Temasek Raises Bets on Asia as Region Drives Recovery to $135 Billion Peak

Temasek Holdings Pte, Singapore’s state investment firm, plans to buy more Asian assets after bets on the region drove a record gain in the value of its holdings.

Temasek’s assets climbed 43 percent to S$186 billion ($135 billion) in the year to March 31, surpassing the previous peak of S$185 billion reached two years earlier, the firm said in its annual report today. That offset last year’s S$55 billion plunge, when it posted losses on bank stakes during the financial crisis.

Asian investments outside Singapore and Japan expanded to almost half of Temasek’s portfolio and the value of its energy and resources investments rose 72 percent as it tapped the appetite for raw materials in China and India. Temasek will benefit as Asia’s growing consumption cushions the effects of the sovereign-debt crisis in Europe, said Joseph Tan, Singapore- based chief economist for Asia at Credit Suisse Group AG.

“They have shifted their strategy to look more into emerging markets, more into Asia, and Asia is looking to be one of the bright spots in the world today,” Tan said before the report. “Growth is still relatively robust” in Asia, he said.

The International Monetary Fund forecast China and India will post the world’s quickest growth rates this year of 10.5 percent and 9.4 percent respectively. The euro area will grow at 1 percent in 2010 and the U.S. by 3.3 percent, it said.

While the MSCI World Index rose 49 percent in the 12 months to March 31, it has since plunged 10 percent on concern the economic recoveries in Europe and the U.S. are petering out.

‘Choppy Waters’

“Choppy waters lie ahead, but Asia will maintain its secular long-term growth,” Temasek Chairman S. Dhanabalan said in the annual report. “Our focus on Asia continues.”

Net income fell 26 percent to S$4.6 billion from S$6.2 billion a year earlier because of lower profit contributions from some portfolio companies that were hurt by the financial crisis, Chief Financial Officer Leong Wai Leng told reporters. Temasek, founded to help develop the island’s banks, airlines and ports, generates assets from the income of the companies it owns, and not government budget surpluses or oil revenue.

The investment firm is finding alternative ways to boost returns as China attempts to contain asset-price bubbles, Europe battles a sovereign debt crisis and governments there embark on austerity programs to trim budget deficits. These measures could “pose headwinds to global economic growth in the near term,” Chief Investment Officer Tow Heng Tan told reporters.

“Over the next three years, we expect to continue to stay liquid, and continue to invest and divest at a steady pace,” Executive Director Simon Israel said at a press conference today.

Succession Planning

Temasek, which aborted the appointment of Charles “Chip” Goodyear last year to replace Chief Executive Officer Ho Ching, 57, has named former Singapore Exchange Ltd. CEO Hsieh Fu Hua an executive director and president to handle succession planning.

Last July, the company reversed its appointment of 52-year- old Goodyear, the former head of BHP Billiton Ltd., citing “differences regarding certain strategic issues.” BHP Billiton is the world’s largest mining company.

Ho, the wife of Singapore Prime Minister Lee Hsien Loong, remains in charge.

“There is no active search for a new CEO,” Executive Director Simon Israel told reporters.

Future Investments

Over the next decade, Temasek is likely to raise its investments in Asia and steadily increase them in regions such as Latin America, CIO Tow said.

Asian investments outside of Singapore and Japan made up 46 percent of the portfolio as at March 31, up from 43 percent the year before. Investments in Singapore rose to 32 percent of assets, from 31 percent, while holdings in more developed countries that are members of the Organization for Economic Cooperation and Development shrank to 20 percent from 22 percent.

Temasek’s made S$10 billion in investments, including spending more than S$3 billion in the financial year buying additional shares of companies such as Jakarta-based PT Bank Danamon Indonesia and Singapore’s Neptune Orient Lines Ltd. Temasek’s participation in rights offerings by companies in its portfolio bolstered its assets as the shares advanced.

Temasek also injected S$1.5 billion into Singapore Power in October to support its growth plan, and added investments in South Korea and India.

Long-Term Returns

Temasek has had an annual return of 17 percent since its inception in 1974, according to the report, up from 16 percent annualized since it reported in September.

Divestments in the year to March 31, including the sale of its 62 percent stake in Chartered Semiconductor Manufacturing Ltd., fell to S$6 billion from S$16 billion the previous year.

Investments in financial firms rose to 37 percent of its portfolio from 33 percent after it increased its stake in China Construction Bank Corp. and the value of such investments swelled as markets recovered. Temasek has agreed to buy $200 million of shares in the Hong Kong part of Agricultural Bank of China Ltd.’s initial public offering.

Temasek sold its stakes in Charlotte, North Carolina-based Bank of America Corp. and London-based Barclays Plc at losses in the previous year.

The value of Temasek’s investments in resources firms rose to S$11.2 billion, or 6 percent of its total portfolio, from S$6.5 billion, or 5 percent. It invested in Calgary-based oil and natural-gas explorer Niko Resources Ltd. and Singapore-based agricultural commodities supplier Olam International Ltd.

Temasek also added assets in Latin America, investing in Amyris Biotechnologies Inc., the U.S. parent of a Brazilian biofuels producer, and Santiago-based LAN Airlines SA, Latin America’s biggest carrier by market value.

Setting Up Seatown

In August, Temasek said it set up a wholly owned global investment company, Seatown Holdings Pte, with committed capital of S$4 billion. Seatown, which makes its investment decisions independently, will co-invest with “sophisticated investors” within the next three to five years, Israel told reporters in connection with the report.

While Temasek will invest mainly in equities and focus on Asia, Seatown will be “more diversified in geography and asset classes,” Israel said. Seatown may co-invest with institutional investors in three to five years, he added.

Temasek also set up SingBridge International in June last year to invest and develop towns in Asia, such as the Tianjin Eco-City in China.

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net Joyce Koh in Singapore at jkoh38@bloomberg.net

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