Temasek
Profit doubles, but..
It was a sterling performance at least before the US sub-prime investment woes were added up. That will come later. By Seah Chiang Nee.
Aug 27, 2008

Singaporeans are relieved to learn from the horse’s mouth that their money in wealth fund, Temasek were in good shape – at least before its troublesome investments in Western banks were brought up to date.

This strong showing will at least provide some cushion to any prolonged downturn, which could drag down its future profits and book in asset devaluations eventually (barring any banking bankruptcy).

Temasek yesterday announced that its annual net profits (until end-March, 2008) doubled to S$18.2b (US$12.8b).

Its portfolio value increased about 13 percent to S$185b (US$130b), helped by a S$10b injection from the government.

Since March, its vast investments in US and European banks had suffered sharp falls and these were obviously not factored in.

The performance since in the past five months could make a big difference. The final story is still not told yet.

Chairman Chairman S. Dhanabalan warned in the firm's annual report of further contagion in the global credit crisis.

"The fallout of the credit crisis will continue to dampen the global economy over the next 24 months, with sharply escalated oil and food prices beginning to test inflation expectations," he said.

But Temasek sees opportunities in financials and said it would not cap its investments in that sector, which grew to 40% of its portfolio in the year to end-March from 38 percent previously.

"The financial service industry is one we believe in," Manish Kejriwal, Temasek's senior managing director for investment, International and India, told reporters at its annual briefing yesterday. "It's a proxy to the economic growth."

"We recently concentrated on US and UK primarily because we see value," he added, referring to Temasek's purchase of a 9% stake in Merrill Lynch and a 2% stake in Barclays last year.

It also raised its stake in Standard Chartered to 19% from 13%.

All these are heavy investments in a sector that could bring Singaporeans a vast profit many years down the road – or sustained pain depending on a recovery in the US.

In a comment to Reuters, Anshukant Taneja, an analyst who covers Temasek for ratings agency Standard & Poor's, warned the firm's large exposure to financials increased its vulnerability to unpredictable asset cycles and contagion.

"The investment environment is expected to remain challenging, with expectations of continued pressure on liquidity and possibly subdued trends in the equity markets," said Taneja.

He rates Temasek 'AAA', the highest credit rating, partly because of its government ownership.

"This may impact Temasek's ability to divest its stake in various entities and manage its portfolio."

According to Reuters, Temasek said it made S$32b of new investments in its 2007/08 financial year, double the S$16b it spent in the previous year.

Asset sales more than tripled to S$17b from S$5b a year ago as Temasek sold a power plant in Singapore and cut its stakes in firms such as Bank of China, Singapore Telecommunications and Singapore Airlines

Singapore assets accounted for a third of its portfolio at end-March, down from 38% the previous year. Asia ex-Japan accounted for 41%, up from 40%.

Singaporean cynics

The glowing Temasek report is greeted with cynicism from some Singaporeans stock traders.

“I don't know how the assets can still goes up when the banks stock value drops by billions. Who is doing the valuation?” asked ‘notcareful.”

Another blogger said on CNA forum: ““The chairman has chosen to miss out important facts and have not explained how Temasek grew its portfolio amid turmoil in financial markets".

He said since March a substantial number of major investments of Temasek has suffered further huge losses, many of them over 50% of the purchasing prices.”

By Seah Chiang Nee