Commentary: Singapore Should Set Its Companies Free

It was a rough week for Singapore Telecommunications Ltd. On Feb. 29, British-owned Cable & Wireless HKT walked away from SingTel's cash-and-stock takeover offer. That's the third strategic tie-up in Asia that SingTel has lost in the past two years: Malaysian cellular network Binariang declined a SingTel acquisition offer in 1998, and Celcom, another Malaysian network, did the same in January. And with the C&W HKT deal in ruins, Rupert Murdoch's News Corp. quickly canceled plans to purchase 4% of SingTel for $1 billion.

There's a lesson here. SingTel eagerly desires alliances to grow into a multinational telco. But it will never make it so long as the government holds on to its 76% share of the company. The truth is, these deals might have gone through if SingTel were publicly held. Beijing simply doesn't want the Singapore government controlling Hong Kong's largest telephone utility, bankers and diplomats believe. Thus, it supported local tycoon Richard Li. The same sentiment is evident in Kuala Lumpur.

BITTER EXPERIENCE. Singapore's technocrats have long been known for their competent management of many of the island nation's best companies. Even now, the government holds $50 billion worth of stock--a quarter of the Singapore market--in everything from wafer fabs to shipping lines to banks. But it's yesterday's formula for success. If Singapore is to achieve the knowledge- based economy it craves, and turn local companies into multinationals, the state has to get out of business. Otherwise, all of Singapore's government-linked companies will bear the stigma that followed SingTel to Hong Kong.

SingTel's bitter experience illustrates the problem. After a promising start in January, talks seemed to degenerate into a face-off not only between China and Singapore but also between two powerful families. SingTel President and Chief Executive Lee Hsien Yang is the son of Senior Minister Lee Kuan Yew. Talks stalled over how much control would go to Temasek Holdings, which owns most of the government's corporate assets. C&W HKT is believed to have offered Temasek only 29% of voting rights, a lousy deal since it would own more than 40% of the stock.

That allowed Richard Li, son of Hong Kong billionaire Li Ka-shing, to mount a rival bid, using the stock of his Pacific Century CyberWorks Ltd., a Net holding company. Li's $38 billion bid prevailed thanks to family connections: A group of banks, including Beijing-controlled Bank of China, chipped in a $10 billion loan. Officials in Hong Kong also favored local control of C&W HKT.

SingTel's corporate performance is another issue. State control sustains a bureaucratic ethos that hampers companies trying to climb the technology ladder and expand overseas. Few managers in state-linked companies have experience in the rough-and-ready world outside their tightly controlled island. Too often, these technocrat-execs behave like secure civil servants, more concerned with obeying directives from higher-ups than with boosting profits. "They're not worried about getting paid, obviously," says Michael Alan Hamlin, a Manila business consultant.

Divesting would be easy. Singapore recently removed limits on foreign equity investment in sectors dominated by state-controlled companies, including banking, telecom, and transportation. Temasek, owned by the Finance Ministry, holds 100% stakes in dozens of huge companies that run subways, seaports, and power stations, among other things. It could divest all these assets.

Temasek seems to be catching on, if slowly. Its attempt to sell 4% of SingTel to News Corp. reflects its intent to shrink the state's role in the economy. "We'd be quite happy if SingTel expands and merges and, ultimately, we are a 10% shareholder in a huge operation," says Chairman S. Dhanabalan. That would be a good start, but not enough. Singapore's technocrats have to leave behind their old development strategy--and their role in the economy.

Timing may prove crucial. Divesting soon could make the difference between giving corporations the independence they need, or making them eventual acquisition targets. "SingTel is either going to be an acquirer, or it will wind up at the other end of the transaction," says Timothy Condon, regional economist at ING Barings in Hong Kong. For Singapore Inc., it's time for a recalibration.

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