Singapore Inc's loads war chest for future forays

Is Singapore state investment firm Temasek Holdings topping up its war chest ahead of more acquisitions or to pay its annual dividend into government coffers?

This week, Temasek has raised a total of US$1.42 billion ($2.3 billion) from share sales, after talk last month that it wants to raise as much as US$4 billion with a bond issue.

Temasek sold a 4.7 per cent stake in Singapore Telecommunications for S$2 billion ($2 billion), with less valuable stakes in farm products supplier Olam International, medical device-maker LMA International and Qantas Airways.

Analysts say the sales are in line with Temasek's stated ambition of reducing its exposure to Singapore, but are in the dark about what it the firm plans to do with the proceeds.

Temasek said declined to say how the proceeds would be used.

"It is part of our ongoing efforts to actively manage our portfolio and maximise shareholder value," said Eva Ho, spokeswoman for Temasek, adding that the firm doesn't just sell shares, but "makes investments too".

Proceeds might go towards Temasek's shareholder, the Ministry of Finance, which has received average annual cash dividends of S$1.3 billion from the firm over the last three years, or could be used for acquisitions abroad, analysts said.

Prime Minister Lee Hsien Loong, who is also the finance minister, announced a S$2.6 billion budget spending package on February 17, including one-off bonuses for army conscripts and a series of measures for the poor and elderly.

The budget is likely to drag the fiscal position to a S$2.9 billion deficit in 2006/2007, the biggest in over 20 years.

"It's a matter of either paying out, or building up the war chest" for Temasek, said Standard & Poor's analyst Greg Pau.

Temasek - whose portfolio was valued at S$103 billion in March 2005, wants to reduce its exposure to Singapore from one-half of its portfolio to about one-third, while increasing its investments in Asia.

But that strategy isn't proving easy or even welcome abroad.

A Temasek-led investment group paid US$3.8 billion to acquire Thai telecoms group Shin Corp this year, sparking a political crisis in Thailand, and protests against Thai Prime Minister Thaksin Shinawatra and against Singapore.

Bids by Temasek or its companies to invest in banks in South Korea and China have also been opposed.

"The share sales are part of the ongoing process of paring down domestic shareholdings to diversify their assets, so it's not really a surprise," said Pau.

"It's also consistent with trying to realise value if the price is right."

Temasek - headed by Ho Ching, whose husband is the prime minister - generated S$12.5 billion in cash from its operations in its last financial year, and paid an average annual cash dividend yield of more than 7 per cent.

In February, the Finance Ministry said it was satisfied with Temasek's performance following questions about its low returns.

- REUTERS