Temasek gains $30bn from market rally

The global market rally had added S$42bn (US$29.7bn) to the market value of Temasek’s investment portfolio since the end of March, Singapore’s state investment company said on Thursday.

The mark-to-market value of the portfolio fell to S$130bn at the end of the financial year in March, but recovered to S$172bn by the end of July — just 7 per cent below its peak of S$185bn in March last year.

Temasek said the recovery reflected its efforts to “continue to reshape our portfolio mix actively”. However, it also said the recovery since March was “broadly in line with the markets”.

In its annual review, the group said net profit fell to S$6bn for the financial year, compared with S$18bn in the previous year. Its total shareholder returns for the year fell by 30 per cent, measured by market value, but remained at 16 per cent over the 35 years since the group was founded.

The sharp fall in profits means that some Temasek executives will suffer cuts in remuneration as bonuses are clawed back for the first time in the company’s history.

However, S. Dhanabalan, chairman, said the worst of the global crisis was over, thanks to extraordinary fiscal and monetary measures set in place by the US and other governments. “These moves have averted extreme meltdown risks, but added the risks of inflation and asset misallocations in the medium term,” he said.

Temasek said the lower returns reflected the generally weaker operating performances of its portfolio companies as a result of the global slowdown, as well as gains and losses from S$16bn of divestments.

These included the sale of stakes in Bank of America and Barclays, the UK bank, as well as positions in Bank Internasional Indonesia and China Minsheng Bank, but not the proposed sale of a 62 per cent stake in Singapore’s loss making Chartered Semiconductor Manufacturing, which has yet to be completed.

Temasek defended its sale of the 3.8 per cent holding in BofA, which is estimated by analysts to have incurred a loss of between US$2.3bn and US$4.6bn and attracted unusual public criticism in Singapore.

The group said it decided to sell in spite of incurring a loss because the risk-return profile of its initial US$5.9bn holding in Merrill Lynch “shifted substantially” after the investment bank was acquired by BofA in January.

It made no comment on the sale of a stake of almost 2 per cent in Barclays, which is also thought by analysts to have incurred a loss. Other divestments included two power generating companies in Singapore, completing a divestment programme involving three generators that raised more than S$11bn.

The improvement in the value of the portfolio includes the impact of investments of nearly S$5bn in the nine months to the end of July as the group took up its share of rights issues in companies including Standard Chartered, the UK bank, Singapore’s DBS banking group and CapitaLand, the Singapore property group.

Temasek said it had invested a total of S$9bn during the financial year, including about S$700m for a stake of less than 5 per cent in Hong Kong-based Li & Fung, one of the world’s biggest supply chain managers.

The group did not directly address claims by critics that its portfolio losses last year reflected over-investment in western assets, including holdings in financial groups acquired as the global financial crisis was beginning.

However, it said its underlying exposure to Singapore and the 30 developed economies of the Organisation for Economic Cooperation and Development had been reduced from more than 80 per cent to just over 50 per cent. OECD exposure now accounts for about 20 per cent of investments, mostly in Australia.

The group also said that returns from investments made since March 2002, when it began to invest widely in Asia following the appointment of Ho Ching as chief executive, had been significantly greater than returns on earlier investments, which were mostly in Singapore.

It said the annualised return on investments for the past seven years was 19 per cent, compared to 9 per cent for those made before the change in strategy. “We have increased our exposure to Asia since 2002, riding with its deep and long wave of growth and transformation,” it said.

The group said it was “optimistic” about Asia’s long term potential and would target exposure to the region at about 40 per cent of investments, including 20 per cent in China, with Singapore remaining steady at about 30 per cent, OECD countries at 20 per cent and other regions at 10 per cent.

It made no comment on possible listings for major holdings such as Singapore Power and PSA, the Singapore ports operator, which were last month identified by Ms Ho as possible candidates for public offerings.

Officials have said that decisions on when and whether to list will be left to the operating companies’ boards. Bankers in Singapore say any listing of PSA is unlikely for two to three years.