SINGAPORE TELECOM AND CABLE & WIRELESS HKT (Proposed merger)

Mr Chng Hee Kok asked the Minister for Finance if he will explain the rationale for the merger between Singapore Telecom and Cable & Wireless HKT and whether there are any long-term security concerns due to the dilution of Government controls.

Mr Tay Beng Chuan asked the Minister for Finance if he will state the Government's position regarding the proposed merger between Singapore Telecom and Cable & Wireless HKT, and if there are any plans to safeguard our shareholders' interests in the proposed merger in the face of adverse reactions from certain quarters of the business community in Hong Kong.

Mr Chng Hee Kok: Sir, before I ask Question No. 2, I wish to declare my interest as an independent director of Pacific Century Development Limited. Question No. 2, Sir.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, may I have your permission to take Question Nos 2 and 3 together as they are related?

Mr Speaker: Yes, you may.

Dr Richard Hu Tsu Tau: Sir, the proposed merger is driven purely by commercial considerations. The combined entity, which would become one of the leading regional telcos, would be better positioned to face the challenges posed by the rapidly globalising and evolving telecommunications industry.

The potential dilution of Government's shareholdings in SingTel should not pose security problems. Concerns over security confront telecommunication markets worldwide whenever mergers and acquisitions of telcos, whether foreign or local, take place. However, these security concerns can be adequately addressed through the regulatory framework.

Temasek Holdings and SingTel believe that the merger will create value for the shareholders of both SingTel and Cable & Wireless HKT. As with all commercial companies, they take into account the interest of its shareholders, including minority shareholders, when making any business decisions, particularly major ones involving mergers and acquisitions.

The Government does not intend to institute any specific safeguards for shareholders, as the investing public should exercise prudence in their investments. The caveat emptor applies to all investments, including investment using CPF as well as those under Asset Enhancement schemes.

Mr Chng Hee Kok: Sir, I have two supplementary questions. The first question is, if this is strictly a commercial deal, press speculation is that it is more than commercial but political as well, especially in our case, one of our Ministers has approached the Hong Kong government on behalf of SingTel.

The second question is that Government's shareholding in SingTel will continue to be diluted as a result of the loyalty shares issued to current shareholders. Which point will the Minister feel comfortable that we need to improve the framework to make sure that Government still has control over SingTel?

Dr Richard Hu Tsu Tau: Sir, on the first question, I am in no position to comment on these speculations. These are pure speculations on the part of the media. As far as the Singapore Government is concerned, this is a purely commercial consideration. The fact that Government has a major shareholding is irrelevant in this particular case.

On the second question, whilst the proposed merger may dilute the Government's shareholding it should not affect the security concerns. This is because the Info-communications Development Authority has already put in place provisions to safeguard national interest. For example, as a licence condition, telecom operators will be required to cooperate fully with relevant Government agencies for the provision of national security and emergency services. We will cover this particular problem through the regulatory requirements.

Mr Tay Beng Chuan (Nominated Member): Sir, I would like the Minister to clarify. Since the public listing of Singapore Telecom, the share price has fallen below the listed price. I would like to know whether sufficient efforts have been taken by Singapore Telecom and the relevant authorities to restore the confidence of the Singapore shareholders to achieve the original purpose, ie, to enhance the scheme to give Singaporeans a stake in Singapore.

Mr Speaker: Mr Tay, I do not see the relevance of your question to the Questions which are on the Order Paper.

Mr Tay Beng Chuan: In the light of the proposed merger, we know that SingTel's share price has fallen below its listed price.

Dr Richard Hu Tsu Tau: Sir, I think share prices will have to reflect what the market demand is and Government is in no position to influence it directly. I am confident that SingTel management has done all it can to strengthen the position of SingTel but the Member should realise that, all telecom monopolies as SingTel was, are subject to extremely strong competitive pressures as a result of deregulation. The same situation has happened in all countries where share prices of monopolies tend to take a major hit because their overseas IDD calls are usually the ones first hit by competition. As far as SingTel is concerned, they have expanded overseas into many areas, Belgium, UK and Australia, and Members have read in the press that they have made several moves to acquire other telcos, but with mixed success, unfortunately.

I did not get the second part of the question. Can the Member repeat it?

Mr Tay Beng Chuan: SingTel was the first of a series of Government enterprises to be privatised and it was part of the Asset Enhancement Scheme. The drop in its share prices will reduce public confidence in this scheme.

Dr Richard Hu Tsu Tau: In the case of SingTel, the public was granted a discount of the original price and with the loyalty shares the effective price paid by shareholders is a lot lower than $3.60. But I think the basic principle is that Government cannot protect the price of shares. As I mentioned earlier in my reply to Mr Chng's question, investors must make their own judgment and I still believe that, in the long term, SingTel is a good investment.

Mr Tay Beng Chuan: Sir, since Pacific Century Cyberworks is also bidding for a share of the Cable & Wireless HKT, I would like to know what is the Ministry's position on that.

Dr Richard Hu Tsu Tau: The Ministry has no position on this. This is an independent bid from a Hong Kong entity and, like all proposals, it is being put on the table in competition with the SingTel deal. I have no comment on this particular case.