Whither Temasek’s industry nurturing role?

Source: Straits Times, 08 Sept 2009

A COLLEAGUE remarked to me the other day that something had struck him as he read Temasek Holdings’ updated charter released last month: Nowhere in the 200-word document is there a mention of Singapore.

There is talk of delivering long-term value for its stakeholders and being an active investor. There is talk of Temasek’s corporate social responsibility (CSR) agenda. The five areas where it wants to work with its portfolio companies – including values, human capital and strategic options – are listed. But there is nothing to identify Temasek as Singaporean. Indeed, it might have been the charter or mission statement of any private sector investment firm, my friend said.

In the 2002 formulation of the charter, ‘Singapore’ appears four times. The opening alone mentioned the country twice: that Temasek ‘holds and manages the Singapore Government’s investments in companies, for the long-term benefit of Singapore’.

It went on to say that Temasek would ‘help broaden and deepen Singapore’s economic base’ by nurturing the vibrant international businesses of its stable of companies. And at the end, the charter said that Temasek ‘may also, from time to time, invest in new businesses, in order to nurture new industry clusters in Singapore’.

When news of the updated charter broke, a large part of the attention was focused on the first of these four points. Temasek said that its relationship with its sole shareholder, the Ministry of Finance, had normalised – meaning that the Government was now more like any large shareholder in any other corporation. Temasek now has other stakeholders besides the Government: institutional investors who have bought Temasek’s bonds, for example.

The removal of the first reference to the Singapore Government, therefore, seems natural because it brings the charter closer to today’s truth. There is also a strategic advantage to weakening the Government link, as it could help the agency manage foreign perceptions when pursuing investment opportunities.

But what of the other references to Singapore that were dropped?

The first is the pledge to manage investments ‘for the long-term benefit of Singapore’. In 2002, there was much talk about this, partly because of speculation over what Temasek would or would not divest.

Temasek said at the time that it had a list of ‘Group A’ businesses in which the Government would hold a majority or significant stake – including the seaports, airport, water, power and gas grids.

Such assets are indeed critical infrastructure that Temasek should own on behalf of the Government. But there is also a significant grey area in which Temasek arguably also plays a ‘national service’ role.

I’m referring to businesses or projects that do not make commercial sense in the short-run – especially to cash-strapped private-sector investors in the midst of a recession – but are nonetheless essential projects for the long-term.

The $1 billion to 1.5billion liquefied natural gas (LNG) terminal on Jurong Island is an instance in point. It is critical because Singapore needs to diversify its gas supplies. But the financial crisis caused the project’s delay and the Energy Market Authority had to take over from the private sector backers of the project.

Should Temasek make it its mission to own and manage projects like these? If Sands or Genting ever pulled out of building the integrated resorts, should Temasek take over, given their importance?

Then there are the giant overseas projects, such as the Tianjin Eco-City. It is a commercial development for sure, but it also serves to showcase Singapore. Shouldn’t Temasek hold such investments, some might ask, instead of companies like Keppel who have private sector shareholders to answer to?

The second reference to Singapore in the 2002 charter was building Singapore companies so as to deepen the country’s economic base. I take this to mean building companies with a global reputation for excellence.

Ask any man on the street and the names that spring to mind are Singapore Airlines (SIA) and perhaps Keppel. These companies are where they are today because of many years of careful attention from the Government. In their early years, at least, they may not have made commercial sense to short-term investors.

So the question some people are asking is this: If Temasek does not perform such roles, who will? Who will grow the next SIA or Keppel? Shouldn’t this special nurturing role be part of Temasek’s role?

Finally, the 2002 charter committed the investment agency to invest in new businesses in order to nurture new industry clusters in Singapore. Whether in wafer fabrication or the life sciences, the birth of a new industry cluster here has always been a much more complex affair than simply enticing large multinationals to set up factories in Singapore.

For new clusters to truly succeed, there needs to be an ‘eco-system’ of large and smaller supporting companies interacting with each other and the outside world. The Government cannot ‘buy’ this eco-system and set it up overnight, but it can have an important role in catalysing its growth.

This can mean setting up assistance schemes for private-sector firms. But sometimes it can also mean owning companies that plug gaps in a sector’s value chain.

Here is where Temasek can play a role. In fact, there have been many calls for the investment agency to earmark some of its resources for investment in smaller Singapore companies that need that extra boost to grow.

The updated Temasek charter walks a fine line between the short-term and the long-term, as well as between its public and private sector objectives.

The trouble is that when it comes to what Temasek can or should do for Singapore, the commercial-speak of pure dollars-and-cents or global best practice is not enough.

Perhaps Temasek’s bond with Singapore comes so naturally to the organisation and its staff that it can remain unspoken. Let’s hope this is the case and not that Temasek really isn’t interested anymore in developing and deepening Singapore’s economic base.

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