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<TABLE border=0 cellSpacing=0 cellPadding=0 width=452><TBODY><TR><TD vAlign=top width=452 colSpan=2>If he buys, you should...? And vice versa!
Published June 3, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Temasek portfolio rebalancing seen
It may trim stakes in non-strategic S'pore firms, move assets to energy, resources
By TEH SHI NING
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TEMASEK could trim its stakes in 'non-strategic Singapore holdings' over time, and reduce its exposure to banks, reallocating assets to 'under-represented' energy, natural resources, and consumer sectors, analysts from Nomura Singapore say.
In a 100-page strategy report released yesterday, analysts Lim Jit Soon and Tsai Yuan Yiu detailed the direction that they see Temasek headed in, with recently announced tweaks to its investment strategy and Charles Goodyear replacing Ho Ching as chief executive in October.
Their report noted that Temasek owns nine of the 15 largest listed companies by market cap in Singapore and thus wields 'significant influence in Singapore's corporate sector'. While they believe that many Temasek-linked companies (TLCs) are well-managed and will remain core holdings, they also think that Temasek 'could opportunistically lighten its holdings over the long-term', divestments which should be seen in the context of a long-term strategy unveiled in the 2002 Temasek Charter.
Temasek does not explicitly segregate its holdings, the report said, but Nomura's analysts gave their take on which of the TLCs could be deemed strategic.
They expect Temasek to lower its stakes in Sembcorp Industries, SingTel, StarHub and SMRT, given its relatively high shareholding in these 'non-strategic' plays.
DBS, SIA, ST Engineering and NOL were identified as 'possible strategic companies' which are likely to be held for longer as they are 'critical to Singapore's long-term interests and security'. Though Temasek may selectively lighten its holdings in these too, as it did with ST Engineering in 2004, it will remain a major shareholder of 'strategic' companies, the report said. Keppel Corp and CapitaLand were two TLCs which Nomura deemed non-strategic but attractive investments, likely to be held for long term.
Temasek might reconsider public listings for PSA and Mapletree Investments, in line with its long-term divestment goal, Nomura said, but an IPO from Mediacorp is less likely as it 'continues to receive capital grants from the government'. The analysts see potential IPOs from CAAS's NewCo which will operate Changi Airport, as well as Fullerton Financial Holdings (FFH).
Nomura's report also questioned whether Temasek might be over-exposed to the financial sector. Investments in financial institutions rose to 40 per cent of its portfolio in March last year, from 21 per cent in 2004, with direct bank holdings in DBS, Stanchart and Barclays and a significant proportion held by FFH.
Temasek's finance portfolio grew significantly leading up to last March, the analysts said, but 'inevitably had a negative impact' when the global financial crisis hit investments such as Merrill Lynch. The recent divestment of converted Bank of America shares cost Temasek some US$3 billion.
The report estimates a 23 per cent decline in Temasek's overall portfolio value to $143 billion last month, from $185 billion in March 2008.
Mr Goodyear 'might look to rationalise Temasek's large exposure in banks and reallocate to under-represented sectors such as energy/natural resources and lifestyle/consumer', the report said. And, they think this could be done via a possible IPO of FFH in the longer term, or, more likely in the near term, by setting up sub-funds for third-party subscription.
Mr Goodyear's four years as CEO of BHP Billiton reveal a track record of strong capital management, M&A and overseas expansion, the analysts said. He may thus take a tighter rein on capital management at Temasek, 'with preference toward gearing as the cheapest form of financing'. Temasek had a low estimated net gearing of 0.03x as at March 2008.
He is also likely 'to pay for good assets with a long-term investment horizon', with natural resources an obvious sector of focus in which to contribute his expertise, and pursue an on-the-ground strategy overseas by expanding existing offices and raising investments in local private equity funds.
As Mr Goodyear 'differentiates himself with his operational experience and track record in extracting post-merger synergies', the analysts say, there might also be a 'more active approach by Temasek on the majority-owned TLCs in the longer-term'.
Nomura thinks Temasek's low gearing and recurring cash flow from dividend income of $4-6 billion annually will give it flexibility to rebalance its portfolio. By their estimates, Temasek has potential spending power of $31 billion, assuming a total debt-to-equity ratio of below 0.3x to retain its triple-A rating.
'In our view, Temasek is well-positioned to expand its portfolio opportunistically in the current market environment given its gearing potential,' they said.
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Published June 3, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Temasek portfolio rebalancing seen
It may trim stakes in non-strategic S'pore firms, move assets to energy, resources
By TEH SHI NING
<TABLE class=storyLinks border=0 cellSpacing=4 cellPadding=1 width=136 align=right><TBODY><TR class=font10><TD width=20 align=right>
</TD><TD>Email this article</TD></TR><TR class=font10><TD width=20 align=right></TD><TD>Print article </TD></TR><TR class=font10><TD width=20 align=right></TD><TD>Feedback</TD></TR></TBODY></TABLE>TEMASEK could trim its stakes in 'non-strategic Singapore holdings' over time, and reduce its exposure to banks, reallocating assets to 'under-represented' energy, natural resources, and consumer sectors, analysts from Nomura Singapore say.
In a 100-page strategy report released yesterday, analysts Lim Jit Soon and Tsai Yuan Yiu detailed the direction that they see Temasek headed in, with recently announced tweaks to its investment strategy and Charles Goodyear replacing Ho Ching as chief executive in October.
Their report noted that Temasek owns nine of the 15 largest listed companies by market cap in Singapore and thus wields 'significant influence in Singapore's corporate sector'. While they believe that many Temasek-linked companies (TLCs) are well-managed and will remain core holdings, they also think that Temasek 'could opportunistically lighten its holdings over the long-term', divestments which should be seen in the context of a long-term strategy unveiled in the 2002 Temasek Charter.
Temasek does not explicitly segregate its holdings, the report said, but Nomura's analysts gave their take on which of the TLCs could be deemed strategic.
They expect Temasek to lower its stakes in Sembcorp Industries, SingTel, StarHub and SMRT, given its relatively high shareholding in these 'non-strategic' plays.
DBS, SIA, ST Engineering and NOL were identified as 'possible strategic companies' which are likely to be held for longer as they are 'critical to Singapore's long-term interests and security'. Though Temasek may selectively lighten its holdings in these too, as it did with ST Engineering in 2004, it will remain a major shareholder of 'strategic' companies, the report said. Keppel Corp and CapitaLand were two TLCs which Nomura deemed non-strategic but attractive investments, likely to be held for long term.
Temasek might reconsider public listings for PSA and Mapletree Investments, in line with its long-term divestment goal, Nomura said, but an IPO from Mediacorp is less likely as it 'continues to receive capital grants from the government'. The analysts see potential IPOs from CAAS's NewCo which will operate Changi Airport, as well as Fullerton Financial Holdings (FFH).
Nomura's report also questioned whether Temasek might be over-exposed to the financial sector. Investments in financial institutions rose to 40 per cent of its portfolio in March last year, from 21 per cent in 2004, with direct bank holdings in DBS, Stanchart and Barclays and a significant proportion held by FFH.
Temasek's finance portfolio grew significantly leading up to last March, the analysts said, but 'inevitably had a negative impact' when the global financial crisis hit investments such as Merrill Lynch. The recent divestment of converted Bank of America shares cost Temasek some US$3 billion.
The report estimates a 23 per cent decline in Temasek's overall portfolio value to $143 billion last month, from $185 billion in March 2008.
Mr Goodyear 'might look to rationalise Temasek's large exposure in banks and reallocate to under-represented sectors such as energy/natural resources and lifestyle/consumer', the report said. And, they think this could be done via a possible IPO of FFH in the longer term, or, more likely in the near term, by setting up sub-funds for third-party subscription.
Mr Goodyear's four years as CEO of BHP Billiton reveal a track record of strong capital management, M&A and overseas expansion, the analysts said. He may thus take a tighter rein on capital management at Temasek, 'with preference toward gearing as the cheapest form of financing'. Temasek had a low estimated net gearing of 0.03x as at March 2008.
He is also likely 'to pay for good assets with a long-term investment horizon', with natural resources an obvious sector of focus in which to contribute his expertise, and pursue an on-the-ground strategy overseas by expanding existing offices and raising investments in local private equity funds.
As Mr Goodyear 'differentiates himself with his operational experience and track record in extracting post-merger synergies', the analysts say, there might also be a 'more active approach by Temasek on the majority-owned TLCs in the longer-term'.
Nomura thinks Temasek's low gearing and recurring cash flow from dividend income of $4-6 billion annually will give it flexibility to rebalance its portfolio. By their estimates, Temasek has potential spending power of $31 billion, assuming a total debt-to-equity ratio of below 0.3x to retain its triple-A rating.
'In our view, Temasek is well-positioned to expand its portfolio opportunistically in the current market environment given its gearing potential,' they said.
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