Temasek Sells Li & Fung Exchangeable Bonds in Second Deal

Temasek Holdings Pte is selling as much as S$600 million ($467 million) of bonds exchangeable into shares of Li & Fung Ltd. (494), the Singapore state-owned investment company’s second equity-linked debt sale in two months.

Temasek, rated AAA by Standard & Poor’s, sold S$500 million of the zero-coupon bonds maturing in 2013, according to a Singapore stock exchange filing today. The bonds are exchangeable into Li & Fung stock at a 40 percent premium to yesterday’s closing price. Credit Suisse Group AG (CSGN), the sale’s arranger, has the option of offering a further S$100 million within 30 days of settlement, according to the filing.

The Singapore firm, which managed S$193 billion as of March 31, raised S$790 million in October selling bonds, which also pay no interest, exchangeable into shares of London-based Standard Chartered Plc. Temasek is borrowing at almost “zero cost” by issuing the bonds, said Song Seng Wun, a Singapore- based economist at CIMB Research Pte.

“Going to the bank is cheap these days,” said Song. “This is definitely an even cheaper source of funding.”

The sale lets Temasek generate money from its investment in Li & Fung, the world’s biggest supplier of consumer goods to retailers such as Wal-Mart Stores Inc. It will use the proceeds from the bond sale to fund its “ordinary course of business.” The sale is scheduled to close about Dec. 14.

Li & Fung Declines

Temasek has a 3 percent stake in Li & Fung, according to its latest annual report for the 12 months to March 31 this year. The investment company bought HK$3.88 billion ($499 million) of new shares in 2008.

Katherine Wang of GolinHarris, hired by Li & Fung to handle public relations, said the company declined to comment on the Temasek deal.

The bonds are exchangeable at HK$23.80 a share, Temasek said. Li & Fung fell 5 percent to HK$16.14 at the close in Hong Kong, the biggest drop since Nov. 21.

The stock is down 28 percent for the year compared with an 17 percent decline for the benchmark Hang Seng Index. Li & Fung lost about 48 percent from the start of the year through Aug. 11 as the faltering U.S. economy and rising costs raised concern it would struggle to meet its three-year earnings targets. The stock has gained 35 percent since Aug. 11, when it reported first-half profit that beat analysts’ estimates.

Temasek Divestments

The outsourcer that began in the southern Chinese city of Guangzhou more than a century ago has set itself a three-year target of more than doubling operating profit at its main business to $1.5 billion by 2013. Li & Fung, which also supplies Kohl’s Corp., Marks & Spencer Group Plc and Esprit Holdings Ltd., doubled its workforce through at least 12 acquisitions since the start of last year.

Should Temasek issue S$600 million of bonds, they will be exchangeable for as many as 152.9 million shares, according to the filing. Temasek has the right to settle exchanges with cash, and will redeem unexchanged bonds at par on maturity. IFR reported the transaction yesterday.

Temasek’s divestments this year include sales of its stakes in Indonesia’s PT Chandra Asri Petrochemical and Surbana Corp., according to Bloomberg data.

Asian investments made up 77 percent of Temasek’s underlying portfolio on March 31. Investments in Singapore were 32 percent of assets, while holdings in the mature economies of Australia, New Zealand, North America and Europe were 20 percent.

Temasek invested S$13 billion during the year ended March 31, including more than S$4 billion in recapitalizations and rights offers in Bank of China Ltd., Standard Chartered and China Construction Bank Corp., while it sold S$9 billion of assets.

To contact the reporter on this story: Joshua Fellman in New York at jfellman@bloomberg.net Netty Ismail in Singapore nismail3@bloomberg.net;

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net;

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