Temasek Holdings likely to suffer billion dollar losses in energy/resource Investments

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In an earlier post, I highlighted the possibility of Temasek’s investment in FTSI being wiped out by plummeting oil price. Temasek’s other investments in ‘energy and resources’ seem likely to suffer the same fate as FTSI.

The investments highlighted are published in the annual Temasek Review. A lot of information has not been disclosed by Temasek and it appears to be preventing public scrutiny. Temasek has to bear some responsibility should there be any factual inaccuracy in this post.

Mosaic Company

In Dec 2011, Temasek acquired a 6.5% stake in US fertiliser maker Mosaic company, raising its stake from only 108,026 shares in September to 17.9 million shares. In February 2012, its increased its stake to 20.05 million before finally owning 21.64 million shares in March 2014.

In August 2014, Temasek reduced its stakes by 5.8 million shares. As of 31 Dec 2014, Temasek was the third biggest shareholder with 15.8 million shares valued at US$762 million.

Since 2011, more than US$1 billion was invested in Mosaic yielding only 2% in annual dividendsexcluding some capital losses.

Kunlun Energy

In April 2012, Temasek was reported to have bought US$600 million worth of shares in Kunlun Energy Co Ltd at HK$13.10 with private equity firm RRJ.

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Kunlun chairman abruptly resigned in December 2013 as he was involved in a graft probe by the Chinese government. Kunlun’s dividend was 22 cents in 2011 and 23 cents in 2012 and 2013. The annual yield on Temasek’s investment is about 1.8%.

If Temasek has not divested Kunlun, its paper loss is about 40%. Global stock market indices are near their record highs.

Turquoise Hill Resources Ltd

Similar to many Temasek’s investments, it appears to be bottom picking Turquoise Hill Resources after its shares collapsed by 60%. Bottom picking is a favourite ‘strategy’ of local punters. However, Temasek, run by technocrats, should have asked itself why the bigger (real) professional fund managers are divesting. Temasek has not learnt from all its failed investments and contiues to take unnecessarily huge investment risks.

Turquoise Hill has not been profitable since 2009, or even earlier. Why did Temasek speculate such a company would turn around after other investors have bailed out?

Including the rights issue at $2.4 per share in Jan 2014, Temasek has probably invested about US$400 million and it seems to have no plan to exit its investment.

Profitable investments insignificant compared to gargantuan losses

Temasek has profitable investments but its profits pale in comparison with its losses. An example –Cheniere Energy.

Temasek invested US$222 million in Cheniere Energy in Q2 2012 and increased its stake from 15.5 million shares to 18.3 million shares in Q3 when its price fell. Cheniere shares rallied in Q1 2013 and Temasek quickly divested half its stake. The balance 9.2 million shares were sold in Q2 2013. Subsequently, Cheniere shares tripled from $28 to hit a high of $84.

Temasek then re-invested in Cheniere Energy a year after its shares have tripled. RRJ Capital and Temasek will jointly invest US$1 billion in Cheniere’s 4.875 % unsecured convertible notes which have a maturity of 6 1/2 years.

The interesting, or dangerous, thing is the notes pay the accrued interest in kind ie increasing the principal amount of the convertible notes outstanding. With a conversion price of $93.64 and being unsecured, Temasek seems to be extremely bullish on the company despite Cheniere shares having rallied more than 2000% from about $2 to $3 in 2010.

Less than a year ago, SMOS Josephine Teo said “GIC, Temasek won’t take more risks to help fund govt spending”. If this is not risk, what is?

Temasek could make a few hundred million dollars in profits but its losses are in the billion$.