Temasek Looks to Expand in China as Crunch Is Under Control

Temasek Holdings Pte, the biggest foreign investor in Chinese banks, said it’s not concerned by a cash crunch that sent stocks plunging last month and plans to increase its assets in the nation.

“There is sufficient liquidity in the system over a prolonged period,” Chia Song Hwee, head of the investment group, said at a briefing in Singapore yesterday. “We’re actually looking at it as an opportunity to build on the portfolio rather than shrinking it.”

Chia’s comments represent a vote of confidence in the outlook for China’s economy after the worst cash squeeze in a decade caused money-market rates to soar and drove stocks to a four-year low. The state-owned investment company, which counts stakes in three Chinese banks among its biggest holdings, yesterday reported an 8.6 percent increase in assets to S$215 billion ($169 billion) in the year ended March 31.

Temasek has amassed stakes worth almost $18 billion in China Construction Bank Corp., Industrial & Commercial Bank of China Ltd. and Bank of China Ltd., according to data compiled by Bloomberg. China allowed money-market rates to surge to a record last month as it tries to damp speculative lending.

Chief Executive Officer Ho Ching benefited from a recovery in stocks around the world, with 73 percent of Temasek’s holdings in publicly traded assets. The MSCI World Index gained

9.3 percent in the year to March 31, while Singapore’s Straits Times Index climbed 9.9 percent.

Total Returns

Total shareholder return, which includes dividends, widened to 8.9 percent from 1.5 percent in the previous year. It averaged 16 percent since its inception in 1974. The return was

4.9 percent over a three-year period, and 13 percent over 10 years, it said.

Financial services remained the biggest industry for Temasek’s investments, accounting for 31 percent of its assets, unchanged from a year earlier, it said. Stakes in Construction Bank, Standard Chartered Plc and DBS Group Holdings Ltd. are its biggest assets by value after the holding in Singapore Telecommunications Ltd., according to data compiled by Bloomberg.

Temasek bought 3.55 billion shares in ICBC from Goldman Sachs Group Inc. in April 2012 and added 83.7 million shares in the Chinese lender the following month. It holds 7.4 percent of Construction Bank’s shares traded in Hong Kong.

“Temasek is overexposed to Chinese banks,” said Enrico Soddu, an analyst at the London-based Institutional Investor’s Sovereign Wealth Center. “In case the growth in China stops, the financial sector will be the first to be affected. And that could seriously dent their portfolio.”

Burnt Fingers

The Singapore investment manager had a record profit decline in the year to March 31, 2009, because of losses on Bank of America Corp. and Barclays Plc.

“Their heavy exposure to Chinese banks surprises me a bit as they already burned their fingers once with their investments in banks during the global financial crisis,” Soddu said.

SingTel, Construction Bank and Standard Chartered made up 29 percent of its portfolio in the reporting period, Chia said. The stakes are worth $46.5 billion, according to data compiled by Bloomberg.

Temasek made S$20 billion of investments last year, down from S$22 billion a year earlier, it said. Those included 2 percent of AIA Group Ltd. and 1 percent of Ping An Insurance (Group) Co., two of Asia’s biggest insurers, as well as 6 percent of Repsol SA, a Spanish oil company.

Chinese Holdings

Acquisitions in China included a follow-up investment in Alibaba Group Holding Ltd., China’s biggest e-commerce company, and Kunlun Energy Co., a gas transmission and midstream firm, Temasek said. In India, it invested S$128 million in Godrej Agrovet Ltd., a producer of agricultural products.

Singapore’s investment firm also purchased S$374 million of rights exchangeable in shares of Indonesian retailer PT Matahari Putra Prima Tbk and invested in Turkish lender Turkiye Halk Bankasi AS, it said without disclosing the amount spent.

New investment opportunities include industries such as energy, resources, life sciences, consumer and technology, Chia said yesterday. The company has the financial flexibility to step up its investments, he said.

Europe, U.S.

“While Asia and Latin America will continue to be focus areas for us, we do see increasing opportunities in North America and Europe,” said Ho, the wife of Singapore Prime Minister Lee Hsien Loong. “We are setting up offices in London and New York to support our investment activities in these markets.”

Divestments fell to S$13 billion from S$15 billion a year earlier as it sold shares of Asia Pacific Breweries Ltd. and Bharti Infratel Ltd., it said. Temasek also divested 2.5 percent of SingTel, reducing its holding to 52 percent. The remaining stake, worth $24.5 billion, is its biggest publicly traded holding by value, according to data compiled by Bloomberg.

Assets in Singapore were unchanged at 30 percent of its holdings, Temasek said. Investment in the rest of Asia fell to 41 percent from 42 percent a year earlier, while those in North America and Europe rose to 12 percent from 11 percent, it said.

Stakes in transport and industrial companies fell to 20 percent from 21 percent of assets, while stakes in technology and telecommunications companies was unchanged at 24 percent, Temasek said.

The company’s assets are evenly divided between growth and mature economies, Chia said. Since the start of the fiscal year in April, the investment firm has invested in Markit Group Ltd. and U.S. sports retailer Fanatics, he said.

Temasek expects growth in China to moderate with some risks in the financial system, Chia said.

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