Temasek Seeks More Deals in China, Citing ‘Bullish’ Outlook

Temasek Seeks More Deals in China, Citing Bullish Outlook
Temasek Holdings Pte, which sold shares in China Construction Bank Corp. and Bank of China Ltd. this week, said on July 6 the sale was part of its portfolio rebalancing. Photographer: Munshi Ahmed/Bloomberg

Temasek Holdings Pte, Singapore’s state-owned investment company, is “bullish” on China and seeking deals even after selling some of its stakes in two of the nation’s banks this week for $3.6 billion.

“China is our largest investment destination,” Nagi Hamiyeh, Temasek’s managing director of investment, said in Singapore yesterday. “We are still looking for opportunities in China and we are very comfortable with our position there at this time.”

Temasek, which sold shares in China Construction Bank Corp. and Bank of China Ltd. this week, said on July 6 the sale was part of its “portfolio rebalancing.” The world’s fastest-growing major economy accounts for more than 20 percent of Temasek’s overall portfolio and it remains “heavily invested” in the two banks, Hamiyeh said.

The country’s stocks underperformed in the first half on concern government measures to cool inflation will slow the economy. The central bank has increased interest rates five times since October to contain inflation, including this week’s quarter-point boost to one-year lending and deposit rates.

The People’s Bank of China moved before a report scheduled for July 9 that may show consumer prices rose more than 6 percent last month, the biggest gain since July 2008 and probably a peak for this year, according to JPMorgan Chase & Co. Policy makers have also boosted banks’ reserve requirements to record levels.

Faith in Policies

“We have faith in the policies of the Chinese government in the long-term and we remain bullish on China,” Hamiyeh said. With “China, like with any growing economy, there will always be risks.”

Temasek still holds about $14 billion of China Construction Bank’s shares and about $3 billion of Bank of China’s stock after trimming its stakes in the lenders, he said.

The Singapore investment firm spent more than S$3 billion ($2.4 billion) in the rights offerings of China Construction Bank and Bank of China during the period, according to its annual report released yesterday. The value of Temasek’s assets climbed 3.8 percent to a record S$193 billion in the year ended March 31, it said in the report.

The Shanghai Composite Index lost 5.8 percent during the fiscal year, compared with a 15 percent gain in the MSCI Asia Pacific excluding Japan Index.

Waiting for Value

‘To reserve funds to move forward, to take advantage of market opportunities, particularly in China as and when they come, particularly with the more interesting IPOs pertaining to the consumer sector that’s likely to rear their heads in the second half would be a right strategy,” Gabriel Yap, executive chairman of GCP Global Pte, said in a Bloomberg Television interview in Singapore today. “What it’s trying to position itself is to wait for value to present itself.”

In February, Temasek said it appointed Ding Wei, an investment banker at China International Capital Corp., to head its expansion in the country.

About 43 percent of Temasek’s direct investments announced in the 12 months ended in March were in China, according to estimates by Monitor Group, which collects data on sovereign wealth funds.

Temasek also spent S$90 million in Asian Citrus Holdings Ltd., the largest orange plantation owner and operator in China, and invested in Beijing-based insurer New China Life. It spent S$50 million on Chinese video website and S$50 million on Alibaba Group Holding Ltd., according to its annual report.

‘Liquid Stance’

This fiscal year, it invested in Shanghai Pharmaceuticals Holding Co., China’s second-largest drug distributor.

The sovereign wealth investor will “maintain a liquid stance” with the flexibility to adjust the investments in its portfolio at any time, Hamiyeh said. The firm will continue to focus on fast-growing economies in Asia, Latin America and Africa, as well as industries such as energy, resources and technology, he said.

Temasek sold about HK$18.8 billion ($2.4 billion) of stock in Bank of China, the nation’s third-largest lender by assets, and about HK$9.4 billion of second-ranked Construction Bank at discounts of at least 3 percent earlier this week, according to data compiled by Bloomberg.

Construction Bank has more than doubled in Hong Kong trading and Bank of China has gained about 30 percent since Temasek bought the stakes before their initial public offerings more than five years ago.

Long-Term Story

China is reining in credit after record lending in 2009 fueled the nation’s economic rebound and increased the risk of real-estate bubbles and bad loans. The nation’s first audit of local-government debt found liabilities of 10.7 trillion yuan ($1.65 trillion) at the end of 2010 and repayment risks. Moody’s Investors Service said this week that the credit outlook for lenders may sour.

Bank of America Corp., the biggest U.S. lender by assets, may sell some of its almost $22 billion stake in Construction Bank, three people briefed on the plans said last month. The Charlotte, North Carolina-based lender was the second-biggest shareholder in Construction Bank at the end of the year, followed by Temasek, according to Bloomberg data.

“The long-term investment story remains,” said Song Seng Wun, Singapore-based economist at CIMB Research Pte. “In between, there will be cycles as optimism about strong growth has turned to more caution. That’s a more challenging environment to make money from.”

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