Temasek's S$13b funding of leading Singapore corporates aligned with its long-term horizon: analysts
The state investor is set to spend over S$14 billion as it throws its weight behind sector giants amid the pandemic
Claudia Tan HS
Singapore
SINGAPORE's Temasek Holdings has ploughed at least S$13 billion since last year - and is set to spend more - into sector bigwigs from the national airline to an agri-food giant, a shipping line and offshore and marine firm, most of which involves funding to save these pandemic-roiled businesses.
While a majority of Temasek's investments were in the form of cash calls or rights issues that were meant to bolster the capital base of these hard-hit firms, they were in large part also strategic and opportunistic moves that were aligned with the state-owned investor's long-term investment horizon.
A common thread stands out in the recent moves by Temasek to throw its financial heft behind some of these firms, said Associate Professor Lawrence Loh from the National University of Singapore Business School. "These companies seem to be in strategic sectors that are critical to Singapore."
The aviation sector, for one, is a major contributor to the economy. Data from the International Air Transport Association showed that the air transport industry, including airlines, its supply chain and spending by foreign tourists, accounted for nearly 12 per cent of Singapore's gross domestic product (GDP) during pre-pandemic times.
Singapore's offshore and marine sector has long been a pillar of the city state's economic progress and transformation. Having weathered a downturn amid depressed oil prices since 2014/2015, the sector has made big moves as it pivots to tap opportunities in the booming offshore renewables and green energy space.
Noteworthy is that Temasek owns majority stakes in some of these firms. For that reason too, Justin Tang, research head for Asia at United First Partners, deemed Temasek's backing as "nothing out of the ordinary", more so as some of these firms were at "ground zero" of the pandemic and faced the possibility of becoming insolvent.
Singapore Airlines (SIA), in which Temasek has a stake of about 55 per cent, faced severe liquidity issues in March last year as countries scrambled to contain the spread of Covid-19 and shut their borders. In fact, the national carrier has received the bulk or some S$12 billion of the state investor's rescue monies to weather the tough climate as a result of Temasek's move to backstop the airline's rights issues. Apart from being better capitalised, the rescue package puts the carrier on a strong footing to tap opportunities amid the crisis, including fresh acquisitions.
Terence Chua, senior analyst at Phillip Securities Research, said the restructuring among Temasek's portfolio companies, which has picked up pace this year and was largely hastened by the pandemic, indicates a clear intent to position the firms to "better compete on the global stage". Such investments could potentially allow Temasek to ride the upturn when the economic environment improves, he said.
One example is the Temasek-backed demerger of Sembcorp Industries and Sembcorp Marine (Sembmarine) last year. Temasek had agreed to support a S$2.1 billion rights issue by Sembmarine, by sub-underwriting S$600 million of the rights issue. The move to deconsolidate the conglomerate resulted in the creation of more focused units to create shareholder value, said Mr Chua.
In the case of agri-food firm Olam International, Temasek's underwriting of its rights issue to finance the acquisition of US spice maker Olde Thompson likely comes from the position of a controlling shareholder who "saw value and wanted to minimise dilution", said Mr Tang.
Such deals are largely led by commercial sense. "Temasek is not a charity in its investments - it cannot and should not be one," said Prof Loh, adding that there must be some expected contributions to its portfolio, particularly in the returns and adherence to the strict discipline of good portfolio management.
Its track record over the past year may be a good indication of that. In August last year, the state investment firm pulled the plug on its partial bid for control over Keppel Corp after the conglomerate posted staggering quarterly losses owing to impairments and breached a pre-condition for the offer.
"The current challenges faced by the rescued companies must be short term and there has to be a real possibility that they can ride out the storm," said Prof Loh.
Nirgunan Tiruchelvam, head of consumer sector equity research at Tellimer, opined that by financially backing these firms, it allows Temasek to receive a stake at a discount to their perceived fair value.
It has to do with what Temasek feels would be the best return for its investment, he said, adding that the investor probably has a strategic view on various sectors, and in the case of Olam, agricultural commodities. Recall, back in 2014, Temasek threw its weight behind Olam and launched a S$2.5 billion bid for the agri-commodities trader amid financial strain and attacks by short sellers.
Mr Tang added: "There are many corporate manoeuvers that a large asset manager can utilise to manage their portfolio. What Temasek has chosen probably suits its time horizon, investment mandates and asset allocation requirements. Temasek's long term horizon means that it can sit out market fluctuations for the eventual recovery and enjoy the fruits of its distressed investing."
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