The deal would have made PSA the world's biggest port operator.
The future of Singapore rests largely on how well Temasek fares in developing its external economy, balancing between higher yields and slower, long-term, strategic investments.
With its small market and lack of natural resources, the city-state is relying increasingly on its overseas investments.
It has carried out its second major divestment of local holdings in the past two years, selling off stakes in several firms, including 770 million SingTel shares for S$2bil. Last year, a similar exercise yielded S$5bil.
Some analysts believe it wants to sell off as much as a third of its S$60bil Singaporean portfolio and shift more money abroad. In the past few years, more than S$26bil had been invested in China and other countries.
However, there's a hitch as Temasek becomes more ambitious, trying to buy into major foreign assets - its own parentage.
It is 100% owned by the Ministry of Finance and is therefore viewed as the government itself when it moves to control some "sensitive" companies like banks, telecom and infrastructure.
Its explanation that Temasek operates as a private enterprise independent of the government is not always believed.
Last week, DBS Bank found that its bid to acquire 50.5% of Korea Exchange Bank had failed because its biggest shareholder Temasek is classified as a non-banking group under Korean law.
This may slow down Temasek's "First Singapore, Now the World" approach.
How will the government handle a troublesome deal? PM Lee said if investment would lead to misunderstandings, it would be better to set it aside rather than "sour up relationships with good neighbours".
