20140319 Temasek should not fear transparency if it has not incurred losses

I read with concern Temasek’s offer of $2.23 per share to take Olam private. (taking it private is just a matter of time)

Prof Christopher Balding raised a valid concern that “Temasek is paying a 12% premium after the stock has already increased 30% since the first of the year”. Kenneth Jeyaretnam has also offered his assistance to “any MP, NCMP or NMP who wishes to raise this issue in Parliament”. link The SGX must conduct a proper investigation instead of providing a stupid announcement that justifies the share price rally. link

Temasek’s offer of $2.23 per share values Olam at $5.45 billion. link However, Olam is struggling under an increasing mountain of debt which increased from $4.3 billion in 2012 to $5.9 billion one year later. link Although its revenue has almost doubled since 2010, it net profit has slightly decreased. link

It is interesting to note that SMOS Josephine Teo told Parliament that “GIC, Temasek won’t take more risks to help fund govt spending” just 1 week before Temasek decided to show who the boss is. Moody’s has issued a credit negative rating after Temasek’s offer. link Josephine should demand transparency from Temasek on its billion-dollar ventures.

Without Temasek’s support, Olam would have probably collapsed. Perhaps it is Olam’s imminent collapse that Temasek is trying to prevent.

Temasek’s investment horizon getting shorter

Temasek was one of three investors in Olam before it was listed in 2005. In 2006, its Olam shares were sold for $1.57 a piece for $118.6 million. link Three years later, it reinvested $437.5 million (almost four times the amount it had sold earlier) at $1.60. link

In December 2007, Temasek bought Merill Lynch shares as global stock markets were taking a dive. 15 months later, Temasek exited the market with a US$4.6 billion loss. link

Temasek has never been a long term investor as it frequently claims. It punts the the market for a quick buck just like any retail punter would except on a much larger scale and using citizens’ money.

Those shares which are underwater are conveniently classified under long-term investments.

Original image @Dreamstime.com

Temasek’s due diligence can lead to huge losses

In May 2007, Temasek invested A$401.5 million in ABC Learning Centres, probably mistaken they were similar to our childcare centres. In 2008, shares of ABC plunged but Temasek attempted to pick bottom and increased its stake from 12% to 14.7%. In 2009, each ABC learning centre was sold for A$1. (one learning centre = one cup of kopi)
In June 2007, ABC’s debt had shot up from A$111 million to A$2.2 BILLION. Temasek’s due diligence a few months earlier somehow led to the loss of more than five hundred million in 2 years.

Will the Olam investment lead to another huge loss?

Temasek ignores forex risk of overseas investments
Before 2002, Temasek had a predominantly Singapore portfolio. Currently, only 30% of its investments are in Singapore. link Aggressive investments outside Singapore coincided with Ho Ching becoming Temasek CEO in 2004.

Every foreign investment will have to be eventually converted into our local currency. The appreciation of our currency against almost all major currencies has resulted in foreign exchange losses. An example:

In March 2006, Temasek bought 11.5% of Standard Chartered shares valued at about S$6.4 billion (US$4 billion, GBP 2.28 billion, GBP/SGD = 1:2.8 link). link Total dividends paid since 2006 = 570 pence. link

Due to foreign exchange movements, the initial investment of S$6.4 billion is now worth only $4.8 billion! (1GBP=S$2.1)

Summary of Temasek’s investment in Standchart is shown in the chart below.

GBP S$ Stock price Div yield
2006 2.28 billion 6.4 billion 1500 p
2014 2.28 billion 4.8 billion 1200 p 570/1500
Net change (1.6 billion) -20% 38%

1 The capital loss of 20% has been offset by the 38% total dividend gains. It still becomes a negative investment after taking into account the 25% currency depreciation.
2 Should Temasek decide to sell its entire stake, there will be a loss of about S$700 million after taking into account dividend gains.
3 Temasek has underestimated the effect of forex loss on its investments ie investment could be negative.

(Temasek subsequently increased its shareholdings to 18% and has bought Standchart at even higher prices ie. at 1835 pence in Dec 2007. link Its current paper losses are much more than the single transaction example.)

Investments without an exit strategy

Every trader has an exit strategy. Temasek doesn’t as it can continue to keep bad investments in its portfolio ostensibly for the long run. Temasek is able to do so because it has a constant inflow of capital from government reserves. It is also not answerable to parliament for huge losses and the government has refused to address the issue of Temasek’s opacity.

I will use the same example of Standchart shares again. Since the SGD/GBP exchange rate has declined about 25% from 2.8 to 2.1, Temasek’s hands are tied as an exit would mean taking huge losses. It does not have any idea where forex movements are heading. (nobody does) Negative news from Standchart has been making headlines and Temasek appears to be holding out for a takeover in order for the investment to be profitable. This is reckless investing. Will Standchart become another Citibank or UBS? It is unlikely Temasek has any plans. Why does it insist on betting big with our reserves by assuming that its Stanchart investment will never fail?

GDP/SGD – currency losses of about 30% after a decade. (long term currency charts @ Forextop.com)

Making money locally but
Temasek stated that it made a net profit of $11 billion, mostly from local companies.

DBS $1.10 B 29% X $3.809 B
SINGTEL $1.82 B 52% X $3.508 B
PSA $1.26 B 100% X $1.257 B
MAPLETREE $0.93 B 100% X $0.932 B
KEPPEL $0.47 B 21% X $2.237 B
CAPITALAND $0.41 B 39% X $1.057 B
SEMBCORP $0.37 B 49% X $0.753 B
SP $0.36 B 100% X $0.357 B


..losing money overseas.

Temasek’s investments in the energy and resource sector overseas have been negative. link (FTS, Turquoise Hill Resources, Cheasapeake, Cheniere, etc.)

Absence of good corporate governance

Unlike companies with good corporate governance, Temasek does not even publish the remuneration of its directors. If it does not want to disclose actual figures, it could publish them in different remuneration bands eg. $20 million and above, $15 million to $20 million, etc. Even ministerial salaries and the multimillion salaries of CEOs are disclosed. Temasek should not be the exception. Temasek is funded with tax dollars and the public deserves nothing less.

Temasek must also disclose the multimillion paychecks of its employees. A lot of information stated on its website is what it wants the public to know, not what we need to know.

Accountability has been another issue. A few billions or hundreds of millions could be wiped out within a relative short period of time on a single investment. This is not long term investing but punting. Those who made such decisions have to be held accountable. Temasek has not held any of its employees accountable.

Many citizens have lost trust in Temasek

An increasing number of citizens have become frustrated with Temasek’s opacity and many have completely lost our trust. Trust cannot be gained by depriving us of our right to information which should be in the public domain.

Temasek is funded by tax dollars and it cannot ignore the existence of taxpayers. It needs to publish all its investment during the year (there are not many), the individual market value of all its shareholdings (including unlisted ones) and its sources of income.


Temasek’s overseas investments have yielded little positive results as most of its profits are from local companies. It is quite likely to be stuck with a massive amount of foreign shares which are ‘underwater’ in the future.

Transparency and accountability are issues which concern Temasek. Without publishing a complete set of figures, stakeholders will continue to remain in the dark.

Is Temasek afraid that transparency may reveal more losses? Are losses being covered up using government reserves? Until Temasek becomes transparent, there are no answers to these questions.

This entry was posted in FINANCE, POLITICS. Bookmark the permalink.

3 Responses to 20140319 Temasek should not fear transparency if it has not incurred losses

  1. Pingback: Daily SG: 20 Mar 2014 | The Singapore Daily

  2. Lone Guy says:

    As our good Minister claimed “we do not do transparency for the sake of transparency” but for good governance. How do you judge if there is good governance when you have no access to critical information in the first place. That to me was a most stupid excuse I ever heard. Given Temasek’s records of making milkman and e Ministers laugh all the way to the bank, this is Sunny news to one Indian

  3. Pingback: 20140323 Citizens must reject PAP politics of control for our well being | likedatosocanmeh

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