The Shin sale and Singapore's foreign investment drive
By Jon Fernquest[Introduction | Vocabulary | Article | Reading Questions | Answers]
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Today's article is a thorough overview of Temasek, the investment arm of the Singapore government.
There has been a lot of discussion about the sale of Shin Corp to Singapore's Temasek over the last several months.
What kind of company Temasek exactly is or how the Shin Corp sale fitted into Temasek's broader strategy is little understood.
Today's article provides this essential background information and history.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. What is the relationship between the Shin Corp sale and the coup implied by the first paragraph?
2. Why did the Shin Corp sale provoke "nationalist outrage" ?
3. What was the relationship between the Shin sale and street protests?
4. Who owns and controls Temasek?
5. During the last year what kind of investments has Temasek focused on? Why?
6. Was Temasek expecting the public reaction that followed the sale?
7. Did anyone anticipate the reaction to the sale?
8. How big is Temasek compared to other government owned investment companies around the world?
9. What strategic purpose might Singapore's oversea's investments have?
10. What similar problems has China had with overseas investments?
11. What geographical limitations does Singapore have and how has this determined what investments it makes?
12. When did Singapore become an independent country?
13. How did Singapore initially attract foreign investment to Singapore?
14. When and why was Temasek started?
15. Where does the money that Temasek earn from domestic infrastructure companies go?
16. What events in 2000-2001 affected Temasek? How?
17. Who is Ms Ho Ching and how did her appointment in 2002 to oversee Temasek affect its strategic direction?
18. What experience in overseas investments has Temasek gained through it subsidiaries?
19. In what countries does Temasek own parts of banks?
20. What problems did Temasek encounter when it acquired majority ownership of the American communications company Global Crossing in 2003?
21. What percentage of Singapore's economy does Temasek control ?
22. Has Temasek allowed any of Singapore's strategic domestic companies to be sold?
23. Is the Singapore government involved in Temasek's investment decisions?
24. What percentage ownership in Shin Corp did Temasek end up with?
25. What other factor in the sale besides foreign ownership "outraged Bangkok's middle class" ?
26. What could happen if courts find that laws were broken in the Shin Corp sale?
27. What more reasonable response than voiding the sale might be taken in the end? Why?
Bangkok Post Article: October 4, 2006
The deal that toppled a prime minister
Telecom deal by the Singapore government's investment arm sparked nationalist outrage among Thais WAYNE ARNOLDSingapore - Among the many measures of a successful foreign investment, helping to set off a coup d'etat is definitely not one of them.
In hindsight, the US$1.9 billion (71.4 billion baht at current rates) purchase of a controlling stake in Thailand's dominant telecommunications conglomerate early this year by a group led by the Singapore government's investment arm, Temasek Holdings, was less than ideal, analysts and people close to the deal say.
Buying the company, called Shin Corporation, provoked nationalist outrage in Thailand. Buying it from the family of a prime minister widely accused of corruption, moreover, touched off extensive street protests that culminated on Sept 19 in the military ouster of Thaksin Shinawatra as the Thai leader.
The coup has thrust Temasek into unusual focus. Created, owned and overseen by the Singapore government, it has embarked on an ambitious overseas investment campaign that exceeded $13 billion (1,392 billion baht) in its latest fiscal year. And as Singapore struggles to stay ahead of big competitors like China and India, Temasek is helping this small city-state hedge its bets by investing in them.
"It's an insurance policy,'' said Song Seng Wun, regional economist at CIMB-G K Goh, a brokerage firm in Singapore. "Even if things, knock on wood, didn't turn out domestically, they'd still have a hand or fingers in many pies across the world.''
But the fallout from the Thai investment has underlined the perils of investing abroad. "I don't think anyone perceived there would be such political fallout from the deal,'' said Stephen Bennett, a lawyer with Hunton & Williams in Bangkok who advised Temasek on the purchase. "They wouldn't have done it had they known this would happen.''
On the contrary, Mr Bennett said, political risk did not even figure into negotiations. "It wasn't an open-discussion issue,'' he said.
Now, Mr Thaksin is in exile, Temasek has lost roughly $700 million (26,327 million baht) and Thai officials, including those from the Ministry of Commerce, are investigating whether it was illegal. Temasek said executives were not available for interviews, but issued a statement saying: "Temasek remains a long-term investor in Thailand, and we believe that the long-term fundamentals of the country remain good. We have complied fully with the laws in our investments, and will continue to cooperate fully with the Ministry of Commerce as we have always done.''
Overall, Temasek's portfolio rose 24% in the year ended March 31, to a value of $81.2 billion (3,052 billion baht). That made it one of the largest government-owned shareholders in the world, according to Thomson Financial. It is the largest single foreign investor in China's financial industries, and it has plans to move into advanced economies, too, including in Europe, Japan and the United States. Temasek insists that its investments are purely profit-driven. But its appetite and ownership have created reservations within some other Asian countries, who look at Singapore, their small but affluent neighbour, with a mixture of respect and resentment. While analysts say the company is not political, they also say its investments have a strategic purpose: to increase tiny Singapore's place in the global economy. "The more you invest in the region,'' said Garry Rodan, a professor at Murdoch University's Asia Research Centre in Perth, Australia, "the more capacity you have to influence decisions about where people invest.'' To some extent, Temasek's frustrations mirror those of other state-owned enterprises venturing overseas, like the Chinese oil company CNOOC when it tried to buy Unocal. But Temasek's push is part of a broader effort by Singapore to hitch itself to larger economic wagons. A port city with no natural resources, Singapore lured foreign manufacturers after independence in 1965 with low taxes and clean government. It also set up companies to build essential infrastructure and in 1974 established Temasek to oversee them. Temasek's stakes in those 40-odd companies now earn it an estimated $2.5 billion (94 billion baht) in annual dividends. Part of that flows to the government; the rest is invested elsewhere.
When the technology bubble burst in 2000, Singapore was thrown into recession, its worst since independence. Combined with the economic impact of the terrorist attacks of September 2001, Temasek's portfolio shrank by almost a fifth. In mid-2002, it appointed a new executive director to overhaul the company, Ho Ching, a Stanford-educated engineer who worked her way up to run a military-related conglomerate, Singapore Technologies. Temasek's chairman, S Dhanabalan, said at the time that he had to overcome initial hesitancy about hiring Ms Ho from her husband, Deputy Prime Minister Lee Hsien Loong, son of Singapore's senior leader, Lee Kuan Yew. The younger Lee is now prime minister.
Bankers credit Ms Ho with imposing investment discipline and global expertise, partly by hiring outsiders. These days, 27% of Temasek's 250 employees are foreigners. Ms Ho also introduced one of her personal preoccupations, the BlackBerry wireless e-mail device.
Temasek was already gaining overseas exposure through its Singapore subsidiaries. Singapore Telecommunications, or SingTel, bought the Australian cellular operator Optus for $7 billion (263 billion baht) in 2001. Singapore Airlines owns 49% of Virgin Atlantic. And the port operator PSA International holds stakes in 20 ports in 11 countries, including five in China.
Temasek's goal for its portfolio is a three-way split between Singapore, developing Asian countries and advanced economies. So far, though, it has been concentrating on gaining exposure to Asia's rapidly growing middle class, particularly through the region's banks. It has stakes now in banks in India, Indonesia, Malaysia, Pakistan, South Korea and Taiwan.
China is an even bigger target. In September 2005, Temasek paid $1.47 billion (55.24 billion) baht for a roughly 5% stake in the China Construction Bank; it also bought 5% of the Bank of China for $1.5 billion (56.4 billion baht).
In March, Temasek ventured to Europe, buying an 11.5% stake, valued at $4 billion (150.3 billion baht) in the Standard Chartered Bank of Britain, which makes three-quarters of its profit in Asia. It has also been doing business in the United States. In 2003, through ST Telemedia, Temasek purchased a majority stake in Global Crossing - overcoming opposition by the Pentagon after Singapore's prime minister at the time, Goh Chok Tong, wrote to Vice President Dick Cheney.
Temasek has refrained from selling strategic domestic assets, saying it would do so only when market conditions were right. It still owns 100% of PSA, most of SingTel and Singapore Airlines. Companies it controls account for almost 30% of the economy.
Temasek says the government is not involved in its investment decisions. But its board is appointed by the Singapore finance ministry, which Mr Lee leads, subject to approval by Singapore's president. Its chairman, Mr Dhanabalan, is a former foreign minister. One of its two deputy chairmen is a permanent secretary in the finance ministry.
As for the investment in Shin Corp in Thailand, analysts say that Temasek should have been more careful about getting involved.
Since becoming prime minister in 2001, Mr Thaksin was repeatedly accused of using policies to benefit the company. Even as sale talks were under way, rallies against him were drawing tens of thousands of people.
After buying the 49.6% stake with a group of Thai investors, Temasek and its partners were obliged to offer to buy the rest, and ended up with a 96% stake. Temasek gained control over Shin Corp, as well as Thailand's leading cellular operator, a satellite company and a local television broadcaster.
What outraged Bangkok's middle class, in addition to the sale of vital communications to a foreign government, was that the deal was conducted so that the prime minister's family avoided paying any income tax on the sale.
If the Shin deal is found to be illegal, the buyers could face penalties and Shin's licences could be revoked. The Commerce Ministry could also force Temasek to dispose of shares or to void the sale.
Many analysts predict that, with Mr Thaksin gone, the case will fizzle as Thailand's new leaders choose instead to preserve ties with an important investor. If they do not, Shin represents such a small part of Temasek's overall portfolio, said Anshukant Taneja, an analyst with Standard & Poor's in Singapore, that "even if they were to write it off, it doesn't make any material impact on their profile''. NYT
Vocabulary
[Definitions will follow shortly]
in hindsight,... - understanding an event after it has happened (explaining an event afterwards is a lot easier than predicting the event before it occurs)
a controlling stake - own enough of the company to control decisionmaking about its future (greater than 50% voting control, note that voting rights can be separate from dividend income rights)
dominant - more powerful than others
conglomerate - a large corporation that owns many different kinds of businesses
provoked nationalist outrage -
touched off - started, triggered (like a match lighting a fire)
hedge your bets - reduce risk by betting on more than one outcome (making plans for several possible futures)
had a hand or fingers in many pies - was involved in many companies
the fallout from, political fallout - negative effects (unpleasant things that resulted from another event)
underlined - emphasized
the perils of - the dangers of
fundamentals - the simple most basic elements of something, responsible for its proper functioning, success, and failure
long-term fundamentals - the factors that are most important for success or failure over a long period of time (Warren Buffet's investment strategy is based on company fundamentals)
Thomson financial - (See Wikipedia)
affluent - have a lot of money
resentment - disappointment and anger about something
CNOOC - China National Offshore Oil Corporation, one of China's largest oil companies (See Wikipedia)
hitch itself to larger economic wagons -
lured - presuaded, convinced, attracted
economic bubble - when the prices of important assets in an economy such as stock shares or real estate are driven up by speculation to absurdly high levels that don't match true long-term sustainable value, (this value is the discounted Net Present Value of future cash flows from the asset) (See Wikipedia)
bubble burst - when the price of assets in an economic bubble suddenly return to their normal value, usually when confidence undermines speculation at some unpredictable point
preccupations - continually thinking about something that yuou feel is important
a Blackberry - a handheld device for receiving and replying to email when you are not in the office (See Wikipedia)
exposure -
a majority stake in -
Global Crossing - (See Wikipedia on Global Crossing)
revoked -
will fizzle -
Standard and Poors -
Answer Key:
1. What is the relationship between the Shin Corp sale and the coup implied by the first paragraph?
The Shin Corp sale "set off" the coup. Other ways of expressing this idea include: 1. "The Shin Corp sale led to the coup," or 2. "The Shin Corp sale started the chain of events that led to the coup.
2. Why did the Shin Corp sale provoke "nationalist outrage" ?
Because Shin Corp was sold to a foreign corporation, namely Singapore's Temasek.
That there was absolutely no public consultation before the sale, is another important factor, that the article doesn't mention. Of course, Mr. Thaksin would probably object that this was his family's personal property, not the country's, but many would probably consider the sale of one of the largest telecommunications companies a national security issue.
3. What was the relationship between the Shin sale and street protests?
It touched off extensive street protests.
To be more accurate, these Sondhi was leading weekly protests before the sale.
The sale triggered a massive escalation and intensification of the protests.
4. Who owns and controls Temasek?
The Singapore government.
5. During the last year what kind of investments has Temasek focused on? Why?
During the last year, Temasek has focused on foreign investments outside of Singapore, because it is struggling "to stay ahead of big competitors like China and India." It is an "insurance policy" or way of diversifying Singapore's investments outside of Singapore.
6. Was Temasek expecting the public reaction that followed the sale?
No, "they wouldn't have done it had they known this would happen," according to a lawyer who advised on the deal who also observes that "political risk did not even figure into negotiations."
7. Did anyone anticipate the reaction to the sale?
A lawyer who was involved in the deal states, "I don't think anyone perceived there would be such political fallout from the deal."
This is simply not true. Just like predicting that the current Iraq would turn into a Vietnam like situation, predicting that the Shin sale would provoke a nationalist reaction was a pretty prediction. In fact, the week before the sale, I predicted it by raising it as an issue raised by a Bangkok Post article. [Will post link shortly] Many other people must have predicted nationalistic fallout from the deal. That Singapore technocrats didn't probably points out some limitations in their education.
8. How big is Temasek compared to other government owned investment companies around the world?
It is one of the largest and is the "largest single foreign investor in China's financial industries."
9. What strategic purpose might Singapore's oversea's investments have?
a. "To increase tiny Singapore's place in the global economy."
b. "To influence decisions about where people invest."
10. What similar problems has China had with overseas investments?
The Chinese oil company CNOOC was prevented from buying the American oil company Unocal.
11. What geographical limitations does Singapore have and how has this determined what investments it makes?
The country of Singapore is only a city on an island, so it "has no natural resources" except its important port, so it has tried to make investments in countries with natural resources ("hitch itself to larger economic wagons").
12. When did Singapore become an independent country?
In 1965.
13. How did Singapore initially attract foreign investment to Singapore?
Singapore used "low taxes and clean government."
14. When and why was Temasek started?
Temasek was started in 1974 to oversee companies set up by the government to build essential infrastructure. There are around 40 of these domestic infrastructure companies.
15. Where does the money that Temasek earn from domestic infrastructure companies go?
"Part of that flows to the government; the rest is invested elsewhere."
16. What events in 2000-2001 affected Temasek? How?
When the internet bubble burst in the United States Singapore entered its worst recession since independence in 1965. This was followed quickly by the terrorist attacks of 2001 which further depressed business.
In the wake of these events, Temasek's portfolio "shrank by almost a fifth."
17. Who is Ms Ho Ching and how did her appointment in 2002 to oversee Temasek affect its strategic direction?
Ms Ho Ching is a technocrat, a "Stanford-educated engineer who worked her way up to run a military-related conglomerate, Singapore Technologies." She has
a. Imposing investment discipline.
b Brought global expertise to Temasek.
c. Hired a lot of foreigners (27%).
18. What experience in overseas investments has Temasek gained through it subsidiaries?
Singapore Telecommunications has owned the Australian mobile phone operator Optus since 2001. Singapore Airlines owns 49% of the British airline Virgin Atlantic. PSA which operates Singapore's port, "holds stakes in 20 ports in 11 countries, including five in China."
19. In what countries does Temasek own parts of banks?
In Great Britain, India, Indonesia, Malaysia, Pakistan, South Korea and Taiwan.
20. What problems did Temasek encounter when it acquired majority ownership of the American communications company Global Crossing in 2003?
Initially, the pentagon was opposed to the acquisition, but Singapore's prime minister discussed the matter with American Vice President Dick Cheney which apparently solved the problem.
21. What percentage of Singapore's economy does Temasek control ?
The companies it controls "account for almost 30% of the economy."
22. Has Temasek allowed any of Singapore's strategic domestic companies to be sold?
No. ("It still owns 100% of PSA, most of SingTel and Singapore Airlines.")
23. Is the Singapore government involved in Temasek's investment decisions?
Officially no, but Temasek's board of directors is appointed by the Singapore government and several of the highest executives in the company are either former or current government officials.
24. What percentage ownership in Shin Corp did Temasek end up with?
96%.
25. What other factor in the sale besides foreign ownership "outraged Bangkok's middle class" ?
The fact that "the prime minister's family avoided paying any income tax on the sale."
26. What could happen if courts find that laws were broken in the Shin Corp sale?
"If the Shin deal is found to be illegal, the buyers could face penalties and Shin's licences could be revoked. The Commerce Ministry could also force Temasek to dispose of shares or to void the sale."
27. What more reasonable response than voiding the sale might be taken in the end? Why?
The case might just quietly disappear ("fizzle"), because "Thailand's new leaders" might choose to "preserve ties with an important investor."
