Temasek’s Hands in Too Many Pies

In the latest news surrounding Temasek – related investments in Telecom companies, ST Telemedia has divested its entire stake in PT Indosat to Qatar Telecom.

Business Times - 09 Jun 2008
STT sells Indosat stake, giving Qatar firm a boost
ST Telemedia divesting its entire stake in Indonesian mobile operator

(DUBAI/SINGAPORE) Qatar Telecom (Qtel) is poised to be a major player in the Indonesian telecoms market with the announcement on Saturday that Singapore Technologies Telemedia is selling its entire stake in PT Indosat.

'We believe that Indonesia is a high growth market for telecommunications and that Indosat is very well placed to compete in that market,' said Qtel chief executive Nasser Marafih.

Qtel will pay US$1.8 billion for the 40.8 per cent stake in PT Indosat held by Asia Mobile Holdings, a joint venture firm between the Qatari outfit and STT.

ST Telemedia, a subsidiary of Temasek Holdings, will no longer have any involvement in Indosat after the transaction.

The disposal of the stake came after an Indonesian competition watchdog ruled that Temasek has breached the country's anti-monopoly laws and ordered the Singapore investment firm to divest its holdings in either PT Indosat or PT Telkomsel.

Temasek indirectly holds 35 per cent of PT Telkomsel via its 56-per cent owned unit Singapore Telecommunications Ltd (SingTel).

Temasek’s official line is that ST Telemedia’s board of directors made the divestment decision entirely independently of Temasek. Independence might be true at an operational level, in the sense that the executives handling the divestment and the executives handling the anti-monopoly lawsuit do not know about what each other are doing. However, we can be quite sure that top level executives at Temasek were fully cognizant of all developments at STT which led to the decision to divest the PT Indosat stake, in light of the legal developments in Indonesia.

STT’s latest move in divesting PT Indosat is the latest in a string of developments that can be traced directly to Temasek’s nature as a Singapore government-owned investment agency; the Shin Saga is probably the incident that is most vivid in our minds. While Temasek and its subsidiaries may have complied with the law (according to its lawyers), its close links to the Singapore government and ruling family have presented unpleasant problems as the company ventures overseas and makes investments abroad.

Foreign governments, for whatever reason, have seen it unfit for Temasek to exert too much influence on their countries’ corporate scenes; the spectre of a tiny country owning massive stakes in prominent corporations has lead to anti-competitive lawsuits, tax-evasion attacks and pretty much anything else plausible in the legal arsenal to make sure that Temasek feels the pain of its corporate expansion. And as the saying goes, once bitten, twice shy.

The aftermath of the Thai military coup and the resultant pain felt by Temasek subsequent to stock market losses on Shin Corp must surely have fueled the rapid decision by STT to divest its PT Indosat stake, for fear of potential losses to PT Indosat or further legal penalties that Temasek might have had to suffer as a result of the ongoing legal action in Indonesia. Indeed, there is no other plausible explanation - the PT Indosat stake is such a lucrative investment that ST Telemedia would certainly not have made such a divestment except under duress.

These recent events only serve to underscore the challenges that Temasek faces going forward – its massive capital base, extensive reach in many companies, and undeniable politically-linked image mean that Temasek will see itself facing the prospect of anti-competitive suspicions and political reactions from foreign governments. Indeed, it would certainly be no surprise if Temasek’s investment analysts have added a new dimension to their investment risk analysis – the risk of political backlash, a risk quite unique to Temasek. These risks will only serve to grow as the corporation extends its reach and as the funds under its care expand in size.

And so perhaps it is time for the government to rethink its strategy with regards to its management of its sovereign wealth, and perhaps consider some sort of proper privatization of the GLCs under Temasek’s ownership. For instance, the Indonesian antitrust case would certainly not have happened if Temasek did not control SingTel. Or Temasek might be seen to be much more independent from the Singapore government if it underwent some form of privatization, perhaps an IPO and listing and the attendant enforced corporate disclosure.

Whatever the case, maintaining the status quo is definitely unsatisfactory. Temasek will see its investment mandate constrained by attempts to avoid political backlash from the foreign countries it seeks to invest in. One thing is for sure – repeated press releases claiming that Temasek acts independently of the government and independently of its subsidiaries are too little and too lousy.

It is time for Temasek and the Singapore Government to do better.