Temasek – Another “time will tell” story in the writing?

The newly appointed Chairman of the Government Parliamentary Committee for Defence and Foreign Affairs and MP for Pasir Ris-Punggol GRC, Michael Palmer who kicked off the debate in parliament on Monday urged that the government should encourage more transparency and openness in dealing with the public.

"Clearly, the public wanted to know the rationale and reasons behind the decision to sell what was originally meant to be a long-term investment made with public funds. Unfortunately, due to the lack of information, speculation and discontent were rife," said Mr. Palmer citing divestment of Temasek Holdings’ entire 3.8 per cent stake in the Bank of America, which created huge criticisms in cyberspace and earned Temasek the wrath of Singapore public.

In an attempt at damage control and public relations spin, Ms. Myrna Thomas the Managing Director of Corporate Affairs at Temasek Holdings said, “This move to balance risks against opportunities is part and parcel of our discipline of investing and divesting sustainable long-term returns on our entire portfolio”. But what she failed to address were ‘what exactly were the risks and returns?”

Mr Leong Sze Hian, the president of the Society of Financial Services Professionals, told Reuters that "The letter (of explanation by Ms. Thomas) doesn't give the answer that everybody is asking. How much did they lose?” And more importantly, ‘what is the rationale for the timing of the sale?’

Temasek was merely a minor stakeholder in the gigantic US lender, Bank of America. Although there were initial fears that Bank of America might be nationalised and if nationalised the value of the shares might plunge to zero or near zero, the fears appears to be merely an exercise of misinformation. In an internal memo titled “We are not being nationalized okay?” Bank of America’s chief Kenneth Lewis says that there is no risk of the government converting preferred shares into common shares that would dilute existing shareholders. He further states that Bank of America continues to be strong, posting a 4 billion dollar profit in 2008, despite other banks losing billions of dollars. Mr. Lewis took issue with how “the market appears to be moving in part based on rumor, innuendo and falsehoods propagated by the misinformed”. Did Temasek divest its shares in Bank of America, and in the process loose an estimated 6 billion dollars, because they ‘bought’ this misinformation; or where they the ones propagating the misinformation?

Minister Mentor Mr. Lee Kuan Yew said in March 2009 that Singapore’s economic recovery hinges on that of the US and that the American economy is “fundamentally sound”. Temasek has chosen not to buy the “fundamentally sound” story, preferring the ‘China Growth’ story instead.

The length to which Temasek Holdings goes to hide deeper in its closet of secrecy is not new. In 2008 when the US was pushing sovereign wealth funds to adopt new disclosure rules because of concern that a lack of transparency could spark a rise in protectionism, Temasek declared that it ‘is not a sovereign wealth fund’. And yet the fact remains that Temasek is a member of the International Working Group of Sovereign Wealth Funds.

Temasek often credits itself as the “most transparent” of the SWFs. But the question arises, against whom does Temasek compare them to say that? Mr. Simon Israel, Temasek’s Executive Director said in an interview with Euromoney that, “compared with the big sovereign wealth funds in the Gulf, Temasek is actually pretty open”. It seems it is a trend for all money losing sovereign wealth funds to label them, “the most transparent”. Norway – Government Pension Fund – Global, which is also a SWF that lost 71.5 billion Euros, also calls itself the “most transparent”.

Temasek is not exactly a model of transparency. It is not listed and as an exempt private company under Singapore law and so is not required to publish audited accounts. What it does publish are figures drawn from summaries of audited accounts of its constituent companies, some of which are listed. Thus the published figures could be considered the truth but perhaps not the whole truth.

Temasek has a history of buying high and selling low. With Shin Corp fiasco, and its controversial acquisition of stakes in Indosat, Global Crossing, ABC Learning and more recently with the suffering of a 31 per cent fall in the value of its portfolio from $185 billion to $127 billion in the eight months to the end of November last year, Temasek has demonstrated time and time again, that it has not made the right decisions with the public monies it manages in its portfolios.

In the light of these controversies and fiascos, Ms. Thomas’ statement that, “only time will tell if we have made the right decisions to deliver sustainable returns on our portfolio as a whole”, epitomises Temasek's unaccountability - particularly when the main test of whether the reserves are well-managed is whether they can be counted on to be drawn down during a recession and not whether they pan out in some mythical 20-year timeline when the markets happen to be booming. In this context, the figures bandied about are not reassuring at all.

Ms, Thomas’ statement further reinforces Mr. Inderjit Singh the MP for Ang Mo Kio GRC statement in parliament, “Should we allow so much of our reserves to be placed with GIC and Temasek, or should reserves be placed in much safer investments managed by people who understand that these are meant to be long term investments”, that we should seriously consider moving our reserves to more conservative investments.

While time has spoken time and time again about the wrong strategic decisions by the leadership at Temasek Holdings, they have started another “time will tell” story with their acquisition of China Construction Bank shares.