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.

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.

[End]

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

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.