As
Clouds Hover,
Singapore Steps Up Buying
Cash-rich companies are aggressively buying foreign
firms, striking up strategic alliances in the region
as the economic sky darkens.
Apr 18, 2001
In
two economically-declining weeks, Singapore joined
the world of mega takeovers - spending almost S$24
billion - buying into two large companies in Australia
and Hong Kong.
DBS Bank bought Hong Kong's 4th largest bank,
Dao Heng, for S$10 billion, while Singtel will dish
out about S$14 billion for Optus, Australia's 2nd
largest telco.
They are Singapore's biggest and most aggressive purchases
made at a time when the global economy is turning
down.
Since the 1997 financial crisis burned a hole in its
large investment in Southeast Asia, the republic has
been - not slowing down but - aggressively stepping
up its global investments and seeking strategic alliances.
The priorities appear to have shifted to Australia,
Hong Kong, India and New Zealand.
The state-controlled companies are the biggest predators,
some of them turning their cash hordes into debts
to snap up regional banks, airlines, ports, shipping
lines, telcos and property in the past two years.
Official statistics show that Singapore's direct and
equity investments overseas in 1998 totalled almost
S$175 billion. Today, it is around US$100 billion.
In just a couple of years, DBS Bank, for example,
has become a regional giant after accumulating banks
in Hong Kong, Thailand and the Philippines.
The Port of Singapore Authority (PSA) Corp,
which is due for public listing soon, is another aggressive
accumulator.
Faced with rising competition from Malaysia and other
neighbours, it has been expanding its international
business, operating 10 ventures extending from China
to Belgium.
Recently it clinched new projects in Japan and South
Korea. It also manages ports in India, Yemen, Portugal
and Brunei.
PSA Corp, which plans to earn a third of its revenues
from its overseas operations by 2007, has set aside
S$300 million a year for foreign investments.
One-third owned by the government, Neptune Orient
Line shocked the world in 1997 when it bought
American President Lines for US$825 million, a company
twice its size, suffered staggering losses, scrambled
for cash and ultimately found redemption.
In 1999 it made a profit of US$159 million compared
to a loss of US$254 million in 1998.
Last year, NOL bought Florida-based GATX Logistics,
the second largest warehouse-based contract logistics
company in the United States for US$210.5 million.
One of the most aggressive global players during the
past year is Singapore Airlines.
In March 2000, SIA completed its purchase of a
49 per cent interest in British Virgin Atlantic Airline
(S$1.6 billion) and raised its stake in Air New Zealand
to 25 per cent (S$300 million).
Since Air New Zealand owns half of Ansett Australia,
the tie-up also gives SIA a foothold in Australia.
With
the latter's entire fleet being grounded as a result
of poor maintenance, analysts are raising Sia's chances
of buying a direct stake of the Australian airline.
It is turning its sight on India. In November it entered
a joint bid with the Tata Group to buy a stake in
state-owned Air-India. SIA wants to make foreign investments
generate 25-30 per cent of its total revenue,
These giant deals are, of course, an exception. Most
others are smaller, lower profile, acquisitions which
number one or two a month ranging from several million
dollars to tens of millions.
Among Singaporeans there are two reactions to this
huge global forays. The first is a feeling of pride
that their tiny red dot has pulled off such major
achievements.
This has, however, been tempered by the sharp falls
in both Singtel and DBS in a sell-off by institutional
investors who believe they had overpaid for them.
Both Singtel and DBS shares are widely held and their
price drops are felt by many ordinary people. When
the Optus deal is completed, the government's shareholding
in Singtel will fall from 78 per cent to 68 per cent.
The government's shareholding will fall from 78 to
68 per cent after the Optus deal. This will eventually
be reduced to 49 per cent.
With its acquisition, Singtel - which already has
investments in Thailand, Taiwan, the Philippines and
India - would reach its target of deriving half of
its income from overseas.
Minus its cash now, will it stop buying? Yes, it says,
when opportunities arise.
Some analysts believe the Aussie deal may actually
force it to do exactly that. In the next few years
it may well have to spend billions to buy into more
regional telcos if it wants to become a pan-Pacific
giant.
The new purchases are expensive because they are good
companies in a mature market.
Whether they will turn the risks into profits will
depend on the new owners.
For risk-averse Singapore, this global game is a high-rsk
one that it is forced to participate.
Singtel,
the domestic banks and many large government-linked
firms had, until recently, been protected against
foreign competition.
With
the market now being thrown open, they have to move
sverseas quickly and seek strategic partners to compete..
Singapore Inc, which has succeeded faster than many
advanced countries during the last 30 years, is now
facing a new kind of test in a different, higher risk,
global arena.
Seah Chiang Nee
