TEMASEK HOLDINGS (Shareholders' return)

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TEMASEK HOLDINGS:

(Shareholders' return): 9.

Mr Steve Chia Kiah Hong asked the Prime Minister and Minister for Finance (a) what are the reasons for Temasek Holdings' poor shareholders' return of 1% over a five-year period, as opposed to a 2.7% return for the Straits Times Index; (b) which are the "poor performers" in Temasek's group of companies; (c) how much did they contribute to negating the positive returns of Temasek; (d) what are the bonuses and remuneration paid to the senior management of these money-losing ventures; and (e) what is the rationale for paying them these remunerations despite their losing money for Temasek.

Mrs Lim Hwee Hua (for the Prime Minister and Minister for Finance): Sir, Mr Steve Chia has raised concerns that Temasek's total shareholder's return (TSR) of 1% for the five-year period ending March 2005 is lower than the 2.7% increase in the Straits Times (ST) Index over the same period. Such a comparison does not, however, provide a complete picture of Temasek's performance. Let me explain why.

TSR, by market value is, by definition, highly sensitive to the opening and closing market values of the investment over the selected time period. Therefore, it is instructive to review performance over a longer period to avoid market distortions. Temasek's 10-year TSR of 6% compares favourably with the 4.3% return on the ST Index.

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This is why Government evaluates Temasek's performance over multiple periods, using a variety of measures and benchmarks to get an accurate sense of whether it is delivering good returns. For instance, if we take TSR by shareholder's funds, rather than market value, which tracks the changes in the underlying book value of Temasek's portfolio, Temasek achieved a TSR, by shareholders' funds, of between 9% and 11% for the 3-, 5- and 10-year periods. Since its inception, we have received a healthy average annual cash dividend yield of more than 7% from Temasek. We are satisfied that Temasek is performing creditably and giving us good long-term returns as shareholder.

As to which are the "poor performers" in the Temasek group, this must again be viewed in context. Like all companies, Temasek companies experience short term fluctuations in profit, in line with changing market conditions and economic or industry cycles. For instance, in the past few years, some companies like Chartered and STATS ChipPac were subject to the volatility of the technology sector. With the upturn in the global semi-conductor industry, both have reported a return to profitability.

Instead of focusing purely on past performance, it is more critical to assess the underlying strength and future potential of each investment. In this regard, Temasek actively and continually reviews its investments as a long-term shareholder.

On whether the remuneration paid to the management of these 'money losing ventures' is appropriate in light of their performance, this is a matter for their respective boards to decide, not Temasek. Apart from ensuring that compensation plans are structured competitively and support sustained execution of business

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strategy, such committees would typically build in a performance element into these compensation plans. What is important is that the remuneration of management is disclosed to all shareholders, including Temasek, in the companies' annual reports in accordance with the Financial Reporting Standards.

Mr Steve Chia Kiah Hong: Sir, are these "poor performers" economically-viable companies or are these poor performing companies of strategic importance or consideration for Singapore? Secondly, are these "poor performers", at least for the last few years, home-grown Singapore companies or foreigner purchases?

Mrs Lim Hwee Hua: Sir, I just wish to reiterate that the "poor performers" or the "losers" of today could well be the "winners" of tomorrow. The question that the Member has posed should actually be viewed in context. But suffice it to say that the "poor performers" would always be reviewed for their long-term business strategy and their long-term economic viability. And that is the role that Temasek would perform across its whole portfolio.

As to whether there is any pre-dominance of foreign or local-owned companies, amongst his so-called definition of "poor performers", we do not track the companies as such. The role of Temasek is really to manage a widely-diversified portfolio so that we get the benefits of diversifying across markets and across business sectors.