TEMASEK HOLDINGS

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TEMASEK HOLDINGS:

(Acquisition of Shin Corp of Thailand): 6.

Mr Inderjit Singh asked the Prime Minister and Minister for Finance (a) if he will give an update to the House on Temasek Holdings' acquisition of Shin Corp of Thailand and the resulting problems with the deal; (b) whether the Government agrees with Temasek acquiring such a large percentage, of around 97%, of the strategic asset of another country; (c) whether Temasek abided by all of Thailand's rules and regulations; and (d) how much money has Temasek lost in the Shin Corp deal.

7.

Mr Alvin Yeo asked the Prime Minister and Minister for Finance in relation to Temasek's investment in Shin Corporation which has caused a considerable stir in Thailand, whether the Government agrees with such an investment and is satisfied that the necessary due diligence was carried out and no laws were broken in respect of the transaction.

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The Second Minister for Finance (Mr Tharman Shanmugaratnam) (for the Prime Minister and Minister for Finance): Mr Speaker, Sir, may I take Question Nos. 6 and 7 together?

Mr Speaker: Yes.

Mr Tharman Shanmugaratnam: **** Mr Inderjit Singh and Mr Alvin Yeo have asked questions concerning Temasek’s investment in Shin Corp in Thailand and the Government’s position on the acquisition.

Temasek invested in Shin Corp because it assessed that the company offered a good opportunity to participate in Thailand’s growing economy for the long term. The investment was consistent with Temasek’s strategy to invest more in Asia, including ASEAN, China and India.

In January this year, Temasek and its Thai partners formed a Consortium and bought 49.6% of Shin Corp from family members of the former Thai Prime Minister, Dr Thaksin Shinawatra. As the purchase crossed the Thai takeover limit of 25%, the Consortium made a mandatory general offer for the remaining Shin Corp shares in accordance with the regulations of the Stock Exchange of Thailand. There was high acceptance of the general offer, resulting in the Consortium owning a 96% stake at the conclusion of the offer in March.

Temasek has in place a comprehensive risk management framework to guide it in its investments. It takes into consideration a broad range of risks, including political risk, financial and market risks, as well as the risks involved in executing the investment. A decision on an investment is only taken after a clear-headed business analysis and weighing up of the risk-reward trade-offs. Temasek applied this process to its investment in Shin.

Mr Singh and Mr Yeo have asked whether Government agrees with this

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investment. The Government’s position, as previously articulated in this House, is and must be that Temasek’s investments are commercial decisions, taken independently of Government. We do not direct or influence individual investments by Temasek. The investments are the prerogative of Temasek’s board and management.

What Government does as shareholder is, first, to ensure that Temasek has a competent board to oversee its management, guide its business strategies and ensure that investments are made with due care and rigour. Second, Government holds Temasek accountable for good long-term returns on its overall performance, not individual deals. Since inception, Temasek has delivered 18% total shareholder return by market value. Third, the Government, and not just the Government but the Temasek Board, requires that its investments abide by the rules and laws of the markets that it is present in.

The approach applies to the Shin transaction. The Government played no part in Temasek’s decision to invest in Shin Corp. Temasek made its own commercial decision. What matters for the Government is that Temasek should have a good governance framework, rigorous decision-making processes and regular performance evaluation. I can assure the House that these are in place.

Mr Inderjit Singh and Mr Alvin Yeo have asked if any laws were breached when Temasek invested in Shin. Temasek was guided by advice from Thai legal experts as well as Thai and international financial and investment advisors. They received expert advice. Temasek followed precedents for foreign investment in Thailand. It also went in with reputable Thai co-investors, including a leading bank with a strong reputation in Thailand. Temasek had, to the best of its

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knowledge and abilities, acted in accordance with Thai laws. It has also indicated its commitment to continue to cooperate fully with the Thai authorities in any investigations.

As regards the media reports on the losses said to have been incurred by Temasek and its Consortium partners for the Shin investment, these have been concerned with paper losses, not realised losses. They are not meaningful estimates. Given that the free float of Shin shares is currently at about 4%, the market price of the shares may not reflect the value of the underlying businesses within the Shin Group.

Ultimately, no investment is risk-free. What is critical is that the risks and returns are assessed thoroughly for each investment. Temasek went into Shin as a long-term investor. And time will tell how well this investment will fare.

Given the publicity and controversy the Shin investment has generated, the Prime Minister took the opportunity to clarify with his Thai counterpart, Premier Surayud Chulanont, when they met at the recent China-ASEAN summit in Nanning, that Temasek’s investment in Shin was made on a commercial basis, and independent of Government. PM also informed him that Temasek had taken legal and professional advice before entering into the Shin deal, and would continue to comply with Thai laws. Premier Surayud told PM that the Thai government also regarded Temasek’s investment as a commercial deal, and that the current investigations would not be politicised. He also assured PM that the issue would not affect bilateral relations.

Mr Inderjit Singh (Ang Mo Kio): Sir, would the Minister not agree that in making such acquisition, if Temasek or its companies being Government-linked, and

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making such strategic investments in countries, particularly in ASEAN neighbours, should they have been more careful and conscious about acquiring more than a certain percentage that will result in a general offer? At the end of the whole exercise with Temasek owning 96% of the strategic asset of Thailand, this seems to have created a lot of sensitivity in Thailand about Singapore Government trying to take control of the strategic asset. Should the Government or Ministry of Finance not give Temasek some guidelines so that in making acquisition, they do not cross the 25%, or any general offer limit, in any country that they make acquisition in?

Mr Tharman Shanmugaratnam: I would not be keen to do that. I do not think it is advisable for the Ministry of Finance or Government to get involved in setting detailed parameters of any sort on an individual investment in the region, or globally, for Temasek, or for GIC for that matter. Asia represents opportunity. It is not as simple an investment landscape as, for instance, the United States. But Asia is where the returns are highest. We have to expect some bumps along the road. We have got to be willing to take the risks - some patience, a strong heart, occasionally your heart skips a beat - but that is how we will achieve good long-term returns on our reserves, which is in the interest of Singaporeans. If the Government starts intervening, influencing or setting detailed guidelines, it will ultimately backfire. Because once it is seen that the Government is involved in the investment decision-making process, then every transaction that goes wrong, and there will be transactions over time that will go wrong in a large investment portfolio, will backfire on us, and it will backfire on Temasek as well. So I rather we keep this simple and clean. We appoint the board, subject to the approval of the Elected President. We change the board if the board is under-performing over time. The board ensures that the

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management is accountable for performance and the various subsidiary companies are also accountable for performance. And we expect good long-term returns from Temasek. I think that is the neatest framework. It is the form of governance that will allow us to sustain this over the long haul.

Mr Inderjit Singh: While I agree that we should make investments in Asia because there are tremendous opportunities for us to gain from such investments, does the Minister not agree that if you have $2 billion to invest, instead of investing $2 billion of that in 96% in one asset, should we not have invested in four assets of 25% each, diversifying the risks in one country versus $2 billion in one asset in one country and therefore increasing the risks tremendously for Temasek?

Mr Tharman Shanmugaratnam: For that matter, we can invest all our reserves in Treasury Bills, 5-year bonds - highly liquid, discrete, small investments, you can pull in and out of the market whenever you want. It is not an unviable strategy. But it is unfortunately a low return strategy. We have got to maintain a diversified portfolio. But we have also got to be willing to take significant risks because that is how significant returns will be obtained in our Government portfolio. There is a difference between Temasek and GIC because GIC is involved primarily in the public markets which tend to be liquid markets. Temasek has a larger portfolio of what we might call private equity-like investments. So the risks will be higher. And we also expect that the returns on the Temasek portfolio will be higher over time. If you look at the past, this has indeed been the case. Temasek has delivered historic returns of about 18% total shareholder value. GIC has delivered good returns. It published its 25-year record a couple of months back which was 8% nominal in Singapore dollar terms, good returns. But this

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reflects the different types of markets they are involved in. GIC - a large portfolio investor in public markets; Temasek - somewhat more concentrated investments, with higher risks. Overall, the Government looks at this as one large portfolio. We too, like Temasek, must have a strong heart and a bit of patience so that we sustain these good returns.

Ms Sylvia Lim (Non-Constituency Member): Mr Speaker, I am wondering if the Minister could comment on whether the Government has any concerns about the quality of the advice that Temasek has received, particularly in this Shin deal, in assessing the political risk involved. Sir, even in the recovery phase, when we were told that Temasek will be setting up a representative office in Thailand, it was announced that they would be appointing an army general to work in our representative office only to be followed swiftly by a comment from the Crown Prince Office to say that this person is not a suitable person for such a post. I wonder if the Minister could comment on whether the Government is satisfied with the advice that Temasek has received as far as managing the political risk is concerned.

Mr Tharman Shanmugaratnam: What we are satisfied with is that Temasek undertook appropriate due diligence to ensure that it is in compliance with Thai laws and regulations, not just the laws, but the regulations of the Stock Exchange of Thailand which was where the transaction was undertaken. They obtained the best advice they could obtain - Thai advisers as well as international advisers. They went in with reputable investors who were able to validate Temasek's own risk assessments. So the process was rigorous. Temasek, to the best of its ability and knowledge, acted in compliance with Thai laws. It was not a reckless investment.

On her second specific question about Temasek's intention at one point to

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appoint an advisor, I think his name is M R Tongnoi. Temasek had been discussing this prospect with him. From what I understand, the person had some experience, he is the Chairman of an audit company of a reasonably significant listed company. They subsequently terminated the discussions by mutual agreement. These are matters for Temasek to sort out. The Government should not get involved, and should not intrude in these decisions. Specific appointments, advisory appointments, these are matters for the board to sort out. We are not concerned about Temasek's decision in this matter as it was acting in good faith and with due process.

Mr Alvin Yeo (Hong Kah): Could I ask the Minister what lessons he considers were learnt or are to be learnt from this episode? While I accept that minimum guidelines should be imposed on commercial investments, should Temasek stay away from investments linked to families of leaders of neighbouring countries?

Mr Tharman Shanmugaratnam: Again - and this is somewhat related to Mr Inderjit Singh's earlier question - I do not think we should try to introduce new parameters into the investment decision-making process. It is very hard to know where to draw the line, eg, is it the prime ministers and families of prime ministers, ministers, former ministers, their siblings, and so on - soon we will be wiping out a substantial part of the stock markets in Asia. Every investment has its risks. Be willing to take them, but undertake rigorous due diligence before each investment. That is the job of the Temasek Board and I can assure you that the Temasek Board and management have processes in place to ensure that they are in fact going through full due process, with the best advice, for each of their investments.

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Mr Low Thia Khiang (Hougang): Sir, the Second Minister for Finance always talks about "due process". Can he elaborate further as to what due process Temasek Holding has gone through in this particular investment, in particular, the political risk assessment, because there were ground sentiments brewing in Thailand before the decision to purchase? There were some adverse ground reactions to the purchase as well as the political reaction to the then-Prime Minister.

Sir, my second question is: whilst the Minister has said that the Government has nothing to do with Temasek because it does not influence nor direct what investments Temasek should do, the fact is that whenever something happens on account of an investment that runs afoul or whatever, the Minister would have to answer, and sometimes the Prime Minister would have to answer some questions on it, it shows that Temasek is no ordinary company just purely on a commercial basis. With that link, does the investment not also take into account the political risk analysis of that investment, especially high-profile investments involving political figures in other countries?

Sir, the Minister talked about investment returns of Temasek. May we know whether comparing Temasek's size of investment, in terms of the total capital it has to invest vis-a-vis some other similar investment outfit internationally, how do we fare in terms of investment returns? This is because it is not only in terms of comparing figures but also the size of investment you have which could allow you to have the gain in return. How do we fare on that?

Mr Tharman Shanmugaratnam: On the first question on political risk, I am not very keen to provide our own analysis of what the political outlook for Thailand was at the point that Temasek made its investment. Suffice to say that Temasek

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did obtain the best advice possible at that time. It is not for me to be involved in assessing whether Temasek made its investment based on the right assessment of political risks. This was a clean transaction on the Stock Exchange of Thailand, paid for entirely in Thailand, totally clean, no influence-peddling. So, I am not keen to get involved in a discussion or debate on whether the specifics of assessment of political risks were accurate.

On his other two questions, which I think are relevant, he pointed out that there is a connection to Government, that this is not just an ordinary commercial company. That is true. Temasek is a Fifth Schedule company and I am confident that the Temasek Board understands that, as a commercial company with a close link to the Singapore Government, it will want to play a constructive long-term role in all the markets that it has invested in. That, indeed, is the philosophy of Temasek. But what we should not do is, as I mentioned earlier, to start vetting transactions and deals on the basis of possible political sensitivities because, once we do that, it will backfire. Once we do that, every subsequent transaction will be read into to see, for example, how much of this is in sync with the foreign policy of the Singapore Government. Should we be holding Temasek back from a transaction? Should we be pushing it even harder to move into certain markets? It becomes hazardous. Temasek would not gain and neither would the Government. So, I would say this quite firmly - our policy of not wanting to intervene, whether it is in political risk assessment or commercial risk assessment, is a sound one and it is in the best interests of both Temasek and the Government. This is how we will be able to sustain this business of earning good long-term returns in fairly risky markets.

On the question of size, Temasek has been publishing its figures for a few years

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now. In its last annual review, it published its total assets at S$129 billion, a fairly large size. Investment experts will not necessarily agree, by the way, that being a very large asset manager is always an advantage. There are pluses and minuses, depending on the sector you are in and your investment strategy. Suffice to say that we are satisfied that, compared to other reasonably large investors - there is no investor perfectly comparable to Temasek - including those who are involved in private equity-like transactions, Temasek has been performing well. The 18% return obtained historically has been a good return. In fact, I can tell you that the investments it has made since 2002, when it started investing more actively in Asian markets, have been substantially above the 18% historical return.

Mr Inderjit Singh: Sir, what is still not obvious is whether Temasek went into the Shin Corporation deal knowing that it was going to cross the general offer limit. My question is: in the process, did Temasek plan to do this or was it accidental, because there are some reports about Temasek acting in concert with other parties which kind of worked around the rules and regulations on acquisitions in Thailand? This is market talk. Perhaps the Minister might want to clarify.

Sir, I have read some reports that the Thai government may revoke some of the licences, particularly the telco licence that Shin Corporation owns, in which case, Shin Corp may become a lot less valuable. In that case, in making this acquisition, did Temasek safeguard itself by having a process of being able to recover its investment from the selling shareholders?

Mr Tharman Shanmugaratnam: On Mr Inderjit Singh's first question, on the takeover, Temasek understood full well

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the regulations of the Stock Exchange of Thailand and fully expected to have to make a general share offer. The offer was very well received, perhaps better received than most people expected, so that the eventual share ownership of the consortium as a whole went up to 96%. But it fully expected that it was going to have to make a general offer.

On the question of licences, I would rather not speculate on these rumours that have been floating around, whether on AIS or ITV or any other subsidiaries of the Shin Group. Our basic posture should be that, from time to time, there will be surprises wherever we are investing. There may be regulatory changes. In fact, the Thai government is now reviewing the Foreign Business Act which governs all foreign investments in Thailand. And we have to make sure we comply with the laws and regulations at every point in time.

Mr Speaker: Last question. Mdm Cynthia Phua.

Mdm Cynthia Phua (Aljunied): Mr Speaker, Sir, the ground is very concerned about the real loss and not the paper loss. Can the Minister clarify, under the Stock Exchange of Thailand's rules and regulations, whether Shin Corporation need to sell the shares above the takeover holdings quantum or the company can continue to hold the 97%, because that will affect whether it is a real loss or a paper loss?

Mr Tharman Shanmugaratnam: When the general offer was concluded in March, the Consortium, ie, Temasek and its partners, announced that they intended that Shin Corporation remain a listed entity and that, under the rules and regulations of the Stock Exchange of Thailand, this meant that it should have at least 15% of free float compared to the

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4% free float. But they still have another year to achieve this. All this was known and factored into their calculations.