DBS BANK (Proposed acquisition of Dao Heng Bank)

Mr Leong Horn Kee asked the Minister for Finance what is the rationale of DBS Bank's proposed acquisition of Dao Heng Bank at the announced purchase terms and what are the expected costs and benefits of this acquisition.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, with your permission I would like to take Question Nos. 1 and 2 together as they are related?

Mr Speaker: Yes.

Dr Richard Hu Tsu Tau: The Singapore Government has for long encouraged local companies, both GLCs and non-GLCs, to grow beyond the confines of the Singapore economy. Singapore Telecom's acquisition of Optus and DBS Bank's acquisition of Dao Heng are such moves. They enable SingTel and DBS Bank to tap regional opportunities and become more than Singaporean companies.

Both SingTel and DBS Bank are listed on the Singapore Exchange (SGX) and fully subject to the discipline of the market. Like all GLCs, they operate strictly on a commercial basis. The Government does not interfere in the commercial decisions of GLCs. Their managements are supervised by their own boards of directors. The boards in turn are accountable to all shareholders, and not just to the Government through Temasek Holdings, which holds the Government's shares in the companies.

The purchases of Optus and Dao Heng are long term strategic business moves. Their soundness has to be judged over time by the performance of SingTel and DBS Bank, and not by the immediate reaction of the stock market as reflected in their share prices. It is up to the managements of SingTel and DBS Bank to satisfy themselves of the strategic and financial merits of the acquisitions, and convince their boards of directors and their shareholders that overall the deals will benefit the companies and their shareholders. As a shareholder, Temasek Holdings has full confidence in the competence and judgment of the managements and boards of SingTel and DBS Bank. SingTel and DBS Bank are able to undertake these transactions only because they have been successful in their operations, and hence have the financial resources to pursue such opportunities.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, may I ask the Minister whether he is aware that in the case of Cable and Wireless Optus, it is operating at a much lower profitability than SingTel and, as a result, SingTel's earnings could be dragged down after the acquisition? Can the Minister tell this House why the board and the management of SingTel considered Optus to be acquired at a fair price, even though it was at a price tag of about $15 billion? How would SingTel fund this acquisition?

The next question relating to DBS Bank, along the same vein, is whether the Minister is aware that some newspaper analysts have commented that DBS Bank is perceived to be overpaying for Dao Heng Bank. Can the Minister also explain why the board and management of DBS Bank considered Dao Heng Bank to be a good buy?

Dr Richard Hu Tsu Tau: I thought I had answered these questions. SingTel put in a bid for Optus because they believed that a long-term investment in a major telecommunications corporation in Australia is in their strategic interest. It would give them a large footprint in Australia to be linked up with SingTel's own operations both in Singapore and elsewhere in the region. They are taking a strategic interest and not so much concerned about the immediate impact on their share prices or short-term profitability based on Optus' historical results.

Similarly, DBS Bank has taken a strategic look at where they want to go offshore and Hong Kong is clearly one market which, for obvious reasons, is a must for DBS Bank if they are going to be a regional player and because of the potential of entering China sooner or later. The observations of analysts, as I have explained earlier, tend to take a relatively short-term view on what the impact of the acquisition, whether it is three-times the book value or otherwise, may have on the immediate profitability of DBS Bank. When you buy a controlling share in a large company, generally, you have to pay a substantial premium. The size of the premium is a judgment which the management has to take and it is not in Government's interest to try and challenge that decision.

Mr Chng Hee Kok (East Coast): Sir, the Minister is aware that in the case of SingTel it is quite different because it is part of our asset enhancement exercise and a fairly large number of Singaporeans own shares in SingTel. Since the announcement of the Optus deal, share prices have dropped by some 30%. The question I would like to ask the Minister is whether there has been any change in the terms of the deal and, if there is any change to the terms of the original offer, is SingTel prepared to walk away from the deal?

Dr Richard Hu Tsu Tau: I am not aware of any significant changes. I think SingTel has said that negotiations are proceeding smoothly, including the issue of strategic use of the satellites. So I am not aware of any change that would make it necessary to review the deal. So far, this is based on their public announcements.

Mr Chiam See Tong (Potong Pasir): Sir, may I ask the Minister to clarify the terms of purchase? I hear that Singapore wants to exchange shares and also in cash, and is it true that the cash component is in US dollars? If that is so, is that the cause of the rise in value of US dollar against the Singapore dollar?

Dr Richard Hu Tsu Tau: SingTel has already announced the package alternative which is a mix of shares and cash, and I do not think I need to go into it because the Member can always find it from the publications.

On the question of the price of purchase being in US dollars - indeed I believe it is in US dollars - and whether it will have an impact on the Singapore dollar, I do not think the amounts are sufficiently large to move the Singapore dollar in a significant way although there may be short-term perturbations which MAS will surely take into account.

Mr Simon S. C. Tay (Nominated Member): Sir, given that these are Government-linked companies and Government holds controlling shares, may I ask the Minister for Finance whether Government will reassure their counterparts that this is a private sector deal and not versus their own national interest, given that these are relatively sensitive sectors, ie, telecommunications and banking?

Dr Richard Hu Tsu Tau: I do not think that this is an issue. As far as I am aware, the Australian Government has not raised any reservation about the deal. The only question is whether the use of the US satellites might impinge on problems of security. But SingTel has said that these discussions are proceeding smoothly and they do not expect any particular problems. In the case of Hong Kong, I believe the Hong Kong monetary authority supports the deal.