GOVERNMENT-OWNED AND GOVERNMENT-LINKED COMPANIES (Acquisitions and investments)

[Mr Speaker in the Chair]

Mr J. B. Jeyaretnam asked the Minister for Finance who advises Government-owned and Government-linked companies on acquisitions and investments.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, Government-linked companies, like all other companies, have their own managements and boards of directors and they decide on acquisitions and investments. If necessary, they may seek the advice of investment banks or consultants.

Mr J. B. Jeyaretnam (Non-Constituency Member): May I ask the Minister, particularly in the case which we were discussing yesterday when Question Time came to an end, in regard to Micropolis, from whom did this company seek any advice, if it did, that is, before Singapore Technologies acquired Micropolis?

Dr Richard Hu Tsu Tau: Although I could not finish the Oral Answer in Parliament, I think the full answer has been circulated to all Members, including Mr Jeyaretnam. And just to recap, they consulted their own investment bankers and professional consultants before the decision was made, and this was made clear in my answer.

Mr Jeyaretnam: May I know who finally makes the decision for Singapore Technologies?

Dr Richard Hu Tsu Tau: Can I suggest that he reads my answer? It is the Board of Singapore Technologies.

Mr Jeyaretnam: May we know from the Minister: is the Cabinet at all informed or consulted before Government-owned and Government-linked companies take over or acquire other businesses?

Dr Richard Hu Tsu Tau: The answer is no. In a general response to his question, there is a Ministerial Committee set up to oversee very large investments exceeding $500 million acquisitions, and this is chaired by DPM Lee, Minister for Finance is a member of the Committee, DPM Tony Tan is also a member, the Minister for Trade and Industry and BG Yeo are also members. But this Committee only concerns itself with very large acquisitions of $500 million or more and particularly with reference to overseas investments where there may be political overtones. Other than that, the companies themselves have their own boards and they are responsible for making their own decisions on a commercial basis. It is not feasible for Government to nanny every company it owns. Do not forget that Temasek Holdings, which is a Government-holding company, has shareholders' funds totalling $34 billion, and it is making profits averaging $1.6 billion per year over the last 10 years and it includes a huge stable of companies of large size, eg, SIA, DBS, and so forth, and they all have responsible boards who take investment decisions on their own after consulting with their professional advisers.

Mr Inderjit Singh (Ang Mo Kio): Sir, I would like to ask the Minister on the issue of Micropolis. The loss, I believe, in the reply he gave me yesterday, amounts to about half a billion dollars. I would like to ask whether any of these is coming from CPF or is it some other source that has drawn into our reserves.

Dr Richard Hu Tsu Tau: The answer is no. The acquisition was funded from ST's internal resources plus bank loans. So CPF is not involved.

Mr Jeyaretnam: May I ask the Minister whether after it was decided to wind up Micropolis, a statement was made or a report was submitted to this Ministerial Committee to examine the acquisition of Micropolis by Singapore Technologies?

Dr Richard Hu Tsu Tau: The position has been reviewed by the holding company, which is Temasek Holdings, and that is where the matter rests. No report has been made to Cabinet, nor is it required.

Mr Jeyaretnam: It may not be required. But if you have a Ministerial Committee, is it not the function of the Ministerial Committee, chaired as he said by BG Lee, to inquire closely into huge losses suffered by Government-owned companies? Here we have a case of half a billion dollars gone down the drain.

Dr Richard Hu Tsu Tau: The Ministerial Committee, as I explained earlier, is basically responsible for making acquisitions and would of course be interested in the details of any major losses which Temasek would in due course, after their own study, advise. However, I would like to point out that although in absolute terms, the loss looks very large, the sizes of the operations are also huge and our companies anyway are venturing into the high-tech areas. I think you should realise that the nature of the business is highly volatile and very capital-intensive, and if you are going to be in that business at all, you have to accept the consequences. I will refer you to a report - I think it was yesterday or before yesterday's papers - about Seagate, the largest disk drive company in the world, incurring a first quarter loss of over US$300 million because of the downturn in this business. So the nature of business requires high risk, you make money, you lose money. But overall, Temasek group of companies has been accumulating assets at a rate of, as I mentioned earlier, $1.6 billion per year over the last 10 years and without drawing on Government's equity.

Mr Jeyaretnam: A final question, Mr Speaker, Sir. Is the Minister saying then that even if there is a high risk, Government-owned companies will still go into the acquisition or take-over, in the hope that they can turn round the company and make profits? We are dealing with people's money. The companies are trustees.

Dr Richard Hu Tsu Tau: That is the nature of a business decision. Either you do it or you don't. Would he like to suggest an alternative? Perhaps he would like to vet every decision made by Government companies.

Mr Jeyaretnam: I should have thought that was obvious. There should be a proper committee, not chaired just by Ministers but also by public people who know about investments, to advise the Government-owned companies and Government-linked companies on acquisitions and take-overs.

Dr Richard Hu Tsu Tau: People like himself who knows about business investments?

Mr Jeyaretnam: I would ask the Minister not to be personal.

Dr Richard Hu Tsu Tau: No. What I am saying is ---

Mr Jeyaretnam: I am saying you could, could you not? You have BG Lee and his wife, I take it, is the Chairman of the Board ---

Mr Speaker: Order. Mr Jeyaretnam, I thought you said that was your final question. Have you any other questions? If not, Dr Lee.

Dr Lee Tsao Yuan (Nominated Member): Is it correct then to assume that except for these very large investments of over $500 million, to all intents and purposes, Government-linked companies run and operate like commercial companies in the private sector?

Dr Richard Hu Tsu Tau: Indeed, that must be the case.

Mr Shriniwas Rai (Nominated Member): Mr Speaker, Sir, may I ask the Minister whether he would give an assurance to the House that despite Micropolis, the Government will not get cold feet and will go on investing where there is a possibility that the public fund will benefit from investment, because there is a perception that because of Micropolis, the Government may get cold feet. I would like to have an assurance to this House by the Minister that despite Micropolis, he will make sound investment where he thinks it will benefit the economy.

Dr Richard Hu Tsu Tau: We do not take fright from Members' criticisms.

Mr Inderjit Singh: One final question. From the lesson that we have learned from Micropolis, have we put in place any additional safeguards to ensure that such future problems are avoided, although I do support that we should continue to participate in these high-risk, high-return types of investments?

Dr Richard Hu Tsu Tau: I am afraid there are no safeguards against business risks. You have to make your judgement and take your punishment or your rewards accordingly. I would just like to remind him that in assessing Singapore's investments, whether you lose or gain, you take a long view. I have said again and again that over the last 10 years, in aggregate, the companies have made substantial profits and added to Government's coffers. That should ultimately be the criteria, not criticisms or critics on individual investments.

Dr Lee Tsao Yuan: Is there a sense now, because of what happened with Micropolis, that Government-linked companies are subject to greater public accountability and public scrutiny than private sector companies?

Dr Richard Hu Tsu Tau: Indeed, this must be the sense and therefore I would assume that the management of these companies would take this into account. It must be so. In fact, it acts as a check of sorts that they are aware that they are dealing with public money. It makes them a little more cautious and it also may make them more risk-averse.

Dr Lee Tsao Yuan: Is it not there in a sense then a sort of fundamental dilemma with Government-linked companies because, on the one hand, you do want them to be publicly accountable and, on the other hand, you do want them to be entrepreneurial, and for that you would indeed have to take risk, and when you take risk, there is indeed a risk of failure?

Dr Richard Hu Tsu Tau: Indeed, that is true. There is a fundamental dilemma. In fact, a desirable outcome would be for the Government to divest itself fully of companies with commercial activities, and that is still our intention over the long term. But many of our new companies, particularly the statutory boards which are being privatised, require a period of nurturing, so to speak, before they are let loose completely. But over time, companies, like SIA, DBS, other than policy considerations, should be entirely privatised. And this still remains our long term objective.

Dr Lee Tsao Yuan: If indeed that is the longer term objective, would it be possible for the Minister to outline what actually are the criteria for these companies to be divested? Perhaps then they could be divested earlier because these criteria can be satisfied.

Dr Richard Hu Tsu Tau: The only companies which Government would want to retain de facto controlling interest are defence-related companies. Other than that, the other purely commercial companies have not been divested completely over the years because of their huge size. It would be very difficult to unload Government shareholdings overnight without disrupting the market.

Dr Lee Tsao Yuan: If it is because of the huge size, would it not be possible actually to break them down into small bits, so that the private sector can then chew on them?

Dr Richard Hu Tsu Tau: Yes and no. How do we break Singapore Telecom or Singapore Power into little bits? We can do it within limits, but to divide a company as huge as Singapore Telecom into little bits so that they become more digestible may not be very easy.