Temasek's Thai blunder

The commentary in Singapore's Business Times below is rather courageous in the Singapore context, considering that few can afford to offend the powerful Temasek Holdings.

Why is Temasek powerful? First, it is effectively the investment arm of the Singapore government although it keeps saying that it is a commercial entity. Temasek is fully owned by Singapore's Finance Ministry. It is therefore the investment arm of the Singapore government. Period.

Second, Temasek wields tremendous commercial and political clout even if it has no such intention. Apart from having stakes in some of the biggest companies in Singapore such as Singapore Telecommunications, DBS Bank and Neptune Orient Lines, it is run by a powerful lady called Ho Ching.

The Lee family (clockwise from top right hand corner) -- Mr and Mrs Lee Kuan Yew, Ho Ching, Lee Hsien Loong and Lee Kuan Yew

She's been ranked by numerous publications as one of the top women in the region and in the world. Of course, everybody knows that the sharp woman is the wife of PM Lee Hsien Loong, who is also the Finance Minister of Singapore overseeing Temasek. Ho Ching is also the daughter-in-law of Minister Mentor Lee Kuan Yew, who is the founding father of modern Singapore.

Such connections help open doors for Temasek. Which central banker or bank owner would not want to meet the wife or daughter-in-law of the two most powerful men in Singapore? Which businessmen in the region would not want to do business with Temasek?

Back to the BT commentary. It is essentially a criticism of what Temasek did wrong in Thailand, without saying it so blatantly. The key to the current mess in the Shin Corp deal in Thailand is the review by the Thai authorities as to whether Temasek and partners did indeed breach the foreign ownership rule.

Will the commentary and other growing criticisms of Temasek lead to changes in the Singapore government investment arm?

Maybe, but don't bet on a Thai-style military coup at Temasek.

Business Times - 06 Oct 2006
Lessons from Temasek's Shin acquisition
By WONG WEI KONG
SENIOR CORRESPONDENT

TEMASEK Holdings has built an enviable track record in its overseas acquisitions. Its acquisition of Shin Corp in Thailand, despite its controversial nature, may prove to be a shrewd investment too in the long term. However, all investments - good and bad - offer lessons. And what happened at Shin is especially instructive.

Few acquisitions anywhere have had such a far-reaching impact. Temasek's purchase of telecom conglomerate Shin from the family of former Thai prime minister Thaksin Shinawatra unwittingly contributed to a prolonged political crisis which finally led to Mr Thaksin's removal in a military coup two weeks ago. In the process, Temasek's investment in Shin has been sharply de-valued, although the losses are on paper. Temasek's reputation, and Singapore's image in Thailand, have unfortunately also taken a knock.

So what are the lessons from Shin?

The first is that political risk can never be underestimated, especially in large, cross-border transactions. This is particularly so for Temasek, given its parentage, the size of its investments, and the fact that many of its targets are often the largest and best-connected companies in their home countries. To many observers, Shin had political risk written all over right from the start. Even before the Shin sale, Mr Thaksin's business dealings were already a major political issue in Thailand. Buying Shin from the family of a prime minister openly accused of corruption clearly carried a significant political risk.

Temasek has rightly reiterated that it undertakes political risk analysis as part of a detailed analysis that includes industry and country risks, and that it invests purely on commercial grounds. The fallout from Shin, however, suggests that Temasek may have to relook the way it assesses political risk. More emphasis may have to be given to independent, expert opinion to complement the inhouse view. It's almost a certainty that Temasek will increasingly have to deal with political issues as it steps up its investments overseas.

The second lesson is that you need to know the full details of the deal in an investment like Shin. An interview with Temasek managing director for strategic development Jimmy Phoon published last week by the online edition of US magazine Newsweek brought up an interesting point. Mr Phoon said Temasek took advice on its part of the deal and was not aware that the sale was structured in such a way that Mr Thaksin's family would avoid taxes. That was an information gap that perhaps should have been plugged, given the sensitivities already surrounding Mr Thaksin's business dealings. As it turned out, the tax loophole was the critical issue that sparked off public outrage against Mr Thaksin.

The third lesson is that complex deal structures often create their own problems. When a deal is structured in complicated ways, such as this one, it provides opponents with ammunition to make political hay out of specific parts of the transaction. Complicated structures also risk appearing unclear and opaque, or worse still, arouse suspicion even if unjustified.

This is the situation Temasek finds itself in. The structure of the Shin deal is now under scrutiny, and the subject of police investigations. While Temasek has maintained that it has complied with all the laws and regulations in Thailand, Thailand's Ministry of Commerce has decided that Temasek may have overstepped Thai laws on foreign ownership and has sent the results of an initial probe to the police for further action. The probe is centred on Kularb Kaew, a holding company set up as part of Temasek's purchase of Shin.

Shareholding structure

At the heart of the matter lies the question of whether Kularb Kaew, which is controlled by a Malaysia-based Thai who was a partner in the Shin deal, is a Thai company or a Temasek nominee under the law. Under a complex shareholding structure, Temasek currently holds 41.7 per cent of Shin directly through Aspen Holdings, while another 54.6 per cent is held by Cedar Holdings, a joint venture by Temasek's Cypress Holdings, Siam Commercial Bank and Kularb Kaew.

The fourth lesson is the need to counter negative perceptions. To its credit, Temasek has taken the first step last week in giving a public glimpse into its investment in Shin. But its silence until recently - through months of political upheaval in Thailand - has created the impression, unfairly perhaps, that it has been less than forthcoming. While Temasek is legally accountable only to the government, it may have to be prepared to publicly defend its track record in Thailand in this case. It is not only the Thai authorities who need to know; Singaporeans, many of whom hold Temasek in high regard, need to be reassured that Temasek is doing it right. It is the Singapore flag, after all, that Temasek flies in its ventures abroad.

The last lesson is not a new one: more impetus has to be given to the issue of de-linking Temasek from the state. The rise of economic nationalism and fashioning a response to it is a major challenge facing Temasek. Wholly owned by the Ministry of Finance and therefore viewed as the government itself when it moves to buy banks, telcos and infrastructure companies overseas, its assertion that it operates as a private enterprise independent of the government is not always accepted. This can prove troublesome in an era of rising economic nationalism - one reason why the Shin deal fanned anti-Singapore sentiment was also because it was seen as a sale of a national asset to a foreign government.

There have been suggestions to dilute the government's ownership of Temasek, or even list the company, with institutions, the public, as well as the government holding shares. Making structural changes to Temasek may be something that has to be contemplated, sooner rather than later.

What happened at Shin should not deter Temasek from making bold forays overseas. But at the same time, Shin clearly is a watershed in the investment history of Temasek, providing an invaluable point of reflection for the Singapore investment company even as it plots its next move to widen Singapore's footprint across the globe.

Temasek's blunder, part 2

Another blunder by Singapore government investment arm Temasek Holdings, whose choice of a Thai adviser received what is seen as a sharpest rebuke from the Thai crown prince.

It seems that Temasek can do no right in Thailand.

Temasek has been blamed of effectively triggering the coup that led to the downfall of PM Thaksin Shinawatra following the badly structured Shin Corp deal earlier this year. Please see earlier posting.

Will Temasek still set up an office in Thailand? Will it appoint a new adviser? Or will it simply write off everything in the country?

Oct 29, 2006
Thailand's Crown Prince rebukes official
By THAILAND CORRESPONDENT BANGKOK, Nirmal Ghosh

MR TONGNOI Tongyai, an official in Thai Crown Prince Maha Vajiralongkorn's office, was yesterday given a harsh public dressing-down by the prince, apparently over Temasek Holdings' approach to him to be its adviser.

On Oct 19, it was reported that Temasek would be appointing Mr Tongnoi, who is in his 70s and holds the royal title Mom Rajawongse, as an adviser for Shin Corp. But less than a week later, Temasek said he would not be joining after all.

Yesterday morning, the Crown Prince's office released a statement saying that Mr Tongnoi had abused power for his own benefit.

The statement said: 'Some press reports stated that Temasek Holdings had approached Mr Tongnoi Tongyai to be an adviser for their office that would be set up in Thailand.

'They mentioned that Mr Tongnoi Tongyai was personal secretary and adviser to HRH Crown Prince Vajiralongkorn and was assigned to take care of the royal properties since 2000.

'HRH Crown Prince's personal office would like to announce that the reports have caused misunderstanding and confusion as the claims were false and were used as a means to establish influence for his own business benefit. The claims have caused damage not only to the country but also instability for international investment in Thailand.'

It added: 'HRH Crown Prince had enough mercy to employ him. He was assigned to work according to his profession - which means translating and drafting English documents and occasionally writing letters.

'However, he has been tricky and cunning. He took advantage and made false claims for his own benefit by setting up positions which led him to be approached to be an adviser to Temasek Holdings.

'HRH Crown Prince's personal office considered Mr Tongnoi Tongyai not right, improper and abusive of power for his own benefit. His acts have caused misunderstanding among the public and caused damage to the HRH Crown Prince's personal office. The office thus has decided to explain and announce these facts to the public.'

The Nation newspaper, on its website, carried a report on the latest development and the statement from the Crown Prince's office.

The public slap in the face is seen as one of the harshest rebukes possible in Thailand, and without doubt has destroyed Mr Tongnoi's reputation, analysts said.

Temasek's Thai Blunder, Part 3

Singapore government investment arm Temasek Holdings has suffered another setback in Thailand following its disastrous foray in acquiring Shin Corp from former Thai prime minister Thaksin Shinawatra this year.

The highest court in Thailand today ordered iTV, which is under Shin, to pay unspecified fines that could lead to the bankruptcy of the country's sole private TV station.

From the website of Bangkok Post today:
iTV loses case - faces fine, bankruptcy
(dpa) - The Supreme Administrative Court this afternoon ruled against iTV - the country's sole private TV channel - in forcing the now Singapore-owned company to pay a higher concession fee and fines. The ruling is likely to bankrupt the operation.

The verdict upheld a decision by the Central Administrative Court of May 9, 2006, that forces iTV to change the news content to 70 per cent, up from 65 per cent, and pay a higher concession fee to the government.

The decision, which was not appealed by iTV, could force the company to pay a fine of up to 94 billion baht ($2.6 billion), effectively bankrupting the company which is now majority-owned by Temasek Holdings, the investment arm of the Singapore government.

ITV was previously owned by Shin Corp, the family-held business conglomerate of former Thai prime minister Thaksin Shinawatra, which sold its 49 per cent holding in Shin Corp to Temasek Holdings for 1.9 billion dollars, tax free, on January 23 of this year.

The purchase outraged many Thais who saw the Shin Corp sale as handing over sensitive nationals assets to a foreign company. Besides iTV, Shin Corp also ran the country's largest mobile phone service and the national satellite network.

Four months after the Temasek purchase of Shin Corp, when the political tide was moving against Thaksin, Thailand's Central Administrative Court overturned an arbitration panel's 2004 decision to lower iTV's concession fee and its news content to 65 per cent. Entertainment shows earn higher advertisement revenue in Thailand.

The iTV saga is rich in recent Thai political history. The channel was intended to be an independent news station providing the public with unbiased reporting. All other TV stations in Thailand are owned by the state.

However, after running into financial difficulties in the wake of the 1997 economic crisis iTV was snapped up by Shin Corp and turned into a pro-government station when Thaksin came to power in 2001.

Please see earlier postings on Temasek's blunders in Thailand. Some observers reckon that the series of missteps in Thailand may have cost Temasek's top deal maker his job.

The Straits Times, 7 Dec 2006
Temasek changes chief investment officer
By BRYAN LEE

TEMASEK Holdings has replaced its all-important chief investment officer, who oversees all of the Singapore firm’s investment decisions.

A check by The Straits Times on Temasek’s corporate website shows that senior managing director Jimmy Phoon has taken the reins from Mr Charles Ong. Mr Ong, also a senior managing director, has assumed the newly-created role of chief strategist.

The move comes as Temasek continues to grapple with its controversy-hit US$3.8 billion (S$5.87 billion) takeover of Thailand’s Shin Corp earlier this year.

It led a group of Thai investors to buy a 50 per cent stake in the telecoms company from the family of former Thai premier Thaksin Shinawatra. The transaction eventually led to a mandatory general offer which saw Temasek and its partners emerge with 96 per cent of Shin.

The acquisition, seen by many Thais as a sell-out of strategic national assets to foreigners, was at the heart of widespread protests in the country. These culminated in a September military coup that toppled Mr Thaksin.

Temasek said yesterday that the senior management moves were not related at all to the Shin deal but were “part of regular and ongoing corporate development efforts”.

The iTV problem is definitely not the end of Temasek's woes in Thailand although Singapore politicians have been trying to defend Temasek and mend fences with Thailand following the Shin debacle.