Temasek Holdings Pte’s assets probably grew at a slower pace in the year to March because the value of some of its biggest financial assets declined.
Singapore’s state-owned investment company, which releases its annual review tomorrow, may have increased the value of its holdings by about 4 percent to a record S$224 billion ($180 billion) in the year to March 31, according to CIMB Research Pte and Institutional Investor’s Sovereign Wealth Center. That compares with an 8.6 percent gain in the previous year.
China Construction Bank Corp. (939) and Industrial & Commercial Bank of China Ltd., among the top four lenders in Temasek’s portfolio, declined as China’s economy heads for the weakest expansion in 24 years amid rising debt and a clampdown on shadow banking. Financial firms made up 31 percent of Temasek’s total holdings as of March 2013, according to the company.
“There was a tendency for sovereign funds to use banks as kind of a proxy exposure,” said Victoria Barbary, director at the London-based Institutional Investor’s Sovereign Wealth Center, which provides data on state investors. “They built up very big stakes in the Chinese banks, and it’s now going to be very difficult to divest that without making a loss.”
Temasek’s total shareholder return, which includes dividends, has averaged 16 percent in Singapore dollar terms through March 2013 since the firm’s inception 1974, according to its website. It had a negative return of 30 percent in the year ended March 2009, followed by gains of 42 percent and 4.6 percent gains respectively in the following two years. In the year ended March 2013, it posted a 9 percent increase.
Last financial year’s gain may not match that of the previous period because Temasek’s domestic stock holdings were little changed. Singapore’s Straits Times Index (FSSTI) lost 3.6 percent in the 12 months through March. Temasek is the biggest shareholder in about a third of the 30 members in the index.
Its biggest listed holding by value, Singapore Telecommunications Ltd. (ST), Southeast Asia’s largest phone company, rose 1.7 percent in the year. DBS Group Holdings Ltd. (DBS), the region’s biggest bank, gained 1.1 percent. Singapore Airlines Ltd. (SIA), Asia’s second-largest carrier by market value, lost 3.7 percent during the period.
Financial shares dropped more in the 12 months through March. The Hong Kong-traded shares of China Construction Bank lost 13 percent in Singapore dollar terms, while ICBC fell 11 percent. The Singapore investment company owns 7.4 percent of China Construction Bank and 8.1 percent of ICBC, according to data compiled by Bloomberg. British lender Standard Chartered Plc (STAN), 18 percent-owned by Temasek, lost 18 percent.
“Temasek will present a decent showing,” said Song Seng Wun, an economist at CIMB Research in Singapore. “However, it will not be as impressive as last year, given the losses on their financial assets.”
Temasek’s assets in other industries outside of Singapore may have outperformed as the MSCI World Index increased 17 percent during the reporting period.
Shares of Repsol SA, the biggest Spanish oil company in which Temasek bought a 5 percent stake in early 2013, gained 27 percent when measured in Singapore dollars. Yashili International Holdings Ltd. (1230) gained 34 percent. Temasek owns 6.2 percent of the Chinese infant-formula maker, according to data compiled by Bloomberg.
Temasek originally served as an owner of shares in former state-owned companies and began directly investing in foreign equities in 2002. It almost exclusively invests in stocks and had more than 70 percent of its portfolio in listed assets as of March 2013, according to its website. It has 10 offices worldwide in addition to its headquarters, with the latest opening in New York last month.
“With this being our 40th year, our annual review gives us an opportunity to share the highlights and results of the past year, as well as the longer term, with a broad group of stakeholders,” Stephen Forshaw, a spokesman at Temasek, said in an e-mail on July 1.
Assets managed by state funds will increase by about $600 billion to $6.6 trillion this year, said Patrick Thomson, London-based global head of sovereigns at JPMorgan Asset Management Inc.
Temasek is the world’s 10th-biggest state investor, according to the website of the Institutional Investor’s Sovereign Wealth Center. The world’s biggest is Norway’s Government Pension Fund Global, with an estimated $869 billion of assets under management. Singapore’s other state investor, GIC Pte, ranks No. 5 globally with an estimated $315 billion of assets, according to the website.
“State investors will continue to be among the world’s most active investors over the coming years,” Thomson said.
Among companies with holdings in various industries, shares in Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) increased 20 percent in the year to March 31, while Hong Kong billionaire Li Ka-shing’s Hutchison Whampoa Ltd. (13), with investments in ports, real estate, telecommunications and infrastructure, surged 27 percent.
Temasek agreed to buy 25 percent of the retail arm of Hutchison in March for HK$44 billion ($5.7 billion), which pushed back plans for an initial public offering for the unit.
The purchase is the biggest by Temasek so far, according to data compiled by Bloomberg, and gives the investment firm access to a business with more than 10,000 stores worldwide.
Earlier in March, Temasek’s unit Breedens Investments Pte offered to take over Olam International Ltd. (OLAM) in a deal that valued one of the world’s top three coffee and rice traders at S$5.3 billion at the time. The offer closed on May 23 when Breedens said that it and related parties own or control 80 percent of Olam.
Temasek boosted its stake in the U.S. health-care industry in the first quarter. It bought 5.3 million shares in Thermo Fisher Scientific Inc., a manufacturer of scientific instruments and chemicals, directly or through its units, and 1.6 million shares in BioMarin Pharmaceutical Inc., a developer of therapeutic enzyme products, according to a May 15 filing with the U.S. Securities and Exchange Commission.
Temasek’s liquefied natural gas unit Pavilion Energy Pte said in November it will pay $1.3 billion for a 20 percent stake in three gas blocks off the shore of Tanzania in east Africa. It followed up with another acquisition in Africa in earlier this year, buying a stake in Nigerian closely held energy company Seven Energy International Ltd. for $150 million.
“Temasek stepped up its non-conventional investments in frontier markets like Africa and we might see more of that,” said Kelly Teoh, a Singapore-based managing director at consulting firm I.R. Resources. “However, for the foreseeable future, their portfolio will continue to be biased towards investments in Asia and Singapore.”
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