Temasek’s unrealized $1/2 billion loss hidden in Pakistani bank merger?

Temasek thought it was going in for the kill when it invested in Pakistani NIB Bank in 2005. Now kena killed.

In 2005, Temasek took a 25% stake in March and increased this to 72% 3 months later. This was likely based on the assumption that it was smarter than all other investors.

Taking such a huge stake means there was no plan B and Temasek stood to lose hundreds of millions if the bet went sour. It did. 😦

Temasek woke up to its mistake only in 2011 and had been desperately looking to dispose of NIB. It finally managed to find a buyer last year but MCB Bank was only willing to take over NIB at a lelong price of about Rs1.6 or 2 cents per share.

Temasek was willing to accept a capital loss of 90% after 12 years
2005 Mar – NIB Bank Announced AFH has acquired 25% of the shareholding of NIB
2005 Jun – Singapore Equity Raises Stake in NIB to 72.6%
2008 Oct – Temasek to invest up to $147 mln in Pakistan NIB Bank (10 rupees per share)2011 Dec – Temasek looking to sell majority stake in Pakistan bank-report (est. paper loss US$400 mil)
2016 Dec – MCB Bank, NIB Bank announce merger

Were PAP book smarties conned into parting with our hard-earned reserves from the get-go? Probably. Wealthy Pakistani locals couldn’t have been less well informed than our book smarties who had believed money could be easily made by crunching numbers thousands of miles away.

Temasek appears not to have learnt any lesson and continues to take concentrated positions in foreign entities. It should bear in mind that PAP has zero control over regulations in other countries, unlike in Singapore.

Temasek was clearly speculating in NIB and speculators do not hedge their currency risk. There is a cost to hedging and if Temasek does hedge every investment, it has not stated so on its website/annual reports. (Perhaps I may have missed out.)

From 2005 to 2017, the investment incurred more than 50% forex loss.

Source

NIB’s loss is likely to top $500 million but this is unlikely to make news in MSM.

After the merger, Temasek will own about 6% of MCB bank. Should Temasek exit with even a small profit in the new entity, rest assured it will be played up by MSM without any reference to NIB’s loss. 😦

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2 Responses to Temasek’s unrealized $1/2 billion loss hidden in Pakistani bank merger?

  1. earthly-creature says:

    other banks in Pakistan were profitable at that time, check Habib Bank and its peer, but NIB was losing money.

    • Phillip Ang says:

      Thanks. Wanted to highlight recklessness of Temasek. Bought almost entire bank within couple of months and had no ‘escape route’ for investment. Wonder what kind of due diligence it did. Suspect a lot of investments based on foreigners’ sales pitch and of course company books were cooked. So Temasek was suckered.

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