SINGAPORE TECHNOLOGIES VENTURES (Losses)

Mr Low Thia Khiang asked the Minister for Finance if it has now been determined how much loss was incurred by Singapore Technologies Ventures, the period over which the losses were incurred and how these losses came to be incurred.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, Singapore Technologies Ventures (STV) lost $22 million in 1990, and $142 million in 1991.

STV is a subsidiary of Singapore Technologies Holdings (STH). It was formed in September 1990 when STH restructured itself to prepare its subsidiaries for public listing. STV took over start-up and technology venture activities which had previously formed part of the other business sectors of the STH group.

Some initial losses for these operations are unavoidable. The activities are capital and technology intensive. They require long gestation periods before showing results. They are also vulnerable to market and technological risks. However, STV's operating losses were larger than foreseen because the company had embarked on several large projects where market conditions proved more difficult than expected, partly because of the recent global economic slowdown. In addition, as STV had been formed by grouping together existing venture activities in STH's other business sectors, the company initially had an un- suitable capital structure, with too much debt and too little equity.

STV's losses included start-up development and operating expenses, heavy interest charges, and overseas training of technical staff in specialised skills. In view of the uncertainties, STV took a conservative approach and wrote down a large part of its pre-operating expenses.

The STH Board has been working closely with the STV Board to tackle STV's problems. It has taken steps to improve STV's capital base. STV should turn around within the next two to three years.

STV's short record must be seen in the context of the performance of the STH group as a whole. STV is one of the five principal business sectors of STH. Over a longer time perspective, the STH group has been successful. Its four other business sectors are profitable. Two business sectors are publicly listed. The publicly listed portions of the group have market valuations many times the initial Government investment in them.

Almost by definition, technology venture activities carry greater risk. Not all of them can be expected to succeed, nor will they be profitable every single year. But taken overall, such leading edge activities should yield definite returns. They are essential to the business strategy of a technology company like STH. STH cannot rely on its traditional activities to grow indefinitely year after year. STH's technology ventures enable the group to continually explore new areas of opportunities, and identify promising fields to expand into. STH has to maintain a balance between established, profitable activities and these new, more risky enterprises. I am satisfied that in doing so, the STH Board has discharged its responsibilities competently and to the best of its ability.

Mr Low Thia Khiang (Hougang): Sir, is there any investigation done, or ordered into the losses incurred?

Dr Richard Hu Tsu Tau: The answer to that is "yes". It has been extensively investigated by the STH Board and by the Ministry of Finance.

Mr Low Thia Khiang: Sir, would the Minister make available the relevant investigation reports to the public or to Parliament?

Dr Richard Hu Tsu Tau: I do not think that is something which we want to publish. It is an internal investigation. The Ministry is satisfied, so is the Board of STH.

Mr Low Thia Khiang: The money invested in these ventures, ie, the loss incurred, where did this money come from? Did it come from part of our national reserves as well?

Dr Richard Hu Tsu Tau: These funds were initially contributed as capital by the Government and include a portion of loans extended to the company and they form part of STH group's financial assets.

Mr Low Thia Khiang: Sir, since the money comes from the Government, would the Minister not think that the investigation report should be made public, so that it is accountable to the public, or at least to Parliament, for the money that is being invested?

Dr Richard Hu Tsu Tau: The investigation clearly shows the source of expenditure is for pre-operating expenses and capital expenditure. It shows that the sales did not meet operating expenses. There is nothing technically incorrect with it. If such is the information that is required, there is no problem.

Mr Low Thia Khiang: Sir, what evaluation was done before a decision was made to invest in these ventures?

Dr Richard Hu Tsu Tau: The normal technical evaluation of developing a project is done in every case of a new venture. What is unpredictable is the market condition when the ventures move actually into operation. It is not possible to predict ahead of time whether by year X or after start-up, the company will remain profitable. I will give you an example of the sort of uncertainties faced by operating companies in high-tech areas.

The Petrochemical Corporation of Singapore (PCS), in which the Government had equity. During the early years, 1984-86, it accumulated total losses of $120 million before it turned the corner, because it started operations during a downturn of the petrochemical industry. Another example is Keppel Corporation in which the Government has a majority interest. In 1984, it took a write-down of $174 million because the bulk carrier, tanker business, was highly unprofitable and it wrote off a series of tankers. In the following year, 1985, it had to write off an additional $130 million, again for the same reason. Thereafter, it has been profitable.

Mr Heng Chiang Meng: Sir, may I ask the Minister whether it is not the general rule of thumb in this venture capital business that not every venture capitalist expects to make money on every venture that he has invested in? But normally, although there might be more losses than gains, in terms of ventures, overall over a period of time, as long as the absolute money that one makes over the gains, although smaller in number vis-a-vis the money that is lost over a larger number of cases or ventures, then one can say that it is a relatively successful venture capital business.

Dr Richard Hu Tsu Tau: That is indeed true. Do not forget that STV was incorporated in 1991. So I think we should give it a few years to try to prove this.