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Temasek takes severe hit


CEO Ho Ching's exit won't alter fortunes of the sovereign wealth fund in short term

Ho Ching's resignation as CEO of Temasek Holdings would not cloud heavy losses of about 40 per cent at Singapore's sovereign wealth fund amid the global financial market meltdown.

The Government Investment Corporation of Singapore (GIC) is also suffering similar heavy losses.

An investment analyst in Singapore said Temasek's results will be released in April and he estimated that of its US$125 billion portfolio as of March 2008, Temasek would have lost 40 per cent, leaving it with about US$75 billion left.

As for the Government Investment Corporation of Singapore or GIC, the investment analyst said it would also lose more than a third of the value of its investment portfolio.

"GIC started the crisis with roughly Singapore $550 billion in reserves. My estimate is that it has lost about $190-$200 billion of that, leaving it with about $350 billion left. This amount is equivalent to 200 per cent of Singapore's gross domestic product," he added.

"So both have lost money but their performance has not been out of line with other large funds, possibly a bit better. These are all worst-case estimates."

Ho, the wife of Prime Minister Lee Hsieng Loong, announced last week that after almost seven years at the helm of Temasek, she would step down by October this year. She would be succeeded by Chip Goodyear, a former CEO of BHP Billiton Ltd, who would be the first foreigner to run the sovereign wealth fund.

Temasek Holdings was set up by proceeds from the privatisation of Singapore's state-owned firms, while GIC by international reserves of the Monetary Authority of Singapore. Both represent the investment vehicles of Singapore, which has eyed for a global reach for its investment.

The transition is taking place at a time when Singapore is suffering the worst economic problems since 1960s. Temasek, racked a return of about 17 per cent a year since its inception in 1974 and March this year, is also going to face a drastic restructuring of its investment strategy.

Under her leadership, and also as wife of Prime Minister Lee Hsian Loong, Ho led Temasek to embark on audacious acquisitions in China, Asia, Europe and the United States. Temasek's buy-out of Shin Corp, previously owned by former prime minister Thaksin Shinawatra, in January 2006 sparked out a political turmoil inside Thailand followed by a military coup in September that same year.

Ho's resignation has also sparked a debate inside Singapore. Tharman Shangmugaratnam, the finance minister, preferred to handle the issue with a diplomatic term, saying that Ho's departure wasn't linked to the performance of Temasek's investments.

"Whether this is a way of making a change of someone who is related to the prime minister, this has been a point that I've dealt with since the first day Ho Ching was appointed as CEO. I was very instrumental in bringing in Ho Ching and it was based purely on merit and has nothing to do with her relationship to anyone," he said.

The investment analyst in Singapore said Ho's resignation was planned for about a year. "I don't think it has much to do with Temasek's performance. This is Singapore, favoured people are not made to resign for performance! I think Singapore leaders are more concerned over the Sovereign Wealth Fund issue. It becomes more difficult to defend Singapore's sovereign wealth fund as a non-state actor with no political agenda if the wife of the prime minister is running it," he said.

Singapore's economy is facing a severe downturn, with growth rate plunging into the negative territory. "We recently revised downward our GDP forecast to minus 2.8 per cent to reflect the likelihood that the contraction in the first half of 2009 could be deeper than previously expected," said Citi's Asia Economic Outlook and strategy (January 23, 2009). "Advance estimates for the fourth quarter of 2008 showed a contraction of 2.6 per cent from a year ago, down sharply from 0.3 per cent the previous quarter. On a quarter on quarter seasonally adjusted annualised rate, the fourth quarter GDP contracted 16.9 per cent - the worst on record."

Singapore has recently entered into a currency swap arrangement with the US Federal Reserve, which worked out the swap arrangements with selected countries including Brazil and Korea, to avert the financial crisis, data of the US Federal Reserve show.

Unlike Korea, which has drawn down the currency swap arrangement, Singapore has not yet drawn down the swap.

 


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