Temasek Holdings Pte and Government of Singapore Investment Corp. raised about $9.9 billion from international investors over the past year, selling more debt and equity than any other state investment firm.
Temasek, based in Singapore, sold almost $6 billion of bonds since October last year. Temasek-controlled Mapletree Industrial Trust and Global Logistic Properties Ltd., GIC’s overseas logistics unit, raised S$5.1 billion ($3.9 billion) selling shares in October, accounting for 10 percent of the record initial public offerings in the Asia-Pacific region that month, according to data compiled by Bloomberg.
Sovereign investment firms with stakes in government-linked companies and real estate are increasingly turning to private investors for funds and are using debt to increase leverage as they reduce state exposure. GIC and Temasek may continue to take advantage of the capital inflows into Asia as the region’s economic growth outpaces the rest of the world.
“People might see them as less sovereign going forward in the sense that they are less reliant on government revenues to drive things,” said Melvyn Teo, associate professor of finance at Singapore Management University, who has consulted for state wealth funds. “It’s a way for them to take advantage of investment opportunities now, despite not having a lot of ammunition to do so.”
GIC and Temasek are seeking to boost investments in higher-growth emerging economies, especially in Asia. Temasek has holdings in PT Bank Danamon Indonesia, U.S. natural gas producer Chesapeake Energy Corp. and Singapore-based agricultural commodities supplier Olam International Ltd. It sold stakes in Charlotte, North Carolina-based Bank of America Corp. and London-based Barclays Plc at losses following the global financial crisis. GIC has stakes in Citigroup Inc. and UBS AG.
Global Logistic’s IPO was the first listing by a firm majority-owned by GIC, while sovereign wealth funds in Bahrain and Qatar sold debt overseas for the first time.
“There is a broader push among sovereign investors to diversify some of their funding sources,” said Rachel Ziemba, senior analyst at Roubini Global Economics LLC in London. “For entities like Temasek, they can’t necessarily depend on new inflows of capital from their shareholder in the way that some of the other sovereign funds do.”
Temasek, wholly owned by Singapore’s Ministry of Finance, was set up in 1974, making it one of Asia’s oldest state investment arms. It generates assets from the income of the companies it owns, and not government budget surpluses or oil revenue.
Helmed by Chief Executive Officer Ho Ching, it is the biggest shareholder in four of Singapore’s 10 biggest listed companies by market value and managed S$186 billion in assets as of March 31. Ho, wife of Prime Minister Lee Hsien Loong, has transformed it from a passive holder of stakes in government-controlled firms to an investor with more than two-thirds of underlying assets abroad.
Having private bondholders or shareholders forces the firms to improve transparency and backs their claims of having “apolitical” investment strategies, said Victoria Barbary, a senior analyst at Monitor Group in London, which collects data on global sovereign wealth funds.
Temasek said in an open letter to the Australian media dated Oct. 31 that it doesn’t interfere in the running of the Singapore Exchange Ltd., after the bourse faced political opposition to its A$8.4 billion ($8.1 billion) bid for ASX Ltd., Australia’s main exchange. Temasek indirectly owns about 23 percent of Singapore Exchange, according to Bloomberg data.
Mapletree Investments Pte, the real-estate unit of Temasek, plans to list Mapletree Commercial Trust by the first half of next year, after Mapletree Industrial Trust raised S$1.19 billion in its October IPO.
Keppel Corp., the world’s largest oil-rig maker, was the first firm that Temasek listed, in 1980. Temasek is the biggest shareholder with a 22 percent stake, according to Bloomberg data.
Government of Singapore Investment Corp., established in 1981, in October listed Global Logistic to raise S$3.9 billion in the city-state’s biggest IPO since 1993. GIC manages more than $100 billion of Singapore’s reserves.
Almost five years after Temasek’s first sale of global bonds in September 2005, Bahrain Mumtalakat Holding Co. sold $750 million of bonds and Qatari Diar Real Estate Investment Co., the property unit of Qatar’s sovereign wealth fund, raised $3.5 billion in their first overseas debt sales.
Raising debt brings leverage, allowing sovereign funds to pursue strategies used by private equity to achieve higher returns, said Teo.
Khazanah Nasional Bhd., Malaysia’s state investment company, sold S$1.5 billion of Islamic bonds, its first in Singapore, in August, just a week after it trumped India’s Fortis Healthcare Ltd. in a takeover battle for Parkway Holdings Ltd., Asia’s biggest hospital operator.
Temasek has said money raised from its debt sales would be used by the company and its units “to fund their ordinary course of business.”
The firms are under pressure to increase returns after the value of their investments was battered by the global financial crisis, Barbary said. Rather than “gamble” with state cash, the funds can justify holdings of higher-risk assets by citing the use of private money rather than the government’s, she said.
Net income at Temasek fell 26 percent to S$4.6 billion in the year to March 31 from a year earlier because of lower profit contributions from some portfolio companies. Abu Dhabi’s Mubadala Development Co. reported a loss attributable to shareholdings of 1.45 billion dirhams ($395 million) in the first half of the year. Mumtalakat said its net loss for 2009 more than doubled to 183 million dinars ($485 million) from 69 million dinars in 2008.
Temasek is providing a model for younger state wealth firms formed in part to invest in government companies and prepare them for privatization, such as four-year-old Mumtalakat and Khazanah, set up in 1993, said Barbary.
“Most of the way that they get their funds is from the gradual privatization of these companies that they hold,” said Ziemba. “This is something that we can see others emulating.”
Mubadala will consider listing the companies it is building up once they have become “operational assets,” Chief Financial Officer Carlos Obeid said on Nov. 3. Mubadala may issue more debt following the sale of $1.75 billion of bonds last year, though there are no immediate plans, he said.
Raising private capital will enable Mubadala, which has stakes in Carlyle Group and Sunnyvale, California-based semiconductor maker Advanced Micro Devices Inc., to share the “risks and rewards with other partners,” Obeid said.
“In a global business context, there’s an inherent trust factor when you are viewed as being transparent and as someone who is focused on value creation,” he said. “In addition to leveraging our returns, raising debt from private investors helps us in validating our commercial orientation and business focus.”
Mumtalakat sold in November shares in Aluminium Bahrain BSC, which operates an aluminum smelter in the Persian Gulf country. The fund said in August it sold its 12.5 percent stake in Bahrain Family Leisure Co. as part of a strategy to “realize value from investments at an appropriate point in a company’s growth cycle.”
Khazanah, the Malaysian government’s investment arm, will sell its stake in Pos Malaysia Bhd., the national postal service, Prime Minister Najib Razak said in March. Khazanah owns stakes in the nation’s biggest companies, including Tenaga Nasional Bhd. and Malaysian Airline System Bhd.
The transformation means investment firms will no longer be solely accountable to the government and must take the interests of private bondholders or shareholders into account, said Monitor Group’s Barbary.
“They have to make sure that on an annual basis they are making money, they are growing,” she said. “It will make them more aggressive, less passive long-term investors.”