GOVERNMENT-LINKED COMPANIES (Divestment programme)

[Mr Speaker in the Chair]

Mr Leong Horn Kee asked the Deputy Prime Minister (a) if he will give an update on the Government's divestment programme for Government-linked companies (GLCs); (b) whether the large Government shareholdings in GLCs have hindered their efforts to grow in the region; and (c) whether the Government has any plans to reduce these shareholdings, especially in companies like Singapore Telecom and DBS Bank.

The Deputy Prime Minister (BG Lee Hsien Loong): Mr Speaker, Sir, the Government's programme to divest its shareholdings in the Government-linked companies is progressing smoothly. We conducted the initial public offering of Singapore MRT last year, bringing the Government's shareholdings down from 100% to 62%. The Government also divested Semac and Indeco Engineers completely in 2000 and 2001 respectively. Looking ahead, PSA Corporation and Singapore Power are slated for listing, while the three power generation companies (Power Seraya, Power Senoko and Tuas Power) will also be divested.

With regard to our GLCs' ventures abroad, many have been successful. PSA Corp, for example, has gone as far as China, South Korea, Middle East and Europe. SingTel has footprints in Asia, including Thailand, Taiwan and India. DBS bank is in Thailand, the Philippines and Hong Kong.

In some regional ventures, the Singapore Government shareholding in GLCs has been an advantage. It has given the GLCs' partners and host governments confidence that this is a bona fide operation with a reputable, long-term shareholder, which will uphold high standards of integrity and not cut corners for quick returns.

But not all regional ventures of GLCs have been smooth and successful. Many companies treat certain industries as "strategic" and fundamental to their national interest and economic development. But they are cautious about allowing foreign players to enter or buy into their domestic market, especially players with significant foreign government ownership. In banking, for example, regulators typically apply stringent standards and single shareholding limits. In telecommunications, many countries limit foreign participation in their domestic market.

Where the Singapore market has substantial and visible shareholdings in a company, regulators, political leaders, the press and local constituents tend to perceive the GLC to be Singapore Government-controlled, operating on an agenda that overrides normal commercial considerations. Such perceptions can unnecessarily politicise and complicate mutually beneficial commercial deal strategic alliances or mergers and acquisitions. From time to time, GLCs, like SingTel and DBS, have encountered such problems in their regional ventures.

As a policy, the Government does not interfere in the strategic and commercial decisions of GLCs. All GLCs must operate strictly commercially, and are expected to yield proper economic returns. They are supervised by their boards of directors and accountable to all their shareholders, including the non-government shareholders who often own the majority of the shares.

However, if these perceptions exist, we need to address the issue. In many industries, the scale of economic activity is increasingly global. To be competitive and have growth prospects, companies need to transcend national boundaries, especially in a small economy like Singapore. The recent wave of mergers and acquisitions in industries, like banking and telecommunications, reflects this.

The Government has stated that its shareholdings in GLCs are not sacrosanct. With very few exceptions, GLCs are in play, free to acquire or be acquired in accordance with commercial dictates. If anybody wants to bid for them, whether the bidder is foreign or Singaporean, friendly or hostile, we will consider the proposition seriously. We cannot afford to take a parochial, xenophobic approach.

Companies, like SingTel and DBS, are large players in Singapore, but small by world standards. To become significant players, they must, over time, evolve into more than Singapore companies. This is why we have lifted requirement for banks and telecommunication companies to be majority Singapore-owned.

The Government presently owns 78% of SingTel, and 37% of DBS. We do not regard these as strategic stakes, to be permanently maintained. We are prepared to reduce significantly our shareholdings in SingTel and DBS over the medium term. How this should be done will be studied further. It can be by dilution through a merger, private sale to institutional investors, a SOTUS-type asset enhancement exercise for citizens, or some other means. Any divestment should naturally take place at the right price, and under the right market conditions.

For SingTel, we will remove the "special share" which gives the Government the right to veto major decisions in the company. Instead, we will meet our national security needs through appropriate safeguards.

For DBS, we will need to ensure that the Singapore character of the bank is preserved, following any divestment by the Government. It is important that we will be able to rely on the local banks to keep Singapore's financial system on an even keel in a crisis. The Banking Act and MAS Regulations help to ensure that the local banks retain their commitment to Singapore, even if they form strategic linkages or merge with foreign partners.

First, MAS approval is required before single shareholdings can exceed three threshold levels, 5%, 12% and 20%. Second, MAS requires at least half of the board of directors of the bank to comprise Singapore citizens or permanent residents. This specific requirement may need to be modified, for example, in a merger with another party of comparable size, which is able to contribute to the bank and its continued growth and commitment to Singapore. But even in such a situation, MAS will continue to ensure a strong and meaningful Singaporean presence on the board of the merged entity.

I hope that this statement of our intentions will dispel some of the misapprehensions about the nature of the Government's shareholdings in GLCs, and give them a freer hand to pursue M&A deals with prospective parties.

Mr Leong Horn Kee (Bishan-Toa Payoh): I would like to ask the Deputy Prime Minister two supplementary questions. The first is that, with regard to the report in the Straits Times that the Department of Statistics is doing a review of the scope and range of GLCs, whether the Deputy Prime Minister is aware of this study and whether this study will be coming up soon. It was mentioned in the Straits Times recently. I am not aware of this until I read it in the Straits Times myself.

The second question is whether there is a need to do another review of the role of GLCs. I recall that the first review was done more than five years ago. A very comprehensive review was done. Could the review be conducted by a joint committee from both private and public sector representatives since this committee can actually look into the benefits of the GLCs, how their strengths can be exploited, areas of cooperation between GLCs and private sector as well as to give guidelines on how GLCs can avoid future encroachment in the private sector and, finally, maybe even ask the committee to hear complaints, if any, of GLCs' unfair competition versus the private sector?

BG Lee Hsien Loong: Mr Speaker, Sir, I think Mr Leong is referring to a study recently done by the Department of Statistics which was aimed at determining what proportion of the Singapore GDP was accounted by GLCs. There was a time inflated number of 60% to something originally. And DOS re-estimated this and came out with some number of less than 20%. I think it was 13% ---

An hon. Member: 12%

BG Lee Hsien Loong: 12%. That was the main purpose of the study, just to clarify the figure. The study is completed. It is not ongoing.

On review of the role of the GLCs, this is something which we have continued to do. It is Temasek's responsibility and the Ministry of Finance oversees this. As we have explained, in nearly every case, GLC's function has to be to operate as a commercial entity. There are cases where there are social considerations as well as the DBS/POSBank which we have discussed extensively. But even with that, DBS still should have a free hand to operate without being subject to undue impositions. As long as they are operating completely freely and without any hidden Government assistance or subsidy, they should be free to do their business as they think fit. I do not think there should be areas where we push them to go and I do not think there should be areas where we prevent them from going. I know that, every now and then, the newspapers will come out with the story of a GLC which went into the roast duck business. I believe the GLC subsequently sold the roast ducks and the business, but that has not been regularly highlighted in the newspapers.

But it is not our business to micro manage. They have their business. They know what their focus is meant to be. If they are not properly focused, the shareholders will do something about it. In most cases, the shareholders will include minority non-Government shareholders, in some cases, it is fully owned. Then Temasek has to do something about it.

Mr Chng Hee Kok (East Coast): I would like to ask the Deputy Prime Minister when are the expected dates of the IPOs for Singapore Power and PSA Corp. At the same time, what is the size of these offerings?

BG Lee Hsien Loong: Mr Speaker, Sir, it is a little bit premature to say that now. In the case of PSA, the bankers are now in the final stages of their due diligence work. The exact timing of the listing must be carefully studied because of the uncertain and very difficult market conditions. Members will be aware of how the US market has come down sharply over the last few days and weeks, and the Singapore market has followed it down.

In the case of Singapore Power, its preparations are not quite as advanced, but bankers have been appointed. I cannot commit to when they would be listed because it depends on circumstances.

Mr Leong Horn Kee: To follow up from my question, the Deputy Prime Minister said that it is not the intention of the Government to micro manage the GLCs. But will the Government look into GLCs which are not covering non-strategic areas? Are there plans for them to be divested, especially if there are parties out there who are prepared to either invest in them, or acquire them, in areas like the Deputy Prime Minister mentioned about roast ducks and other non-strategic areas?

BG Lee Hsien Loong: I think the Member means GLCs which are participating in non-strategic areas. Yes, indeed. As I explained in my main reply, the Government is not fixed to hold all these GLCs. In very few cases there are strategic reasons why we want to maintain a stake. In most cases, we are open, and if there is a buyer available who makes us an attractive offer, we will be happy to transact. And in many cases, over a period of time, we would be happy to reduce our shareholdings down below where they are now and, maybe even divest completely. Because the original rationale for building up and maintaining these companies has to be reviewed and may or may not continue to exist. But these are listed companies, so I would not like to speak lightly about what we will or will not do until we have firmed up our plans.

Mr Speaker: We will allow one last question. Mr Chng.

Mr Chng Hee Kok: This is a follow up of my earlier question. If the market sentiments are favourable, will the IPOs take place this year?

BG Lee Hsien Loong: Mr Speaker, Sir, PSA and Singapore Power would not have appointed investment bankers and proceeded with due diligence unless they have very serious intentions. And we have said our intention is to list them. But can we be ready this year? We have to judge the timing. The timing is a tactical decision. If it is not this year, it will be next year, or the year after. But we are not seeing it as a very long drawn-out process.