11 Jun 2001
BAD CONNECTIONS?
By Eric Ellis
Singapore Telecommunications CEO Lee Hsien Yang isn't a natural gambler.
But in one of the biggest bets of his career-a $7 billion bid for Aussie telephone company Optus-Lee has a lot staked on the outcome: his job, Singapore's prestige, even an exacting father's approval.
After two failed telecom bids (in Malaysia and Hong Kong) in the past 15 months, Lee is desperate to close on Optus, Australia's No. 2 carrier.
If he slips in Sydney, the 42-year-old son of Lee Kuan Yew, Singapore's elder statesman, could find himself out of a job.
But Lee isn't just trying to save his own hide. When he says he wants Singapore Telecommunications to be seen internationally as a "normal company," he is responding to a higher calling: leading Singapore Inc.'s diversification.
Success in Australia will help Singapore globalize while meeting the senior Lee's challenge to raise his country's standards of competitiveness above what he says is just "three or four out of ten."
The obstacles appear considerable. SingTel's shares have fallen 35% since Lee offered to buy Cable & Wireless of Britain's controlling stake in Optus in March.
The stock now seems marooned at levels below its 1993 IPO-despite recent record profits. "We believe Optus adds limited value to SingTel," says Deutsche Bank's Asian telecom analyst Viktor Shvets, explaining the market's lack of enthusiasm.
Then there are government objections. Aussie regulators are concerned about who might join the Optus board from government-controlled SingTel. Two SingTel directors raising eyebrows are Chairman Koh Boon Hwee, who already sits on 47 boards-about 40 too many by Australian standards-and General Lim Chuan Poh, Singapore's top soldier. Moreover, Optus provides satellite communications to Australia's military, which Canberra's brass wants to keep under Australian control.
The U.S. also has a say: The Pentagon must agree to the transfer of sensitive American technology in the satellites. And finally, SingTel has to clear Canberra's politicians, not easy in an Australian election year when populist anti-Asian parties are making headway. Lee is confident that SingTel will prevail despite the hurdles.
In Sydney road shows, he has been diplomacy itself in placating official concerns. The Singapore government has agreed to abolish its "golden share" in SingTel, which gave it overriding control regardless of its financial stake.
It's a mostly symbolic gesture, though: The government still owns 78% of the company. Optus' independent directors have approved the bid, though not with a resounding endorsement (they called it "unfair" and its value "borderline"), and the Australian government is expected to reach a decision by mid-June.
But even if the deal goes through, Lee will have his share of challenges. Closing on Optus could result in SingTel shares being listed in Sydney, where regulatory and media scrutiny is greater.
The biggest problems will probably involve SingTel's relationship with its own government. SingTel director Jaspal Singh, for example, is No. 2 in the Communications Ministry. Chairman Koh chairs the government's Corporate Governance Committee-which says Singaporeans can be on as many boards as they like.
"This type of thing is not acceptable in the Western markets that Singapore Inc. wants to be in," says Linda H.C. Lim, Singapore-born director of the Southeast Asia Business Program at the University of Michigan.
"Ultimately Singapore will find the difference cathartic." Many Singaporeans regard power networks like SingTel's as integral to the city-state's success.
But with "corporate governance" and "transparency" the buzzwords of the day, old ways are slowly changing. At government-owned Singapore Airlines, for example, director Major General Ng Teck Heng (former head of Singapore's air force) recently resigned from the board of the national aviation authority. Tjong Yik Min, the former head of Singapore's secret police and Ng's colleague on both boards, is also expected to leave his post as chairman of the regulatory agency.
Even the Government Investment Corp.-a $110 billion investment portfolio whose dealings have long been a state secret-recently revealed the identity of its board members. And it admitted to some bad investments, like the failed bonds of China's state-controlled Guangdong International Trust & Investment Corp., which collapsed in 1999 with debts of $4 billion.
"It's not quite breaching the Berlin Wall," notes Lim, "but they seem to be realizing they've got to dramatically alter their ways if they want to be taken seriously in the outside world."