It is interesting to note the different approaches that foreign analysts and reports made about Temasek's report card use in comparison with our local mass media.
Goh Meng Seng
http://sg.biz.yahoo.com/041012/15/3npq4.html
Tuesday October 12, 8:30 PM
UPDATE: Singapore's Temasek Reveals Declining Returns
By Hasan Jafri and Abdul Hadhi
Of DOW JONES NEWSWIRES
SINGAPORE (Dow Jones)--Temasek Holdings Pte. Ltd. for the first time
Tuesday offered a detailed peek into its finances, revealing that
while the state-owned investment company is Singapore's most
profitable firm, its returns have progressively declined.
The publicized annual report - a first in three decades - is likely
to renew a long-standing debate about whether the state or the
private sector is a better manager of funds. Temasek is one of the
region's most aggressive investors, outlaying S$3.3 billion across
Asia over the past two years, according to the report.
Analysts say the report is likely a prelude to Temasek's first-ever
bond sale, expected to be as big as US$3 billion. Debt rating
agencies Standard & Poor's and Moody's responded quickly to the
report with top-notch ratings on the company.
Temasek controls Singapore's biggest companies, including port
operator PSA Corp., Singapore Airlines Ltd. (S55.SG) and Singapore
Telecommunications Ltd. (T48.SG). Temasek-owned companies account for
47% of the Straits Times Index's market capitalization.
But the 72-page annual report portrays Temasek as a growing, dynamic
and active investor that over the next decade will own a diversified
portfolio of assets evenly split across Singapore, the rest of Asia
and the developed world.
"The annual report gives you some idea what Temasek is all about,"
said CLSA head of Singapore research Prabodh Agarwal. "People outside
are very curious about it."
Which Is The Better Fund Manager?
Interspersed with pictures of green leaves, orchids and regional
landmarks like the Taj Mahal and Malaysia's Petronas Towers, the
annual report shows that Temasek's return to its sole shareholder -
Singapore's Ministry of Finance - has fallen over the past decade.
Singapore has S$231 billion in liquid reserves alone, Standard &
Poor's said last month, which are managed by Temasek and the ultra-
secretive Government of Singapore Investment Corp.
By S&P's calculations, Singapore's investment strategy netted nominal
annual returns between 1.7% and 4% over the past five years, while
Hong Kong's privately managed reserves yielded an average nominal
annual return of 6.1%.
The GIC's financial returns remain a state-secret, but Temasek's
aren't any more. Temasek's returns over the past five years amounted
to 6%. It's unclear whether S&P and Temasek are using the same
yardstick to measure returns on investment.
Temasek said its annual shareholders' return, measured by market
value, was 18% over a 30-year period, but declined sharply to just 3%
over the last 10 years. In the same 10-year period, the MSCI Asia ex-
Japan index, which includes top Asian companies, shrank 2.7%.
Sounding a theme popular with publicly-listed companies and
governments alike, Temasek blamed the declining returns on the Asian
financial crisis, the terror attacks in the U.S. in 2001 and the
outbreak of severe acute respiratory syndrome, or SARS, in Asia.
Singapore's liberalized telecommunications sector, a property bubble
burst and asset impairment charges at power generation companies
added to the woes, Temasek said.
"However in the midst of these recent global and regional economic
setbacks, new opportunities have emerged in a bustling China and a
confident India, alongside a recovering ASEAN," Temasek Chairman S.
Dhanabalan said in the report, referring to the 10-country
Association of Southeast Asian Nations.
Over the past two years, since the wife of now-Prime Minister Lee
Hsien Loong, Ho Ching, became Temasek's chief executive, Temasek
became more aggressive in selling and buying assets and returns were
8%.
By Far Singapore's Largest Company
Regardless of its fluctuating performance, Temasek remains a
behemoth. With total assets of S$181 billion, Temasek is comparable
with some of the world's largest conglomerates, such as General
Electric (GE) of the U.S. and Germany's Siemens AG (SI), S&P said
Tuesday.
S&P handed Temasek its top AAA rating, while Moody's also awarded it
the top Aaa rating, ahead of what market participants speculate will
be Temasek's maiden bond sale. Temasek has confirmed its intention to
issue a bond but has provided no details of size or timing.
"The exceptionally strong rating on Temasek reflects the leading or
dominant market positions in the key business segments in which the
Temasek group of companies operate and its high degree of investment
diversity," said credit analyst Greg Pau, director of S&P's Corporate
& Infrastructure Ratings Group.
Temasek earned a net profit of S$7.4 billion in the year ended March
31, up sharply from S$241 million a year earlier, boosted by
SingTel's S$1.9 billion gains from sale of stake in a foreign
company.
Temasek's revenue rose 14% to S$56.5 billion from S$49.6 billion in
the same period, making it by far Singapore's largest company.
Over time, Temasek will be a different company, less dependent on
Singapore's tiny S$165 billion domestic economy and more on Asia and
the rest of the world, the statement said.
"Over the next 8-10 years, we expect to see a portfolio with
approximately one-third of our operating asset exposure in Singapore,
one-third in the rest of Asia and the remaining one-third in the OECD
(Organization for Economic Cooperation & Development) of and other
economies," chairman Dhanabalan said.
The portfolio value of Temasek's assets, both listed and private,
amounts to S$90 billion, with 52% of the assets in Singapore, the
company said.
CLSA's Agarwal says that given Temasek's breakdown of investments,
its strategy for diversification doesn't suggest a grand sale of
Singapore assets, as the company is better diversified than earlier
thought.
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Subject: MSDW: S'pore: External Economy -- Low Return Is a Concern
Singapore: External Economy -- Low Return Is a Concern
Daniel Lian/Anita Chung (Singapore)
The report on "Singapore's Investment Abroad 1997-1998" released by
the Singapore Department of Statistics in the second week of
September 2000 validates our balance of payments methodology for
valuing the stocks and flows of Singapore's external economy, which
we presented in the first week of September (See "External Economy --
Some Intriguing Arithmetic," September 7, 2000).
Without taking into account the part of the external economy that is
owned by the government (i.e., other than foreign reserves),
official statistics valued the stock at around S$297.7 billion
(US$177.8 billion) in 1998 compared with S$344.7 billion (US$205.9
billion) estimated by our model.
We believe the difference of S$47 billion (US$28 billion) at the end
of 1998 largely represented the part of the external economy owned
by the government (through government agencies such as Temasek
Holdings, GIC, and statutory boards like EDB and JTC). In fact, for
1998 alone, the government directly, without this being captured by
the official survey statistics, recycled some S$15.7 billion (US$9.4
billion) worth of the current account surplus abroad. It is thus
reasonable to assume that by the end of 1999, the government-owned
external economy (excluding foreign reserve holdings) could be as
large as S$40 billion to S$60 billion.
Government, GLCs and MNCs Dominate>
The government external economy constituted more than 50% of the
total external economy in 1998. If one takes into account the GLC-
owned external economy, then the government share balloons to some
60%. Foreign MNCs accounted for 29% whereas the local private
sector (excluding GLCs) owned 11%. It is therefore clear that if
the government and GLCs fail to secure a good return on their
external economy, the performance of the economy overall would be
adversely affected.
Low Returns of External Economy a Major Concern
We are somewhat concerned about the apparent low return generated by
the external economy. We collate gross factor income of
Singaporeans abroad and express it as a percentage of both GNP and
the external economy (public and private sector). Returns have been
declining over the past few years, according to our projections, and
the selection by our model of a 6% nominal return as the proxy of
profitability for the external economy during 1980-1999 was
consistent with real world observations.
We do not know the exact sources contributing to the reduced
profitability of the external economy in the past few years.
However, such a decline has coincided with a period in which the
government and GLC-led buildup of the external economy (primarily
through direct investment, portfolio investment and other foreign
assets) has taken precedence over the past practice of accumulating
plain vanilla foreign reserves. The former forms of investments
assume more risks and should earn better returns than foreign money-
market instruments and bonds. Something appears to have gone wrong
with the risk and reward profile of the external economy in recent
years.
We conjecture that the following factors could have contributed to
the poor returns earned by the external economy despite the higher
risk profile.
(1) Longer gestation period. Direct and portfolio assets tend to
take longer to reap returns after their initial formation.
Industrial parks, transportation and telecommunication infrastructure
are examples of major projects of the external economy that could
have generated poor returns in the early years.
(2) Asian crisis and currency devaluation. The Asian crisis and
currency devaluation in Southeast Asia could have negatively
affected both stocks and income flows of the external economy.
Singapore's direct investment in Asian countries accounted for 58%
of total direct investment abroad and among the top four investment
destinations, i.e., China, Malaysia, Hong Kong and Indonesia, three
were severely hit by the crisis. Both the ringgit and the rupiah
have also sharply depreciated against the Singapore dollar.
(3) Poor investment decisions. We have emphasized in our previous
analysis that management of the external economy has rapidly become
the most important economic activity for the republic.
Diversification is key to securing steady returns and protecting
investment. While gestation periods and the Asian crisis may have
played a role, we cannot rule out poor investment decisions. Even
though we cannot ascertain whether it is the government (through its
agencies and statutory boards), GLCs, MNCs or indigenous private
sector that has been making such decisions, the sheer domination of
the government in the external economy means that responsibility for
the poor returns must lie with the government to a large degree.
In the Hands of Government
The simulation that we carried out in our previous article
demonstrates that not only is the future rate of return critical to
the growth of the external economy, it will also determine its
relative contribution to the Singapore economy. Our estimates
suggest that the external economy needs to secure a return of at
least 8% to be commensurate with the economy's long-term growth
potential of 6.5%. Given the preponderance of government ownership,
the task of raising returns clearly lies in the hands of government
and the GLCs.