Temasek’s US$10 billion dollar bets carry unnecessary, huge risks

Temasek should improve its transparency and publish ALL information on its investments similar toNorway’s Government Pension Fund Global. When a fund 5 times the size of Temasek is able to publish its entire holding of more than 8,000 equities, why does Temasek only disclose its 42 major investments in 2013 and 46 in 2014?

Moreover, Temasek’s investments have already been compiled by financial data vendors and are available online. Citizens are the owners of our reserves and it is our right to have access to such information. A listed securities portfolio of 74 investments in 2013 is enclosed at the bottom of this post.

The top ten listed investments in market value made up 50% of Temasek’s total assets. Unlike other funds where risk is diversified, Temasek seems to be trying to put as many eggs into one basket as possible with an 18% stake in Standard Chartered PLC and 7% in China Construction Bank, more than S$30 billion invested in 2 foreign banks.

(Market value in US$ million)

Both investments will have no room for error because their potential losses will dwarf losses of smaller investments.

Has Temasek not learnt any lesson from its US$4.6 billion loss in its Merrill Lynch investment andUS$1.5 billion (80%) loss in Barclays Bank?

By placing bets of more than US$10 billion on any investment, Temasek has taken risks on behalf of Singaporeans, risks which we would not have assumed. If Temasek’s own costly mistakes are insufficient, it should learn from GIC’s S$14 billion UBS bet in 2007 which is still 40%* underwater after 7 years. (*inclusive of 18% interest payment, dividends and recent forex gains)

Should both banks fail spectacularly, will Lee Kuan Yew step in and tell us that Temasek intends to “keep for the next two to three decades and grow with them”?

Standard Chartered investment has been in Temasek’s stable for almost a decade, currently sitting on paper losses of at least 30% without any turnaround in sight. Was this part of Temasek’s investment strategy?

Standard Chartered’s entire profits last year may have been wiped out by the collapse in commodity prices and there appears to be another rights issue on the horizon.

Although dividend payments could have made up for most of the capital loss, including rights issue, forex loss could still amount to some 25% after almost a decade.

Should Temasek decide to divest Standard Chartered at current prices, the net loss would be at least S$3 billion. It will take numerous $10 million/$100 million investments to make up for a single huge loss. By taking up such a huge stake, all exits have now been shut and it will take a miracle to dispose of Standard Chartered at a profit.

In 2011, Temasek had indicated it wanted to trim its Standard Chartered stake when it raisedS$650 million from the sale of zero coupon exchangeable bonds maturing in 2014. Since the bonds were fully redeemed in 2014, Temasek had missed the only opportunity to reduce its holding when the price was more favourable.

Should Temasek realise billion-dollar losses, there will also be political backlash and Temasek appears to be aware of this. Despite stock market making new highs, Standard Chartered shares have gone in the opposite direction. What happens when global stock market tanks?

Temasek’s major investments in China’s financial sector appear to be more profitable but an analysis would be required to confirm this.

China’s double-digit growth during most of the last 2 decades are over. China’s growth story has been based on the expansion of credit – some US$15 trillion after the last financial crisis with a significant amount for financing infrastructure and real estate which includes ghost cities generating zero return. Investments at the tail end of China’s phenomenal ‘growth’ carry significant risks.

Video of China’s ghost cities

In April 2014, a Forbes article reported that Li Ka Shing and his family had been “on a selling spree in Mainland China since last August (2013)”. Li was way ahead of most foreign investors when it came to investing in China whereas Temasek has only recently committed tens of billion$ of our reserves.

Excluding GLCs transferred to Temasek, Temasek does not appear to be investing but speculating andgoing for the kill with its $10 billion investments.

Temasek seems to be in a hurry to make as much money as possible with humongous bets which are extremely risky. As a significant shareholder in many foreign companies, Temasek is unable to divest during times of great volatility. Temasek should diversify and not make US$10 billion dollar bets which carry unnecessary risks.

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I have been trying to verify Temasek’s ridiculously high TSR and no luck so far. What I do is Google ‘Temasek’ and ‘name of investment’ and pieces of interesting information will show up on the screen. Frequently, data may not be complete and this is the result of Temasek’s conscious effort not to allow the public to scrutinise its performance. Should others be able to confirm Temasek’s 16% 40-year TSR, please share the information.

2013 May – Temasek listed securities portfolio.