February 17, 2003
Is it time for one of the region’s largest entities to be broken up?
Eric Ellis
War is an indelible part of Singapore Technologies CEO Peter Seah’s work.
It sits right there on his office table, in the form of a model of the Bionix infantry fighting vehicle that ST manufactures. At full size, it’s 17 tons of steel and firepower. “We are very proud of it,” says Seah, citing strong sales to “friendly nations” that he’s too coy to name. “The take-up has been quite encouraging.”
Seah is involved in a multifront battle to overhaul the company he’s been running for the past year. His theater of operations is vast—51,000 employees, $5 billion in annual revenues, and a range of businesses that stretches from the Bionix to the local mint to the fabled Raffles Hotel.
Wholly owned by the government’s Temasek Holdings (although 16 subsidiaries are listed), ST is a pillar of Singapore Inc. But does it make sense as a business? The group got its start in 1967 to handle the city-state’s defense needs. It now operates in five broad areas— engineering, technology, logistics, property, and finance. Ex-military men, and the current armed forces chief, sprinkle the boards of subsidiaries. Some units are out-growths of its military roots—the food businesses grew out of mess halls. Other units, such as property, were developed to create a diversified conglomerate. The result is a sprawling company with some good parts - and others not so good.
In 2001, ST lost $574 million, and 2002 seems to have been similarly challenging. Only the engineering and logistics divisions have performed consistently well. ST Engineering, which makes the Bionix, earned $190 million in 2002. SembCorp, which is involved in construction, civil engineering, and utilities, increased profits by 12%, to $37 million, in the first six months of 2002.
But the technology division has had a horrific time during the global tech downturn. Chipmaker Chartered Semiconductor lost $108 million in the fourth quarter of 2002, its eighth quarterly loss in a row. Another drag has been property. While the division earned $138 million in the first nine months of last year, it has lost money in three of the previous five years, including $157 million in 2001.
Seah walked into ST in December 2001. A 56-year-old banking veteran, he was expected to bring some private-sector discipline to a civil-service culture—ST’s revenues per worker are just over a third of the average of the FORTUNE Global 500. “Everything is under review,” he says calmly.
But his 14 months as CEO have been unremarkable. The two major deals conducted under his command have had mixed results. In October, Nasdaq-listed Chartered Semiconductor’s $620 million rights offer flopped, forcing underwriter Merrill Lynch to absorb a third of the new shares. In December, telecoms unit ST Telemedia agreed to pay $620 million for a 42% chunk of Indosat, Indonesia’s second-largest phone company. The deal’s strategic direction drew mostly good reviews, but the 50% premium paid seems high.
Fundamentally, though, Seah has to be asking: Should this holding company exist at all? “It forms an unnecessary layer between the major shareholder (Temasek) and the market,” says Kum Soek Ching, a Singapore-based portfolio manager with Morley Fund Management. “They could just do away with the whole ST Group structure.”
The question mark over ST’s performance has come into sharper focus since Ho Ching took over the top slot at Temasek last May, vowing to sharpen its $50 billion portfolio. A veteran executive and wife of deputy premier Lee Hsien Loong, she has the qualifications and the strength to do it. Since promising that non-performers would be “lunch,” her midday menu has included the heads of DBS, the stock exchange, shipping line NOL, even the chief zookeeper.
Seah inherited many of ST’s problems from none other than Ho, who led the group from 1997 through most of 2001. The group’s economic value added was negative in each of those five years. Will Seah do better? Might he even restructure himself out of a job? Given ST’s position in Singapore Inc., that decision is probably not his to make.