DIVESTMENT OF GOVERNMENT-LINKED COMPANIES

Dr Lee Tsao Yuan asked the Minister for Finance, in light of the fundamental dilemma of public accountability versus entrepreneurial risk-taking which Government-Linked Companies (GLCs) face, as well as the Government's long-term intention of full divestment of those companies with commercial activities, whether the Government will consider accelerating the full divestment of some GLCs or some of the businesses of GLCs by schemes such as Management Buy-Outs.

The Minister for Finance (Dr Richard Hu Tsu Tau): Sir, in principle, the Government is prepared to divest fully its stakes in the GLCs other than those of strategic interest to our defence or our economy. Other than these strategic investments, the rest can be privatised in due course. However, apart from the obvious considerations of market conditions, the pricing and the capacity of the market to absorb the divestments, there are a number of other considerations in deciding whether we can accelerate the process of divestment. In particular, the Government has put in much effort and resources to develop the GLCs, and we would want to divest them in such a way that the issue of management succession is properly addressed and that there will be either a single shareholder or a group of shareholders with a significant stake to provide management direction and to grow the company. This is important as Government would want the GLC to remain in relatively good hands. Government has also to be fair to the other minority shareholders of the GLC and be mindful that its divestments do not have too adverse an impact on the future of the company. This requirement will, however, slow down the divestment process.

Management Buy-Outs (MBOs) are not ruled out as a divestment method for GLCs where the Government has a direct stake. MBO is possible if there is interest as well as a willingness to take the business risk on the part of the companies' management and agreement on reasonable terms of sale. However, the size of the GLCs often makes them beyond the financial resources of managements. Nevertheless, besides MBOs, other approaches of divestment had been, and will be, considered when the terms of sale are reasonable. Government will continue to pursue its privatisation and divestment programme in an orderly manner as and when the opportunity presents itself.

Dr Lee Tsao Yuan: Sir, in terms of the Government divestment programme, does the Government also intend to divest management, and not merely corporatisation? In other words, is it the Government's intention to have a full divestment, including that of management?

Dr Richard Hu Tsu Tau: I do not quite understand the Member. By divesting management, does she mean that Government has no longer any responsibility? You are talking about the difference between corporatization -

Dr Lee Tsao Yuan: Corporatisation and full divestment in terms of management.

Dr Richard Hu Tsu Tau: Yes, we have, in most cases, gone the route of full divestment without residual management control. I will give you a few examples of companies which we have fully divested and only retained a minimal control. In the case of Singapore Press Holdings, it has been fully divested, except that Government holds a golden share because it is a sensitive area. National Iron and Steel Mill has been totally divested. It is in the hands of the public and it has its own management. The others are UIC, Phillips Petroleum of Singapore and so forth. So there are many areas where we have totally divested.

Dr Lee Tsao Yuan: Sir, I may be wrong, but it would seem to me that the shares of many of these GLCs belong to holding companies that are in turn actually owned by the Government.

Dr Richard Hu Tsu Tau: There are some. Can you name some specific companies that you are concerned about?

Dr Lee Tsao Yuan: As far as I know, I think Temasek Holdings actually holds a substantial number of shares in many of the companies that you have mentioned. To that extent, Temasek Holdings actually would have a substantial say in terms of the management direction of the company.

Dr Richard Hu Tsu Tau: For those where it retains significant shareholdings, yes. But for those in which it does not hold substantial shareholdings, it would not.

Mr Chiam See Tong (Potong Pasir): The Minister has mentioned that the Government has still got some residual control of SPH. Can I know what sort of control?

Dr Richard Hu Tsu Tau: No single person or company can hold more than 3% of SPH shares. And Government holds one golden share to ensure that no third party can take over the company because of the sensitivity of its operations. That is all that is controlled. So financially, as far as the commercial operations are concerned, Government has no control over it.

Mr Chiam See Tong: What does the Minister mean by "golden share"?

Dr Richard Hu Tsu Tau: One nominal share, but that share has overriding powers over the management of the company. In other words, it can determine the Chairman and the Board.

Mr Chiam See Tong: Does it also include the control of editorial policies?

Dr Richard Hu Tsu Tau: No.

Dr Lee Tsao Yuan: In so far as there are holding companies, which are fully owned by the Government, would also the full divestment policy of the Government also mean the relinquishment of control of some of these holding companies, so that for the GLCs, for which these holding companies have substantial shares, that these become truly private companies where the Government has no say in terms of management and control?

Dr Richard Hu Tsu Tau: What holding companies is the Member referring to? Temasek is a main holding company. In Temasek's case, it is quite clear. The Government, through Temasek, manages and controls those companies in which it owns substantial shares. What other holding companies is the Member referring to?

Dr Lee Tsao Yuan: This is where I think there is actually not very much knowledge regarding Temasek Holdings and the companies that Temasek Holdings owns. But as far as I know, Temasek Holdings actually does have substantial shares in quite a number of GLCs, the extent of which I really do not know. So because of Temasek Holdings' share, many of these companies actually are seen as Government-linked. I think my question really is: is it possible to cut off the link from the Government so that these companies are no longer Government-linked companies but become truly private companies?

Dr Richard Hu Tsu Tau: I suppose that will take place if Government shareholdings fall significantly below 10% where it becomes a minority shareholder and therefore should no longer have any direct say on its management. So that would be a general criterion that applies not only to Government companies but to companies in general.

Dr Lee Tsao Yuan: In light of public accountability, would the Government make the accounts of the holding companies public and transparent, for example, Temasek Holdings?

Dr Richard Hu Tsu Tau: Temasek does publish its accounts. But whether you have full access, it is a different matter. I think we will consider if it is necessary. At the moment, we would like to preserve our present arrangements.

Mr Low Thia Khiang: Why does the Minister say that we want to preserve the status quo by not divulging more information on Temasek Holdings' shareholding position?

Dr Richard Hu Tsu Tau: I think the number of companies in which Temasek Holdings has is, in fact, published in a book. There is a published book on Government-owned companies in which all the Government-owned companies and their subsidiaries are published. And each of these companies has its own balance sheet and therefore published. So you can quite easily aggregate the totals. I can make this book available to whichever Member is interested. The published book of Government holding companies, in which all the companies belonging to Temasek Holdings are, in fact, set out, with the Board of Directors, and so forth, and each of these companies in turn, particularly if they are public companies, would have annual reports.