Temasek Holdings, one of our two Sovereign Wealth Funds, have only been publishing annual reports since 2005. And even then, it is summaries of accounts. The government has a long way to go towards transparency in our accounting of our national assets and investments. Temasek Holdings makes major claims in its returns. Based on deductive reasoning and anecdotal evidence, we can safely say that most of its holdings are in Singapore, primarily GLCs. And yet, the returns claimed do not remotely parallel the market in that period. In fact, the returns are up to four times the market. Are they really that good? The easiest way to manipulate the returns would be to play around with asset valuation. And in this case, we are looking at SingTel as an example.

Photo of Temasek Holdings by thestraitstimes
Photo of Temasek Holdings by thestraitstimes

In its 2010 annual report, Temasek Holdings lists its 20 year rate of return as 16%. In its 2014 annual report, however, it is listed as only 6%. Calculating backwards, the 1990 to 1994 period was responsible for the bulk of all return gains enjoyed since 1990. Coincidentally, SingTel was listed in 1993. Temasek does not list its portfolio value in 1992 or 1994. But we can make an intelligent guess. As of the 31st December, 1992, Temasek Holdings listed an approximate portfolio value of S$15 billion. On the 31st March, 1994, it was valued at approximately S$70 billion. The end of the fiscal year in 1992 was the 31st December. However, in 1993, it was moved to the 31st March, 1994, to correspond to the fiscal year of the Singapore government and most GLCs. Temasek Holdings has consistently refused to provide the value of its holdings in SingTel. But in this period, there was no corresponding market increases or evidence of major portfolio activity.

In the year before SingTel went public, in 1993, listed companies held by Temasek Holdings were valued at S$6.5 billion. Using simple mathematics, unlisted holdings were valued at about S$8.5 billion. In 1994, Temasek Holdings listed its portfolio value at approximately S$70 billion. Assuming SingTel accounted for the remaining unlisted S$8.5 billion in 1993, it implies that Temasek Holdings valued SingTel at S$17.5 billion after listing in 1994. Its value seems to have more than doubled. This is not very surprising. Either SingTel was an undervalued asset, or Temasek Holdings overvalued it. The former is the more likely case.

But adding in the 1994 value of the other firms still produces a portfolio value of S$26.9 billion. This is well short of the approximate S$70 billion value claimed by Temasek Holdings. If we assume that Temasek Holdings valued SingTel at nothing internally, and it was listed in the 1994 portfolio with the estimated value of SGD 17.5 billion, this means that the remaining S$8.6 billion suddenly ballooned to S$43.1 billion. If it was originally valued at nought, this is itself problematic. In a nutshell, there is S$34.6 billion in unexplained asset growth. That is over 400% between 31st December, 1992 and 31st March, 1994. That is ridiculous.

Also, we must remember that Temasek Holdings never listed a predecessor company as part of its original endowed portfolio in 1974 as listed in its 1993 annual report. That would imply an improper transfer of state assets, and it should be investigated, since there is no acquisition price. This is, in fact, a form of capital injection.

A close examination of what we can glean from the reports, it would appear that Temasek Holdings manipulates its undeclared holdings. Based solely upon their annual reports, since we have little else to work on, the declared asset holdings of Temasek Holdings since 2005 have earned 12.6%. This is very impressive. But their undeclared holdings, about a quarter of what they hold, have lost an average of 9.35% annualised, between 2005 and 2014. That is a worrying discrepancy. And this is one in a series of discrepancies. The average total return during their listing history was 10.3%, annualised. Earnings per share growth, on the other hand, was 6.8%. So if this earnings growth was average, how could the total return exceed the market in that same time frame?

And finally, as I have always suspected, our money has been used to prop up Temasek Holdings assets. Case in point, in 1997, SingTel was given S$1.5 billion for relinquishing its monopoly on Singaporean telecommunications services. This was only four years after its IPO. And not to mention, if we consider the owners of M1 and StarHub, that monopoly was never really relinquished anyway. SingTel is a GLC, and the people who sat on the regulatory authority, IDA were from SingTel. This was a conflict of interest and a subsidy without the knowledge of Singaporeans. Considering the size of SingTel then, this was a fifth of its market capitalisation.

This pattern has been repeated with Singapore Airlines, SMRT, ComfortDelgro and others. The government provided the capital or outright transferred assets at significant discounts or at no cost, to what were essentially profit centres. The Singapore public have been financing these corporations for the benefit of their shareholders. And since there is no acquisition cost on the part of Temasek Holdings, they then spun them off in part for significant profits and claim inflated returns on their holdings. Take this away, and Temasek Holdings’ returns are not significantly better than the market.

Terence Nunis

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