July 29 (Bloomberg) -- Temasek Holdings Pte., the biggest shareholder of Merrill Lynch & Co., agreed to invest a further $900 million in the securities firm after getting compensated for its initial investment in December.

The Singapore state-owned investment company will use a $2.5 billion so-called reset payment for losses from its earlier purchase toward buying $3.4 billion of Merrill stock, it said in a statement today. Merrill said it will book the reset as an expense, as well as $5.7 billion of additional writedowns.

``It looks like a good deal for Temasek,'' Teng Ngiek Lian, who manages $2.6 billion as chief executive officer of Target Asset Management in Singapore, said today. ``It's quite cleverly structured to protect their interest from future dilution and lower price placement.''

Merrill's shares have fallen 55 percent since Dec. 24, when it announced that Temasek, which manages more than $100 billion, would invest as much as $5 billion in the third-biggest U.S. securities firm. The sale would push Temasek's stake beyond the 10 percent limit for foreign investors, and the Singapore company said a portion of its new stock requires regulatory approval.

Merrill was contractually bound to compensate Temasek and the other investors who bought shares in offerings in December and January. ``You must have some reward for the risk they are taking,'' Teng said. ``That deal was done under exceptional circumstances. It was a scary time.''

Shoring Up Capital

Merrill Chief Executive Officer John Thain is pushing to shore up capital as banks including Citigroup Inc. were forced to sell assets and seek new investors amid a global credit contraction that triggered more than $468 billion in writedowns and losses.

Other than Temasek, Government of Singapore Investment Corp., which manages more than $100 billion of the country's reserves, has invested about $18 billion in UBS AG and Citigroup following writedowns by the two banks.

Thain, 53, is trying to stave off credit-ratings downgrades and demonstrate to regulators that the firm can withstand losses. Standard & Poor's on June 2 cut Merrill's rating to A from A+ and assigned a ``negative'' outlook, indicating additional downgrades were possible.

Korea Investment Corp., a Seoul-based fund that manages part of the country's foreign-exchange reserves overseas, also said today that it converted $2 billion of preferred shares in Merrill bought in January into common stock at half the price it had initially agreed to.

Merrill on July 17 reported a second-quarter net loss of $4.65 billion, or $4.97 a share, on $9.7 billion of credit- market writedowns that totaled about $46 billion before today.

Thain cut about 4,200 jobs in the first half of the year and is selling assets to replenish the firm's capital. Merrill completed the $4.43 billion sale of its stake in Bloomberg LP this month and said it signed a letter of intent to sell a controlling interest in Financial Data Services Inc., a mutual- fund administrator valued at $3.5 billion, to an undisclosed buyer.

Bloomberg LP is the parent of Bloomberg News.

To contact the reporter on this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net

Last Updated: July 29, 2008 01:09 EDT