Temasek Willing To Pump More Into Merrill Lynch

Source : The Business Times, August 22, 2008

It was aware at time of investing that Merrill could plunge before rebounding

Just a month after it injected an additional US$900 million in US securities firm Merrill Lynch, Singapore's Temasek Holdings has indicated that it may raise its stake even further in the troubled bank.

Mr Dhanabalan: When an SWF is government-linked, no matter how tenuously, scrutiny is magnified manifold. A world of more restricted trade and capital flows is not good for Temasek and Singapore, nor for the world.

The investment company's chairman S Dhanabalan said yesterday that it would be willing to look at the possible opportunities to do so, but 'whether we do it depends on our assessment and risk diversification'.

The 71-year-old chairman was speaking to 175 business leaders at a Raffles Hotel luncheon organised by Talent ideas Enterprise, a non-profit organisation that promotes entrepreneurship.

Last December, Temasek paid US$5 billion for a stake in Merrill. Giving a deeper insight into the considerations leading up to the deal, Mr Dhanabalan said: 'We saw an institution that had good management, good business. We thought the price was attractive, but we also knew that it was very likely it would go below what we invested. But we look at it (for a period) of 5-7 years.'

Merrill's shares have dipped 55 per cent since last Christmas Eve, the day it announced Temasek's purchase of about 5 per cent of its stock.

In his speech, Mr Dhanabalan also revealed that Temasek's assets had increased to $185 billion at the end of March this year, 13 per cent higher from a year earlier.

'Growing with our blue- chip companies and our direct investment activities, Temasek now owns a net portfolio of about $185 billion at market value as at March 31, 2008,' he said.

These latest figures come ahead of Temasek's anticipated release of its annual report next Tuesday.

Mr Dhanabalan said that Singapore and Asia make up about 75 per cent of Temasek's investments, down slightly from 78 per cent a year ago.

Looking ahead, he said that Temasek's growth outside Singapore 'will be higher', meaning the proportion of investments here will inevitably shrink.

Of late, Temasek has been venturing into markets outside of Asia, excluding Japan, in a bid to seek higher returns and diversify its portfolio.

Besides the heavy investments in Merrill and Barclays, Temasek is also busy hiring for its new offices in Brazil and Mexico.

Temasek's original breakdown in terms of geography has been one third Singapore, one third Asia, and one third in the developed markets.

But Mr Dhanabalan explained that the ratios alone do not drive Temasek's investments.

'We are very opportunistic. We don't say we need to have so much in this market, so let's go invest. If the opportunity arises, we go and invest. We have no prior sort of proportion that we must invest in Brazil or Mexico,' he said.

Mr Dhanabalan also took the opportunity to once again reiterate Temasek's stance that it is an atypical sovereign wealth fund in that it owns its assets and is not a fund manager like most other SWFs.

Describing Temasek as an institution that 'often finds itself drawn unwittingly into this controversy', he said that while Temasek is seen as the 'gold standard', it still risks collateral damage from any backlash against SWFs in general.

The controversy surrounding these funds stems from how they have significantly increased their influence on global markets in recent years. UK-based research organisation IFSL says assets under the management of SWFs increased 18 per cent last year to hit US$3.3 trillion. This is likely to exceed US$10 trillion by 2015, it said.

'When the investor is government-linked, no matter how tenuously, the scrutiny is magnified manifold. A world of more restricted trade and capital flows is not good for Temasek and Singapore, nor for the world,' said Mr Dhanabalan.