KUALA LUMPUR - Temasek Holdings, Singapore's hugely successful state-owned
investment vehicle, has been characterized as brusque in its business
acquisitions, but seldom sloppy. Several recent investments, however, raise
hard questions about whether the secretive Temasek is conducting enough due
diligence before entering politically sensitive blockbuster deals across the
region.
To offset its lack of natural resources and a land-limited local economy,
Singapore Inc has gone on a regional investment spree in recent years,
acquiring significant stakes in ports, telecommunications and banking assets
through state-owned investment vehicles. Temasek, which was first established
to raise capital for government-linked companies, and whose current
executive director, Ho Ching, is the wife of Prime Minister Lee Hsien Loong,
has on nearly all counts had a successful investment record - apart, perhaps,
from its botched attempts to launch an airline in the 1990s.
But a number of recent apparent lapses have raised hard new questions about the
management of the Singaporean government's domestic investment arm.
This year Temasek took an 11.55% stake for about US$4 billion in Standard
Chartered Bank, which has substantial Asian operations, making it the largest
single shareholder in the UK-based bank. Temasek has demonstrated a seemingly
insatiable appetite for regional bank shares. In the past three years, the
investment company has taken controlling or substantial stakes in Indonesia's
Bank Danamon and Bank Indonesia International, India's ICIC Bank, Pakistan's
NDLC-IFIC, China's Minsheng Bank, the China Construction Bank, the Bank of
China, and Malaysia's Alliance Bank.
A little too aggressive?
But in its acquisitive rush, Temasek has overlooked important legal and
political considerations that threaten to scupper certain deals as well as
invigorate nationalistic opposition to its aggressive regional investment
strategy, known in Singapore as the "Look East" investment campaign.
That seems particularly true in Malaysia, where Temasek is known to have
numerous holdings in everything from plantations to shopping malls to banks,
but is also viewed suspiciously by nationalistic groups and politicians.
Temasek is currently a major shareholder in Malaysia Plantations Bhd, which is
the sole owner of Alliance Bank, Malaysia's ninth-largest financial
institution.
Last November, Temasek hurriedly sold about 40 million shares in Southern Bank
Bhd, Malaysia's second-smallest in terms of assets, after accumulating 16.9
million shares the previous month, which had pushed its total stake in the
financial institution to 7.58%. The rushed sale was apparently a belated
attempt to comply with Bank Negara regulations, part of the 1989 Banking and
Financial Institutions Act, which require that foreign buyers receive
central-bank approval when taking a stake greater than 5% in a financial
institution licensed in Malaysia.
Temasek also held stakes of more than 5% in two different financial
institutions licensed in Malaysia without prior central-bank approval. After
the local press highlighted the apparent discrepancy, Temasek quickly sold off
its shares without Bank Negara sanction of what could have been a costly
managerial mistake.
The Standard Chartered deal has also complicated Temasek's standing in
Malaysia, because of the UK-based institution's presence in Malaysia as a
licensed financial institution. Temasek still controls Alliance Bank through
its 15% holding in Malaysian Plantations, and central-bank regulations bar
holding stakes of more than 5% in two different financial institutions. But it
is far from clear in Standard Chartered's case whether the central bank's 5%
regulation applies to its licensed Malaysian operations, ie, whether they are
considered "local". Neither Bank Negara nor Temasek have so far attempted to
clear up the confusion, more than four months after the deal was concluded, and
it's unclear whether Temasek has yet submitted a proposal to sell down its
Malaysian Plantations stake over a specified time period.
A series of bilateral Singapore-Malaysia spats, ranging from sand supplies to
airspace rights to a contested half-built bridge linking the two countries, is
likely to aggravate Temasek's Malaysian troubles, which come on top of Bank
Negara statements that it will take stern action against any party that
breaches the rules on foreign investment in banks and financial institutions.
Cries of economic imperialism
This is not the first time that Temasek managers have made mistakes that
in-depth due diligence and a modicum of investment-banking knowledge seemingly
could have avoided. Temasek's decision to buy a majority stake in Thailand's
Shin Corp from members of Prime Minister Thaksin Shinawatra's family unleashed
a political firestorm that eventually contributed to Thaksin's decision to step
down from power temporarily. The US$1.9 billion deal was widely criticized in
Bangkok not only for the tax-free nature of the transaction but, more
significant to Temasek, for the sale of strategic telecommunications concerns
to a Singaporean government-linked entity.
Political protesters cast Temasek's purchase as "economic imperialism", and a
consumer boycott of Shin's mobile-telephone arm has dented revenues and profits
in recent months. Temasek officials at the time explained that it is not a
government-directed policy agency, and that Temasek makes investment decisions
on strictly commercial grounds. Until then Singapore Inc had been able to skirt
nationalistic criticism in Thailand, despite making substantial positions in
many formerly Thai-owned banks in the aftermath of the 1997-98 Asian financial
crisis.
More significant were the apparent legal blind spots in the Shin Corp deal,
which some analysts now contend would have been less controversial if it had
been broken up in two or three phases. Temasek was forced hurriedly to divest
Shin's stake in budget airline Thai AirAsia because of Thai laws restricting
foreign ownership that they apparently overlooked. There are still lingering
legal questions about the waivers Temasek received to avoid making a mandatory
tender offer for two Shin subsidiaries, and whether foreign concerns are
allowed to own a majority stake in telecommunications concerns that operate
under government concession.
Temasek's lack of transparency and its general aversion to press interviews
have only added fuel to the fire of the nationalistic backlash its aggressive
investment strategies are starting to cause across the region. Citing the above
examples, some investment analysts contend that during Temasek's drive to
acquire big stakes in regional strategic industries, particularly in banks and
telecommunications, the investment company is not effectively gauging through
its due-diligence procedures the possible political and even social
ramifications of its investments. And that in turn raises important new
questions about the quality of Temasek's previously highly regarded management
team.
Laurence Lau has more than 18 years of experience in business and
finance. Born in Malaysia, he has worked in Sydney, Singapore, Hong Kong and
Kuala Lumpur. He was head of research for two securities firms and a portfolio
manager for a UK firm.
