Wednesday, April 30, 2008

Lee Kuan Yew Ain't No Warren Buffett

GIC a few months ago took significant stakes in global banking giants UBS and Citigroup. The share prices of these companies have since taken a tumble due to the impact of the credit crisis, but according to GIC, that's no worry, since GIC has taken these investments with a 'long term view.' In addition to GIC's existing investments in those banks, Lee Kuan Yew, Chairman of GIC and Minister Mentor of Singapore, has gone on the record as saying:
Singapore's GIC may invest in more banks
Reuters, April 30

The Government of Singapore Investment Corp may invest in more banks in Europe and the United States if it gets the chance, adding to its stakes in beleaguered bank UBS and Citigroup, its chairman told Bloomberg TV.

"If there are other banks of the quality of the two that we bought into, with the promise and the capabilities and inherent capabilities to recover, we have got the liquidity to meet it, to make such an investment," Lee, 84, said in a Bloomberg Television interview late yesterday. "We will not rule it out."

"We are buying something that we intend to keep for the next two to three decades and grow with them", he said, adding that GIC was a long-term investor.

After throwing in billions of dollars into credit-crunch battered financial institutions, Lee Kuan Yew is prepared to deploy more capital into this area. Ever confident about GIC's investments, the octogenarian further defended GIC's decisions:
"The franchise of the banks, the expertise that they have, under proper leadership, they will be able to recover and rise again ... Will there be another Swiss bank like UBS for wealth management? I doubt it, we doubt it, that is why we invested in it." Citigroup, he added, had "an enormous spread worldwide as a retail bank".
Interesting rationale. According to Lee Kuan Yew, UBS and Citigroup have "inherent capabilities to recover" from the credit crisis. Well, this is quite a debatable statement.

Just a few months after GIC's investments, recovery of the banking sector is far from sight. Instead, the banks are scrambling to raise more capital to deal with the damage the credit crunch has dealt them:
Citigroup, Merrill Lead Record Week of Bond Offerings
By Bryan Keogh and Gabrielle Coppola

April 25 (Bloomberg) -- Citigroup Inc. and Merrill Lynch & Co. led $45.3 billion of U.S. corporate bond offerings, the busiest week on record, as financial companies sold debt at the highest yields since April 2001.

Sales compare with $31.2 billion last week and an average this year of $18 billion, according to data compiled by Bloomberg. Citigroup, the biggest U.S. bank by assets, sold $6 billion of hybrid bonds in the company's largest public debt offering, while New York-based securities firm Merrill Lynch raised $9.55 billion by issuing debt and preferred securities.

Bond offerings soared as investors grew more optimistic financial companies can recover from $309 billion of writedowns and credit losses tied to the collapse of the subprime-mortgage market. Banks and securities firms sold 85 percent of investment- grade debt this week, Bloomberg data show. High-yield bond issuance swelled to the most since November.
An inherent ability to recover from the crisis? Not without a lot of additional capital - extra capital which is going to dilute your existing stakes.

The debt issuance is not the end of the story. Citigroup is issuing equity as well:
Citigroup Sells $3 Billion of Stock to Boost Capital
By Bradley Keoun

April 29 (Bloomberg) -- Citigroup Inc., the U.S. bank hit with writedowns on subprime mortgages and bonds, is selling $3 billion of stock two weeks after reporting its second straight quarterly loss.

The shares are being sold in a public offering, New York- based Citigroup said today in a statement. Citigroup already has raised more than $30 billion of capital since December. A weakening U.S. economy and rising consumer delinquencies forced Chief Executive Officer Vikram Pandit to rescind assurances earlier this year that the bank didn't need to raise more funds.

"This was extremely disappointing," William Fitzpatrick, an equity analyst at Optique Capital Management in Racine, Wisconsin, said in a Bloomberg Television interview. "We were hoping they wouldn't have to go the equity markets like this."
Citigroup's issuance of equity financing is implicit acknowledgement that it won't be able to deal with the upcoming problems in the credit markets without substantial help. Add to that a weakening US economy and a looming recession, the clouds on the horizon are only getting darker.

Morgan Stanley realised this in its latest research report on the banking sector, painting a very bleak picture of the road ahead. This is in stark contrast to investors (including GIC) who have been calling an end to the banks' credit woes:
Morgan Stanley sees big bank woes just beginning
Monday April 28, By Joseph A. Giannone

NEW YORK (Reuters) - Morgan Stanley analysts on Monday told clients to "sell the rally" in financial stocks, slashing forecasts for big bank earnings and warning that the current credit crunch is only just beginning.

In aggregate, Morgan Stanley reduced its estimates for 2008 large bank earnings by $17 billion, or 26 percent, and reduced 2009 forecasts by $13 billion, or 15 percent. The analysts expect higher loan losses and expenses, offset by higher net interest income, though profits could fall further still if the Federal Reserve stops lowering interest rates.

"More capital hikes and dividend cuts (are) coming as our credit deteriorates and forward earnings decline," analysts led by Betsy Graseck wrote in a report. "We think we are only in the third inning of the credit cycle and expect this credit cycle will be worse than (the slump in) 1990-91."
Just for the record, a baseball game usually has nine(9) innings. Morgan Stanley's declaration that we are only in the third inning of the credit cycle, simply says we're not even a third of the way through the game. A Seeking Alpha contributor has also observed:
The credit markets have improved, in terms of increased liquidity, with the Fed opening up the discount window for investment banks. However, the real economy, which has had only a minimal impact on the financial markets thus far, is deteriorating rapidly. Home prices are continuing to decline, costs of living are continuing to increase (look at the price of oil and food for examples), and the job market is reeling. The real economy will come back around and hit the financial institutions far harder than the freeze in the credit markets did. The Fed put out one fire, but threw gasoline on the other - through massive inflation - and we have not even begun to witness the effects this will have on our economy.
Well, well, it appears Lee Kuan Yew doesn't seem so wise any more. Certainly not as wise as Warren Buffett, whose Berkshire Hathaway has stayed away from picking up stakes in these big banks. And its just as well that we clearly see the difference here, as GIC and Temasek have been repeatedly using slogans to "invest for the long term," to parade themselves as value investors of the Buffett kind.

But Lee Kuan Yew doesn't really understand Warren Buffett. He also said in the interview with Bloomberg:
'[Buffett] has a different view. He has to give returns to his investors year by year. We don't have to. We have to think in terms of the next 10, 20, 30 years. We are buying into something which we intend to keep for the next two, three decades and grow with them.'
But I think anybody who knows Warren Buffett knows that Buffett's favourite investment horizon is forever, and that the investment legend has repeatedly stressed that Berkshire's focus is not on the quarter-to-quarter or year-to-year earnings. In all his writings to shareholders, one can clearly discern that Buffett has his eye on the long term future. Furthermore, Buffett's track record of consistently outperforming the market spans a good 50 years... Thus, for Lee to say the Buffett is narrowly focused on the year-to-year performance of his company, is to demonstrate a gross and fundamental misunderstanding of Buffett's investment philosophy - and thus it was ridiculous for Lee Kuan Yew to claim that GIC has significantly different obligations to its shareholders compared to Berkshire.

Finally, let's not forget Jim Rogers' warning to Singapore's Sovereign Wealth Funds earlier this year:
"It grieves me to see what Singapore is doing. They are going to lose money," he added, referring to investments by Government of Singapore Investment Corp and Temasek in Citigroup, Switzerland's UBS and Merrill Lynch.
I think that just about sums up what is going to happen.

Monday, April 28, 2008

Why the M1 - City Telecom Partnership Is Front Runner for NGNBN OpCo

Singapore's Next-Gen NBN OpCo RFP was released earlier this month. The race is much more open for the OpCo than the NetCo because of the lower barriers to entry and lower capital investments involved. However, despite this, I think that the only bid that truly makes sense for the NGNBN OpCo is the City Telecom - M1 consortium.

1. The operational separation is extremely onerous for the wireline incumbents, and severely dilutes the attractiveness to StarHub and SingTel.

One of the requirements of the OpCo is that it has to be operationally separated from its affiliates. This means that OpCo has to:
  • Operate in all respects on a standalone basis, separate from affiliated downstream operating units
  • Be located in separate premises
  • Independently formulate & make own decisions on its assets and commercial policy
  • Not allow its affiliated downstream operating units to have unequal influence on the formulation of commercial policy, and access to commercial information or customer confidential information
  • OpCo’s Board of Directors, Management and employees not to have responsibilities in any Affiliated Operator

All these requirements will mean that an incumbent like StarHub and SingTel will have to incur significant duplication of manpower and will have to come up with a different brand name for its OpCo's operations, which might in turn compete with or overlap with its non OpCo operations. In short, Operational Separation significantly restricts their flexibility in the allocation of resources and human talent across the OpCo & RSPs.

A much less onerous option for the wireline incumbents would be to simply set up separate integrated OpCos which would have no such operational separation requirements and which could be a simple extension of existing business units. Such business units would move much faster into the market and be operationally ready.

2. A non-incumbent challenger without any sort of cooperation from existing market players faces significant market and demand risk.

Firstly, a Greenfield entrant into the OpCo space faces a significant degree of risk because his OpCo grant depends largely on meeting adoption targets. Furthermore, the incumbents like SingTel and StarHub could migrate their customer base away from the NBN OpCo to their own OpCos once the five-year exclusivity is over, thereby seeking to kill the NBN OpCo, or thereby severly harming its business case.

Secondly, Bidders with a higher risk outlook will seek to be compensated for this risk with the possibility of higher returns through higher ICO prices. However, the attractiveness of ICO prices is weighted very highly in the evaluation criteria. This puts prospective bidders in a fix. In order to be profitable, the greenfield OpCo will need to win some kind of reasonable margin from his operations. However, he is contrained by the ICO evaluation and regulation plus the fact that the iDA is trying to bring about "attractive ICO prices."

These factors, amongst others, make it highly unattractive for any prospective greenfield bidder with no demand guarantee (e.g. Axia, Zitius etc.)

3. This leaves the M1 - City Telecom (CTI) consortium as the only sensible bid.

A City Telecom - M1 partnership goes a long way in circumnavigating the challenges mentioned above.

Firstly, M1 has a substantial mobile customer base in Singapore, and will be looking towards the NGNBN as an opportunity to provide fixed line services to prevent customer churn and to attract new customers. With a stake in the OpCo, M1 will ensure that its services run over the NBN OpCo, thus significantly enhancing the business case of the OpCo.

Secondly, M1 has no significant wireline operations in Singapore. This means that the operational separation is no where as onerous to M1 as the incumbents. Furthermore, with City Telecom taking a major stake in the OpCo and contributing significant manpower and operational expertise to the OpCo, this greatly relieves the need for M1 to create duplication of manpower - the OpCo business does not cannibalise or compete with M1's current core competencies. In contrast to the incumbents, the Operational Separation requirements are a relative non-issue to M1/CTI.


Neil Montefiore must therefore be an optimistic man. Because for a long time now, SingTel and StarHub have been attacking M1's market share because of the small telco's lack of fixed-line offerings.

I certainly hope Neil realises that he has a very real opportunity here and makes the best of it. Consumers would all benefit from genuine extra competition and from someone who appears to have a genuine understanding of what is really going on.

M1's CEO Neil Montefiore on the Pay TV Market

At last, someone with some knowledge about the Pay TV market says something wise about it in the Singapore newspapers. This time, TODAY carried an interview with M1 CEO Neil Montefiore (unlike My Paper which contained a trashy column by the bungling Lee Sze Yong):

Neil makes the following astute observation:
“I’m not in favour of bidding for content because in the end, it costs the consumer more,” he said. “It seems we’re the only example in the world where you introduce competition and the consumer pays more. It doesn’t seem to be the right model to me. I’m hoping the regulators or the content owners will change that.”

Well, Neil, I too wish the regulators or the content owners would do something about it. But I don't think that's going to happen soon.

  • The content owners are too elated that they are able to collect monopoly rent from the Singapore market.
  • The regulators are too busy covering their asses to please their political masters.
  • And of course SingTel wouldn't care two hoots about the inconvenience caused to consumers - they're a multi-billion dollar company who only cares about how they can break into the Pay TV market in Singapore and make more profits.

This is a simple result of the economics of the bidding model and the monopoly over content rights.

The only realistic chance consumers have is to band together and speak up and make noise through the consumer commission to enact change. Either that or boycott SingTel. It's really up to the consumers to demand and get what they want and stand up for their own consumer rights.

On another note, I think M1 will be the biggest beneficiary in the upcoming next-gen NBN project. In my opinion, an M1 consortium that does not include SingTel and StarHub (i.e. City Telecom & M1) makes the most sense for the OpCo bid. I'll explain why in a later post.

Wednesday, April 23, 2008

Wong Kan Seng Off the Hook? Not So Fast. The Game Has Just Begun!

I’m sure we’ve all been reading about the report of the COI and the parliamentary session on the Mas Selamat issue. So far, the latest news is that PM Lee has declared that DPM Wong is “not to blame” for the incident.
Singapore PM says top home ministry officials not responsible for terror escape
The Associated Press
Tuesday, April 22, 2008

SINGAPORE: Singapore's prime minister Tuesday voiced support for the city-state's top Home Ministry officials following a government probe that showed several security lapses allowed a top terror suspect to escape a prison.

Speaking in Parliament, Prime Minister Lee Hsien Loong acknowledged that Muslim terror suspect Mas Selamat Kastari's escape from a detention center should never have happened.

"We must admit our mistakes openly and honestly, put them right, and act against those who have been culpable," Lee said.

But Lee said he remained confident in Home Affairs Minister Wong Kan Seng, as well as the top management of Wong's ministry, whom the leader said were not to blame. Wong is also a deputy prime minister.

"I am satisfied that the ministry has taken the correct remedial and disciplinary action, and that the minister and top management were not to blame for what has happened," Lee said.

The Home Ministry oversees the Internal Security Department, which runs the Whitley Road Detention Center where Mas Selamat, like other terror suspects, was being detained without trial.
Well, at least for the time being, it seems that DPM Wong will escape any serious fallout from Mas Selamat’s escape. But it would be jumping the gun to think that this is the end of the story.

AFP has published a news article on this issue, extract below:

Home Affairs Minister Wong Kan Seng told parliament on Monday that security agencies believe Kastari is still in Singapore, the smallest country in Southeast Asia with a population of 4.6 million.

But terrorism expert Clive Williams thinks otherwise, suspecting Kastari is somewhere in the vast archipelago of Indonesia, whose nearest islands are clearly visible from Singapore.

Williams, from the Australian Defence Force Academy, said that for Singapore to maintain Kastari is still in the country only adds to the embarrassment.

"It's been a long time now and I would think that they would've searched every place that he'd likely be in Singapore," Williams told AFP.

"It's not a good reflection on the internal security system, is it?"

He called for an independent review of Singapore's entire terrorism-related security structure.
We are, after all, talking about a manhunt not in the Himalayas, the Arctic icecaps, or the Ural Mountains. We are talking about a manhunt in tiny Singapore. Surely with the amount of manpower and resources deployed to catch the man, you would have thought that we would have caught him by now. Instead, the wily suspected terrorist remains off the radar and has successfully evaded the efforts of the internal security forces and sections of the military to capture him. That one man is capable of such a feat, must be truly embarrassing to the local forces, and the individuals who lead and coordinate them. And don't forget, Wong Kan Seng is the overall man in charge here. Wong will bear ultimate responsibility for a failure to capture Selamat.

And if Mas Selamat has indeed escaped Singapore, then the ICA, the Navy, the police force and other government bodies will have been deemed to have failed in their duties to protect Singapore. And that would be the direct responsibility of DPM Wong, the Minister of Defence, and the Prime Minister himself, whose leadership must surely be questioned (don’t forget, PM Lee was no less than a Brigadier General in the army).

I think Singaporeans should demand a full account of the resources that have been spent to catch Mas Selamat, and inquire as to why the government has yet to capture the JI terrorist. The account should be just as thorough and transparent as the COI report on Mas Selamat's escape.

This issue is just as important, if not more so, than the actual escape from the detention center, for it is in the aftermath of Mas Selamat's escape that the real cost of the mistake is realized. Millions of dollars (if not billions) have been spent, not just on the manpower to catch him, but also the equipment deployed (helicopters etc.). Economic disruption to several businesses that was caused by the massive traffic jams at the causeway also has cost our country millions more. And if Selamat truly makes an escape and manages to engineer a revenge attack on Singapore, the ultimate cost would be quite unimaginable.

The real test of the government's leadership began after Mas Selamat had escaped. And so far, I don't think they've done as well as they should.

The Game Has Only Just Begun!

Monday, April 14, 2008

Why Singapore Will Continue to Slip in Global Tech-Saviness Ranking

The following article appeared in the Straits Times 3 days ago:

April 11, 2008
S'pore drops to 5th place in tech-saviness ranking
By Alfred Siew , Tan Weizhen

FROM being the world's most tech-savvy nation, Singapore has dropped to 5th place.

It fell two notches on the Networked Readiness index, an annual ranking released on Wednesday by the World Economic Forum.

The index, which measures the impact of infocomm policies and usage in 127 economies, ranked Denmark as the most ready to take advantage of technology.

It is followed by Sweden, Switzerland, the United States and Singapore.

This is the lowest Singapore has ranked since topping the chart in 2005. It was second in 2006, and third in 2007.

In this year's ranking, the Republic was top in the quality of math and science education and the Government's vision of infocomm, areas in which it had done well in the past.

But it only scored 15th on the accessibility of digital content, a new indicator measuring whether content is widely available on platforms such as the Internet, mobile phones and cable television.

It was placed 115th for freedom of the press - one notch up from last year - and 99th for expenditure in education, another new indicator.

Dr Irene Mia, an editor of the report and senior economist at the World Economic Forum, said freedom of the press referred to how freely people could share opinions online, and the ranking was based on a survey of top businessmen in 130 countries.

... ...
The NRI ranking discussed above can be found in the World Economic Forum Global Information Technology Report 2007-2008.

I foresee this trend of Singapore slipping down the NRI rankings continuing, for several reasons.

1. Singapore isn't going to accelerate up the metrics of press freedom or accessibility of digital content, anytime soon.

Well, I really don't have to comment much here, do I?

Singapore is notorious for the suppression of political content and opposing opinions in its press, not just of the opposition but also of its own citizens. Reporters Without Borders' gives Singapore an abysmal ranking on its Press Freedom Index, and commentators from around the blogosphere have made comments to the same effect.

Seriously, now that the WEF has added this KPI to the NRI calculation, we're only going to keep falling.

2. Singapore is already far behind the world leaders in terms of broadband speed and pricing.

While world leaders such as Sweden, Korea, Japan and the U.S.A. are charging ahead with speeds up to 100Mbps, Singapore still lags behind with speeds much further behind and prices far higher for the similar quality of broadband speed. Full details found in "Next-Gen Broadband Around the World"

3. The Government is trying too hard to accelerate broadband development, and the efficacy of its plans are not clear.

Much noise has been made about the Infocomm Development Authority's grand plans for Singapore's Next Generation National Broadband Network. The Government is trying to deploy broadband speeds of 100mbps starting from 2010 (which, by then, will probably be far behind the world leaders, who are already testing speeds of up to 1Gbps).

However, unlike many other successful models where the builders of the broadband infrastructure are vertically integrated companies, Singapore is trying to break up the network so that it is operated by several companies. This involves "structural separation" of a NetCo and "operational separation" of an OpCo (these are technical terms and you can find out more here).

For those who do not have the time to find out what these complexities mean, suffice to say that the plans have received criticism from several quarters. For instance, an informed commentator has remarked,
"This effective double layer of separation appears to be the most extreme requirement of any NGN regulatory regime in the world and will likely prove controversial with those in the industry who say that separating out network design from the operator of its electronics is likely to lead to massive inefficiencies and friction."
(see "Singapore's Shock Structural Separation Policy for NGN" and "Singapore's Separation Plan Defies Logic." [Commsday])

4. The incumbent telcos are closely Government-linked, and realistically, we don't expect Lee Hsien Loong's government to hurt Ho Ching's investments.

The Mr Lee is the PM of the Government. The IDA is a department of the Government.

Mdm Ho is the CEO of Temasek Holdings. Temasek has a major stake in SingTel, which holds the monopoly over Singapore's copper access network and has the most to lose if the NGN separation plans are taken to their extreme.

Do we expect PM Lee to hurt his wife in this regard? I seriously don't think so.

Even if the Next-Gen NBN plans come to fruition, politics is going to play a major, major role in hampering the execution of those plans.


Well, we can see that reasons 1, 3 and 4 are political. Indeed, as with many things in Singapore, politics gets in the way of how things develop.

And as far as Tech-Saviness is concerned, I simply don't see how this will change in the near future.

Friday, April 11, 2008

Next Generation Broadband Around the World: Pricing, Penetration & Technology

This post highlights some key statistics of Next-Gen Broadband availability around the world, and benchmarks the Singapore's broadband pricing (SingTel, StarHub) against comparables abroad.


As the following chart shows (click for full images), the most affordable 100Mbps plans are available in Korea, Japan and Sweden. StarHub's MaxOnline 100Mbps plan is by far the most expensive 100Mbps plan.

Other high-speed broadband plans are available, but are slower than 100Mbps, as the following chart shows. Particularly notable is the pricing of broadband in the USA. The vertically integrated industry model allowed by the FCC has resulted in exceptionally high pricing of broadband by Verizon in the USA, compared to the rest of the world. However, the 12Mbps plan of StarHub and the 10Mbps plan of SingTel are very very expensive relative to other comparables.(Click for full image)


Global FttX penetration rate statistics show that Korea, Japan and Hong Kong are way ahead of the rest of the world when it comes to FttX adoption:


Finally, we see that Passive Optical Networks (PONs) are the preferred network architecture used by the telcos, with EPON deployed in Japan and GPON preferred elsewhere:

Thursday, April 10, 2008

SingTel, Starhub & M1: Analysts' Reactions to the Next-Gen NBN OpCo RFP


Operational Separation requirements could significantly dilute the attractiveness of the OpCo to the incumbents.

  • Operational Separation significantly restricts their flexibility in the allocation of resources and human talent across the OpCo & RSPs

There is “little incentive for bidders to offer sharply lower ICO prices to what incumbents are charging.”

  • Greenfield entrant into the OpCo space faces a significant degree of risk because his OpCo grant depends largely on meeting adoption targets.
  • Bidders with a higher risk outlook will seek to be compensated for this risk with the possibility of higher returns through higher ICO prices. However, the attractiveness of ICO prices is weighted very highly in the evaluation criteria.

NGNBN is essentially neutral for the telcos and downside is limited.

Credit Suisse

For incumbents, outcome looks neutral at best...

  • At OpCo level it would be easier for infrastructure builders to drag their feet in truly offering open access.
  • Receipt of OpCo licences for SingTel and StarHub would be unlikely to change the competitive dynamics materially.

… and more probably materially negative

  • Additional player into the OpCo space willl begin chasing the existing broadband revenue pool.

Continue to prefer M1

  • Upside potential since M1’s leased line costs could fall and it could defend cellular market share by becoming an RSP.

Tuesday, April 08, 2008

NGNBN OpCo RFP Released: OpCo to be "Operationally Separated," Receive Maximum of $250m Grant

The IDA yesterday released the RFP for the NGNBN OpCo (see here for more info about the NGNBN). One of the key features of the RFP is that the NGNBN OpCo is to be "Operationally Separated" from other entities. In comparison, it was earlier announced that the NetCo was to be "structurally separated." The following compares the two types of separation (click for full images).

The following are the key features of the Operational Separation Requirements of OpCo as released yesterday to the public, amongst other details:

Next Gen NBN OpCo shall be independent from its downstream affiliated operating units, including the following:

  • Operate in all respects on a standalone basis, separate from affiliated downstream operating units
  • Be located in separate premises
  • Independently formulate & make own decisions on its assets and commercial policy
  • Not allow its affiliated downstream operating units to have unequal influence on the formulation of commercial policy, and access to commercial information or customer confidential information
  • OpCo’sBoard of Directors, Management and employees not to have responsibilities in any Affiliated Operator
  • All remuneration and incentive schemes for the OpCo’sBoard of Directors, Management and employees not to be linked to the performance of Affiliated Operator(s)
  • Ensure compliance with Operational Separation Requirements through the maintenance of a comprehensive governance manual, monitoring against a set of Operational Separation Performance Indicators, & appropriate reporting to the Monitoring Board (Source: IDA)

Key issues in the OpCo/NetCo separation

How will the government ensure that the costs of NetCo structural separation and OpCo operational separation do not outweigh the benefits to the economy from the separation? The government has said that the end goal in this NGNBN project is to have a "vibrant RSP market," and that the next gen infrastructure will provide "non-discriminatory prices and conditions." Yet it is not clear that these end goals necessitate the onerous layers of legislation and compliance requirements that structural and operational separation of the NetCo and OpCo respectively will require.

The IDA is also offering a grant of up to $250m to the winning OpCo bidder. This grant is ostensibly the carrot to entice private investment into this sector and to offset the OpCo separation requirements. And will it be enough?

In view of the multiple compliance requirements that the NGNBN will impose on incumbents, the best option for the incumbents (Starhub & SingTel) is to refrain together from participating in the NGNBN RFPs, and in the mean time invest in their own broadband infrastructures to compete the NGNBN out of business. Starhub would go ahead with its DOCSIS 3.0 investments (just like Comcast has just released) and SingTel would roll out its own FTTx infrastructure. With their entrenched customer base and bundling strategies, they would easily out-compete the NGNBN operators and retain their duopoly status. In contrast, participating in the NGNBN artificially introduces a competitive (and possibly unsustainable) market structure in addition to onerous regulatory requirements.

It will be interesting to watch the developments of this space and see how things develop.

[Click here for official information on the OpCo RFP release (Press release/Presentation Slides/Speech etc)]

Friday, April 04, 2008

Temasek & the SWF Issue: A Few Articles

The purpose of this post is just to archive a few articles (click for full images) that have been in the press (specifically TODAY), regarding Temasek and the SWF issue.

The first was an editorial (2 Apr 08) by Conrad Raj, Editor-at-large of Today, on the semantics of the SWF. I would like give Conrad a pat on the back for being one of the few journalists in Singapore to have the courage to write a piece confronting Temasek on its behaviour; I have not seen similar content from Straits Times or My paper (which instead comes up with crap like this)

The second is a short response to Conrad's piece by an interested reader (3 Apr 08)

And finally, we have Myrna Thomas' response to the two (4 Apr 08). As usual, Ms Thomas gives Singaporeans the same lines (about being purely commercially oriented) that Temasek has been spewing for a long while.

Interestingly, while all this activity has happened in TODAY, nothing has appeared in the Straits Times regarding this issue. I wonder what has happened to my letter.

Update: Another letter on Temasek, a day after this post was published.

Wednesday, April 02, 2008

Apparent Lack of Coordination Between Temasek and Ministry of Finance is Alarming

[I just sent this letter to ST Forum. It is about an issue I blogged about earlier, see for background information. If this letter doesn't get published, at least a few people who care to read my blog will get to see it]

I am disturbed by recent events (“Disclosure Deal,” ST March 22 and “Guidelines for wealth funds apply to Temasek, says ministry,” ST April 01) that suggest a lack of coordination between Temasek Holdings and the Ministry of Finance.

This issue is not just a matter of definitions and of whether Temasek is a Sovereign Wealth Fund. Rather, it suggests that for at least a brief week and a half, Temasek was a corporate entity that was able to decide on its principles of corporate governance, ahead and independently of its sole shareholder and owner, the Government of Singapore.

Temasek’s corporate governance framework has implications that go far beyond standards of financial disclosure, into the realm of critical issues such as Temasek’s investment mandate and the decision-making process that Temasek uses to make or dispose of investments. These issues, amongst others, have as great an impact on allaying foreign suspicion and lowering the risk of protectionist measures, as the levels of disclosure adopted by Temasek.

The process of determining a company’s principles of corporate governance is a principal issue for every corporation, particularly a company like Temasek that invests its funds on behalf of the country. Thus, I certainly hope that the two contradicting statements to the press were the result of an honest miscommunication between the two parties, and that my concerns are misplaced.


I had also previously written a letter to the press last year in March 07 about Temasek & the MoF.

Tuesday, April 01, 2008

What's Going On Between Temasek and the Ministry of Finance?

Just one and a half weeks ago (March 22, 2008), it was reported in the news that Temasek Holdings was saying that it was not a sovereign wealth fund.

TEMASEK Holdings said that it is not affected by an agreement by Singapore, Abu Dhabi and the United States on principles to increase the transparency of sovereign wealth funds. 'Temasek is not a sovereign wealth fund,' its spokesman Mark Lee said in a telephone interview yesterday. 'Temasek has to sell assets to raise cash for new investments and doesn't require the government to give approvals.'

And then, today (1 Apr 08), the Ministry of Finance goes on the record saying, hey, actually what Temasek said about themselves is not true, the rules apply to Temasek as well:

THE Ministry of Finance yesterday said that Temasek Holdings should abide by guidelines for sovereign wealth funds (SWFs) that were unveiled just over a week ago.

It said that as Temasek is wholly owned by the Government, the 'policy principles' it helped craft with counterparts from Abu Dhabi and the United States are relevant for the local investment company.

Whooopsy...!! What's going on here???

Now, not only does Temasek invest "purely on commercial principles," it doesn't even clarify its status with our Ministry of Finance before making an official statement to the press!

What do we have here? A Rogue Sovereign Wealth Fund which makes up its own rules ahead of the Government and without its owner's approval??

Now we really understand why we get headlines like "Temasek says investments in U.S. not influenced by Singapore Government" - Temasek makes its own rules in the absence of a proper system of checks and balances.

This issue is not just a matter of definitions, semantics and of whether Temasek is an SWF... indeed these recent events suggest that Temasek is a corporate entity that is able to determine its principles of corporate governance ahead of and without the approval of its sole shareholder, the Ministry of Finance.

This has implications that go far beyond standards of disclosure into the realm of issues such as the investment mandate and decision making process that Temasek uses to decide on its investments.

This is very disturbing and I have written a letter to the press about this issue.

GIC, UBS & Jim Rogers

Back on 10th December 2007, the following was reported on Channel News Asia regarding GIC's investment in UBS.
The Government of Singapore Investment Corp (GIC) is injecting 11 million Swiss francs, or nearly US$10 billion, into the troubled Swiss banking giant UBS.

This will give GIC an almost 9 percent stake in UBS.

The deal comes as UBS announced that it was making further multi-billion dollar writedowns for its US sub-prime exposure.
A few months later, on March 5th, 2008, the following was reported on many news sources, including reuters, about Jim Rogers' comments that Singapore was going to lose money on its investments in investment banks. (For those who don't know, Jim Rogers is one of the most successful investors of all time, and partnered George Soros when the two ran their Quantum Fund)
"It grieves me to see what Singapore is doing. They are going to lose money," he added, referring to investments by Government of Singapore Investment Corp and Temasek in Citigroup, Switzerland's UBS and Merrill Lynch.
Just today (April 1st, 2008) UBS has announced massive losses and is again trying to raise capital, just a few months after its massive capital raising exercise that involved GIC. Reuters reports:
UBS AG doubled its writedowns from the subprime crisis, parted company with its chairman and asked shareholders for more emergency capital on Tuesday in a second dramatic attempt to reverse its fortunes.

The Swiss bank wrote down an additional $19 billion on U.S. real estate and related assets, causing a net loss of 12 billion Swiss francs ($12.03 billion) in the first quarter, and said it would seek 15 billion francs through a rights issue of shares.

But what is interesting about GIC's 'investment' is that UBS has been characterised as requesting more 'emergency capital' to 'reverse its fortunes'. I'm not sure I'd really put money in such a company and call it an investment.

Well, of course, GIC and Temasek would say that their investments are 'for the long term' and that the performance of these investments cannot be evaluated simply on the basis of their performance in a few short months.

After all, a 40% drop in stock price in 4 months can't be that bad... right?

Well, in any case, it looks like Jim Rogers is far out in the lead in this race as to who will eventually turn out to be right (click for full images):