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[h=2]Temasek not keen to help small local firms grow but willing to invest in ‘Junk’ U.S. companies[/h]
June 20th, 2012 |
Author: Editorial
At an interview with Bloomberg on 11 Jun, Temasek’s chief investment officer, Tan Chong Lee, told the reporter that Temasek Holdings is currently sitting on a bundle of cash and is prepared to make deals in excess of US$1 billion.
He said, “We are currently net cash, which means that we have the full flexibility to undertake significant transactions provided it meets our return requirements.”
Tan said that Temasek wants to focus on areas like retail, luxury, technology, health care, biotechnology and insurance. However, Tan said Temasek remains positive on banks and financial institutions for the long term.
In the short term, Tan warned that the ongoing euro zone crisis could result in a major correction of the stock markets. He said, “At the same time, in a market dislocation, in volatile markets, we may be able to make investments which otherwise, in a normal market, may not be possible.”
“As long as you have the capacity to hold investments, and your horizon is long enough, provided you buy the right business that rises on the right fundamentals, then, over a period of time, over the long term, your investment thesis can materialise.”
Meanwhile, Temasek’s head of portfolio management, Chia Song Hwee, said that it is also targeting new sectors such as energy and digital media.
Temasek has bought stakes in natural gas firms such as Chesapeake and US gas exporter Cheniere Energy. But Chia said that while it is all for investing in big firms, Temasek is not keen on helping small local firms grow. It is primarily an investor with expertise in areas other than venture capital, he said.
Temasek’s investee company, Chesapeake, has been much in the news lately. The company has been having cash flow problems since its CEO, Aubrey McClendon, took a wrong bet on the direction of gas prices and bought back its hedges. This has left it exposed to a big decline in natural gas prices in the US and a market glut.
The company has large spending commitments which leave it facing a liquidity crisis. It has said it must sell assets worth between US$11.5 billion and US$14 billion this year to pay down debt and finance its capital requirements. Shareholder unhappiness with the performance of the CEO and some of the sweetheart deals and excessive compensation he has received from the company boiled over at the AGM on 8 June. The two directors on the company’s slate standing for re-election were overwhelmingly rejected by shareholders. A majority of votes were also cast in favour of a nonbinding proposal to allow major shareholders to nominate board candidates. In another manifestation of shareholder anger, 80% of shareholders voted to deliver a stern reprimand to the company over its pay to and supervision of the CEO, McClendon.
McClendon recently also had to settle shareholder lawsuits over the company’s preferential treatment of him in 2008 when he faced margin calls on the stock he had borrowed to buy. This included having to pay the company back the US$12 million it paid him to buy his collection of antique maps which now adorn Chesapeake’s boardrooms.
On 26 Apr, Chesapeake had its debt rating cut to ‘BB’ which is a “Junk” or Non-Investment Grade by Standard & Poor’s. Under the S&P’s definition, ‘BB’ refers to “Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions”. The NY Times reported that controversial borrowing practices by Chesapeake CEO is raising additional scrutiny by the Securities and Exchange Commission (SEC), as well as sinking the company’s debt rating. The SEC has started an informal investigation into Chesapeake and its CEO, McClendon.
Investors and analysts have also criticized Chesapeake’s board for failing to monitor McClendon’s borrowing. They contend his personal borrowing may create conflicts of interest that could put McClendon at odds with Chesapeake shareholders.
S&P’s said it cannot rule out further rating downgrades of Chesapeake.
According to a CNA’s report in May 2010, Temasek invested US$500 million in Chesapeake’s convertible preferred stocks. It also had an additional option to acquire a further US$500 million of Chesapeake’s stock. The convertible preferred stock carries a coupon of 5.75% and the proposed investment would translate to about 7% stake in Chesapeake.
He said, “We are currently net cash, which means that we have the full flexibility to undertake significant transactions provided it meets our return requirements.”
Tan said that Temasek wants to focus on areas like retail, luxury, technology, health care, biotechnology and insurance. However, Tan said Temasek remains positive on banks and financial institutions for the long term.
In the short term, Tan warned that the ongoing euro zone crisis could result in a major correction of the stock markets. He said, “At the same time, in a market dislocation, in volatile markets, we may be able to make investments which otherwise, in a normal market, may not be possible.”
“As long as you have the capacity to hold investments, and your horizon is long enough, provided you buy the right business that rises on the right fundamentals, then, over a period of time, over the long term, your investment thesis can materialise.”
Meanwhile, Temasek’s head of portfolio management, Chia Song Hwee, said that it is also targeting new sectors such as energy and digital media.
Temasek has bought stakes in natural gas firms such as Chesapeake and US gas exporter Cheniere Energy. But Chia said that while it is all for investing in big firms, Temasek is not keen on helping small local firms grow. It is primarily an investor with expertise in areas other than venture capital, he said.
Temasek’s investee company, Chesapeake, has been much in the news lately. The company has been having cash flow problems since its CEO, Aubrey McClendon, took a wrong bet on the direction of gas prices and bought back its hedges. This has left it exposed to a big decline in natural gas prices in the US and a market glut.
The company has large spending commitments which leave it facing a liquidity crisis. It has said it must sell assets worth between US$11.5 billion and US$14 billion this year to pay down debt and finance its capital requirements. Shareholder unhappiness with the performance of the CEO and some of the sweetheart deals and excessive compensation he has received from the company boiled over at the AGM on 8 June. The two directors on the company’s slate standing for re-election were overwhelmingly rejected by shareholders. A majority of votes were also cast in favour of a nonbinding proposal to allow major shareholders to nominate board candidates. In another manifestation of shareholder anger, 80% of shareholders voted to deliver a stern reprimand to the company over its pay to and supervision of the CEO, McClendon.
McClendon recently also had to settle shareholder lawsuits over the company’s preferential treatment of him in 2008 when he faced margin calls on the stock he had borrowed to buy. This included having to pay the company back the US$12 million it paid him to buy his collection of antique maps which now adorn Chesapeake’s boardrooms.
On 26 Apr, Chesapeake had its debt rating cut to ‘BB’ which is a “Junk” or Non-Investment Grade by Standard & Poor’s. Under the S&P’s definition, ‘BB’ refers to “Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions”. The NY Times reported that controversial borrowing practices by Chesapeake CEO is raising additional scrutiny by the Securities and Exchange Commission (SEC), as well as sinking the company’s debt rating. The SEC has started an informal investigation into Chesapeake and its CEO, McClendon.
Investors and analysts have also criticized Chesapeake’s board for failing to monitor McClendon’s borrowing. They contend his personal borrowing may create conflicts of interest that could put McClendon at odds with Chesapeake shareholders.
S&P’s said it cannot rule out further rating downgrades of Chesapeake.
According to a CNA’s report in May 2010, Temasek invested US$500 million in Chesapeake’s convertible preferred stocks. It also had an additional option to acquire a further US$500 million of Chesapeake’s stock. The convertible preferred stock carries a coupon of 5.75% and the proposed investment would translate to about 7% stake in Chesapeake.
