Temasek Sees Valuation Concerns in Chinese Technology Industry

  • High valuation most pronounced in pre-IPO financing rounds
  • Temasek is moving to earlier stage investments in industry

There is valuation concern within China’s technology industry after investors piled into the sector in the last couple of years, said an executive of Temasek Holdings Pte, an investor in e-commerce giant Alibaba Group Holding Ltd. before its 2014 initial public offering.

The Singapore state investment company is considering moving to earlier-stage investments in the industry as valuations get higher for companies that move closer to initial public offerings, said Wu Yibing, Temasek’s China head, at the Credit Suisse Asian Investment Conference in Hong Kong on Tuesday.

"Most of the high valuation comes from people’s expectation, particularly in the pre-IPO rounds,” Wu said. "The closer you come to IPO, the crazier the valuation becomes."

Founded in 1974, Temasek originally owned shares in former state-owned companies and began directly investing in foreign equities in 2002. In China, Temasek started investing in banks and has since broadened its holdings to include technology, insurance and consumer. China made up 27 percent of its portfolio as of March 2015, the second-biggest country position after Singapore, according to its latest annual report published in July.

Wu identified technology firms including Baidu Inc. and Alibaba as among the first wave of Chinese companies that have emerged as true global champions.

Among Temasek’s biggest listed investments in China is a 6 percent holding, valued at $9.13 billion, in the Hong Kong-traded shares of China Construction Bank Corp., the country’s second-largest lender, according to data compiled by Bloomberg. Temasek was an early investor in Chinese e-commerce emporium Alibaba and currently holds a 1.98 percent stake in its U.S. listed shares, valued at $3.85 billion, according to the data.

“In China, we are seeing the rebalancing of the economy and we believe this will result in slower, but more sustainable, growth,” Ravi Lambah, Temasek’s head of telecom, media and technology, said in July at the presentation of the annual report. “Also, the continued urbanization and consumption coupled with market reforms will continue to drive long‑term economic growth in China.”

Its China investments helped push Temasek’s assets to an all-time high in the fiscal year ended March 2015. The value of the portfolio increased 19 percent to a record S$266 billion ($196 billion), from S$223 billion in the previous year and more than double a decade ago, the firm said in the latest annual report. It made S$30 billion of new investments, the highest in seven years, and a record S$19 billion of divestments.

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