Has Temasek’s move undermined Bank of China’s credibility?




Bank of China posted its biggest drop in more than three weeks in Hong Kong trading after Singapore's Temasek Holdings sold part of its 4.6 percent stake in China's third-largest bank. Singapore's state-owned Temasek is selling 1.08 billion Bank of China shares at HK$4.09 to HK$4.12, according to investors, raising up to HK$4.46 billion ($573 million).



Temasek is trying to “reduce the exposure in financial holdings and not to be a substantial shareholder of any big company,'' said Ronald Chan, who manages $3 billion of Asian equities at Fortis Investment Management in Hong Kong.

Bank of China has gained 36 percent in Hong Kong and more than doubled in Shanghai since its debut in 2006, catapulting its market value to $196 billion, more than that of Citigroup Industrial & Commercial Bank of China, China Construction Bank and Bank of China are among the world's top four banks by that measure as the nation's economic growth fuels demand for loans while global peers suffer from the U.S. subprime meltdown.

The sale will reduce Temasek's stake to 4.1 percent. Financial services companies made up 38 percent of Temasek's portfolio of more than $100 billion at the end of March, compared with 35 percent a year earlier. The Singapore investment company confirmed the number of shares it's selling, declining to provide details on the price.

Temasek, which owns its BOC stake through its unit Asia Financial Holdings, now known as Fullerton Financial Holdings, is Bank of China's fourth-largest shareholder after Central Huijin Investment, HKSCC Nominees and Royal Bank of Scotland Group.

“We review our portfolio from time to time and may rebalance it against new opportunities,'' Yap Chwee Mein, Temasek's managing director of investment and China said. “We remain optimistic on China's long-term potential.''

Will other companies buy the shares that Temasek sold as China’s economy pick up quickly?

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Are Indonesia’s capricious policies going to cost them their transoceanic investors?



Singapore investment company, Temasek Holdings is required to sell its indirect stake in either PT Telekomunikasi Selular (Telkomsel), or PT Indosat Tbk (Indosat) within two years. Telkomsel and Indosat are the leading and second ranking cellular operators in Indonesia, with subscriber market shares of 56% and 26% respectively at end-June 2007. Singapore Telecommunications (Singtel) is 56.1% owned by Temasek, and which in turn holds a 35% stake in Telkomsel. Temasek's stake in Indosat is held through its wholly-owned subsidiary ST Telemedia, which holds 75% in Asia Mobile Holdings, which in turn holds 40.8% in Indosat.

On November 20, 2007, the Komisi Pengawas Persaingan Usaha (KPPU) ruled that Temasek had breached anti-trust regulations, specifically Article 27(a) of Law No.5/1999 of Indonesia, on the grounds of its ownership in two companies that control over 50% of their market segment. The ruling also implied allegations of price-fixing, stating that Telkomsel had abused its dominant market position by charging excessively high tariffs. A fine of IDR25 billion or around USD2.7 million each has been levied on Temasek and Telkomsel, as well as eight Temasek affiliates named in the case. In addition, Telkomsel has been ordered to reduce cellular tariffs by 15%.

The aforementioned ruling and associated penalties are not legally binding until endorsed and upheld by a superior court in Indonesia. Temasek and other named parties has seeked for an appeal against the ruling, and in this regard, there is a precedent of Indonesian courts moving to invalidate KPPU decisions. For example, in March 2006, the KPPU charged PT Semen Gresik (Persero) with violation under the same law, levying a fine of IDR1.0bn. The company subsequently filed an appeal in the Surabaya District Court, which accepted the objection and ruled to cancel the KPPU's decision. As the matter stands, the case is pending judgment on a counter-appeal filed by the KPPU in the Supreme Court of Indonesia.

Moreover, and as the above example illustrates, the legal process tends to be protracted in Indonesia, and it could take a year or more before a final and binding decision is reached. In the interim, a negative reaction to the KPPU's ruling by the Indonesian financial and/or political community, reflecting concerns over the potential impairment of foreign direct investment flows into the country, could influence the outcome of the process in a more positive direction for the various companies affected by the ruling.

However, if under any circumstances Temasek is required to divest its stake in the telecommunications companies, it would more likely to sell its stake in Indosat, given its weaker market position compared with Telkomsel. If Temasek were to divest its Telkomsel stakes, negative pressures would be inflicted on the outlook of Telkomsel and Singtel. In Telkomsel's case, Singtel's strategic shareholding and influence has provided comfort in rating the company above the sovereign local currency rating. Conversely, Telkomsel is a star performer and key growth driver in Singtel's overseas asset portfolio.

Other conditions within the KPPU ruling appear unusually onerous for both Temasek and Telkomsel. The requirement that the forced divestment by Temasek would allow no buyer of the divested business to acquire more than 5% of the entire divested stake means that the shares must be placed with at least 20 different investors. This is extremely likely to be challenged by Temasek.


Is there an autonomous driving force being KPPU’s wheel of action?

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Is Singapore trying to hop onto the China’s fast-growing economy?



China and Singapore have agreed to strengthen cooperation in several areas, including the China-Singapore Free Trade Agreement (FTA). The two sides also agreed to set up an "Eco-City" in China. The agreement was reached between Chinese Vice-Premier Wu Yi and her Singaporean counterpart Wong Kan Seng at the 4th China-Singapore Joint Council for Bilateral Cooperation (JCBC) meeting in the city-state.

Wu is on a four-day visit to the city-state at the invitation of Vice-Premier Wong. The proposal for the "Eco-City" project had come from Singapore's Senior Minister of the Prime Minister's office Goh Chok Tong during his visit to China in April. He had said the proposed project could transform a city beset by water problems into an environmentally friendly, self-sustaining place, where housing units for lower-and middle-income groups could be built. Singapore suggested having a China-Singapore FTA last year that Beijing accepted, even though it had a "1+10" FTA plan with the Association of Southeast Asian Nations (ASEAN).

After the meeting, several memorandums of understanding on bilateral cooperation in human resources development, health, taxation and environmental and water resources were also signed.

"Total trade between China and Singapore reached $40.85 billion last year, accounting for one-fourth of China's trade volume with ASEAN countries. Singapore has become the sixth largest investment source of China," Wu said. The two vice-premiers co-chaired the ninth meeting of the Joint Steering Committee of Suzhou Industrial Park (SIP), a high-tech industrial base launched in East China's Jiangsu Province in 1994.

In the past three years, the park has approved 1,500 foreign-invested projects, with actual investment of $6 billion. The two governments have said before that they would strengthen their joint efforts to make the industrial park as competitive as possible. The committee decided to optimize the second 10-year target for the park, adjust its structure and reduce its energy consumption to the level of developed countries.

Wu met with Singapore Prime Minister Lee Hsien Loong, the city-state's founding father Lee Kuan Yew and Goh Chok Tong. It will bolster China's ties not only with Singapore, but also with other ASEAN member countries.

Zhai Kun, a senior researcher on Southeast Asia with the China Institute of Contemporary International Relations, attaches great importance to the FTA. "It will enable Singapore to become the window to China in Southeast Asia and the world," he said. The "Eco-City" project, Zhai said, reflects Singapore's creative economic strategy when participating in China's development.

Will Singapore ever be the first largest investment source in China?

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Will DBS bid for TMB resemble what happened between Temasek and Shin Corporation?

Will DBS bid for TMB resemble what happened between Temasek and Shin Corporation?



Deutsche Bank and DBS Group Holdings made a counter offer for new shares being sold by TMB Bank, the Thai bank said, in an attempt to trump a bid by ING Groep NV.

TMB's board is reviewing the joint proposal and may identify the winning bidder today, Chairman Somchainuk Engtrakul said by phone from Bangkok. The bank, Thailand's fifth-largest, is planning to sell 35 billion baht ($1 billion) of new shares to stakeholders, an amount almost equivalent to TMB's market value.

ING and DBS are vying for the stake as TMB rebuilds its capital and adds more branches and services. TMB, formerly known as Thai Military Bank, also needs the funds as it sets aside more for bad loans after Thailand's consumer confidence fell to a five-year low following a military coup last year.

“TMB may not be a strong bank in Thailand, but it's not terrible,'' said Korawut Leenabanchong, who helps manage the equivalent of $2.5 billion at UOB Asset Management (Thai) in Bangkok. “It has branches to build banking services on.'' ING spokeswoman Karen Williams, Deutsche Bank's Mike West and Eileen Lau from DBS declined to comment.

DBS is TMB's second-largest shareholder with a 16.1 percent stake, and Thailand's Finance Ministry is the biggest investor. The stock purchase is a reversal of DBS's decision to hold back on additional investments in TMB, as Singapore's biggest bank seeks greater control. It will also give Deutsche Bank, Germany's largest, a presence in Thailand's commercial banking industry.

TMB asked the Stock Exchange of Thailand to suspend its share while its board considers a bid from an unidentified group of investors. The board will make a decision and the bank will hold a press conference, Thai Finance Minister Chalongphob Sussangkarn said. “It's not necessary for the board to choose only one partner,'' he said. “It can be mixed. This is up to the board.''

The minister said Oct. 8 that ING, the largest Dutch financial-services company, will invest in TMB after DBS said it won't pump in more funds. DBS said Sept. 19 it decided not to invest further after failing to get assurances that it would have “sufficient management control.''

DBS said in an Oct. 26 statement it took a S$38 million ($26 million) so-called impairment charge on its TMB investment. The Thai bank had posted its biggest quarterly loss in seven years. TMB Bank rose 1.9 percent to 1.58 baht. The stock has fallen 36 percent this year, compared with a 21 percent gain in Thailand's SET Banking Index.

If DBS does win the bid, will the bad blood left behind between the Temasek & Shin Corp saga be factor in its success in Thailand?

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Will DBS bid for TMB resemble what happened between Temasek and Shin Corporation?

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