November 1, 2009

Eric Ellis, Singapore

Singapore’s leaders aren’t keen on criticism, frequently winning world-record libel damages in their own courts from the few who dare.

So its hardly surprising that the rare times Singapore’s state-owned investment house, Temasek Holdings - imperfectly run by Prime Minister Lee Hsien Loong’s wife Ho Ching - is critiqued, the tightly-controlled republic’s samizdat blogosphere near hyperventilates with apocalyptic presumptions as to what horrors will befall the offender.

Always writing anonymously, they lament their own lapdog media for not having the backbone to challenge the Lee family edifice, while titillatedly speculating what retribution will be visited on those who do; everything from one of those infamous libel suits to the analyst’s imminent deportation.

The implication is clear. The Lees - the embodiment of ‘l’etat cest moi’ in tiny Singapore – are believed to be beyond censure, and they bite. Therefore government-owned Temasek bites too, that its fatal to provoke it, no matter how poor it performs. Interestingly, perhaps bitten by Singapore before, most commentators – be they media or research analysts -  rarely scrutinize Temasek with the gusto they might, say, the Royal Bank of Scotland.

But does Temasek bite? In occassionally critiquing Temasek myself – controlling about half the local stockmarket (Singapore Airlines et al), its impossible to avoid when assessing Singapore Inc and the impact of its money beyond - I've always found such portents to be somewhat unhinged. Writing about, say, BP or Microsoft, two companies of similar size and influence to Temasek in global business, doesn't prompt anticipations of expulsion from an offended Britain or US, or libel writs from a slighted Whitehall or White House. Why should Temasek be any different?

After all, Temasek is an enterprise that will cross Orchard Rd to insist it is scrupulously separated from government interference and policy. And Singapore, its leaders claim, is a functioning democracy, with clear divisions between church, state, the judiciary and Mammon. Though Singapore Inc presents a dirigiste model that would impress the most rusted-on Mitterrand enarque, it claims to be a free-wheeling non-interventionist laissez-faire paradise advancing the world’s best practices of governance and transparency. And we know this because its top-down bureaucrats – many of whom segue effortlessly between the civil service and Temasek-linked companies - tell us. Temasek pleads (unsuccessfully) to be portrayed as an ‘Asian investment company’ and claims to invite assessment as any business operating anywhere might, regardless that is owned by the government and run by Singapore's First Lady. Policy directives over the breakfast congee? Not at market-driven Temasek, or so the market is led to believe.

For all the bluster, the closest I’ve come to being bitten by Temasek was being banned from a press conference (the ban was overruled minutes after it was made) and, more alarmingly, when Temasek’s PR boss Myrna Thomas crudely suggested to my wife, an independent journalist in her own right, over lunch that her access to Temasek would be a lot better if she wasn’t married to me. The flak proceeded to quote, verbatim, various editorial slights I was supposed to have made of her employer. My wife’s skilful retort that she and I operated on the same professional, separate basis as Temasek claims Madame Ho and her PM husband do was revealingly ignored. About the only time Temasek has bitten foreign media is it imagines it has suggested nepotism, that Ho got her job because she’s a Lee. Perish that thought-lah, your honor, and who should I make the damages cheque out to?

I actually think the Singaporeans are more grown up than they are given credit for. The system know that if you claim Temasek is an independent, transparent business, then you can't then grumble, even in your own courts, when it is critiqued as businesses necessarily are, pace Dubai's myriad problems, compounded by the remote Al-Maktoum clique there's obsession with secrecy. Singapore is Dubai's inspiration at many levels, but transparency isn't one of them, even the relatively limited version offered by the Lees.

Then again, maybe Singaporeans know Temasek better. After all, they ultimately own it, and fret about its affairs. Its their money, near $150 billion of it, that Ho risks, supposedly on their behalf but not always to their benefit.

And risks she does, spectacularly. An electrical engineer sold by her employers as an Asian Superwoman, Ho Ching has managed to lose $38 billion, about a third of Temasek’s portfolio, through 2008-09 in bad bets, mostly on banks. That’s more than $8000 lost per Singaporean, about half a year’s salary for most of them. Profits took a bigger haircut at Temasek, falling by 64% as returns dried up. Temasek is famous for lauding its own investment perspicacity but if there was one sector not to be in during recent years, it was banks. Temasek invested Singaporeans in Barclays and Merrill Lynch et al at near top of the market in 2007, and sold close to the bottom this year. Actually, Temasek didn’t sell Merrill Lynch at all. Though the 56 year-old Ho frequently rates high on the ‘power lists’ loved by those international publications that avail of Singapore’s reliable infrastructure to publish their Asian editions there, she was powerless to prevent the failure of Merrills. It was ‘rescued’ by Bank of America as the subprime toxins infected bank stocks Temasek’s Ivy League-educated managers regarded as positively Gibraltarian. Struck like the proverbial rabbit in the headlights, Temasek ended up with around 4% of BofA, which it fled for an estimated loss of $5 billion. It also took a near $3 billion haircut on Barclays, and then some.

With a record like that, you might expect Ho to run from banks faster than the inevitable dash after a dodgy laksa. Last week, Ho said the experience had not put her off investing in Western financial institutions. But investing in toxic banks weren’t her first misstep. Many Thais argue it was her $3 billion deal in 2006 to buy their then PM Thaksin Shinawatra – a protégé of Ho’s father-in-law Lee Kuan Yew - out of his telco and media group Shin Corp that precipitated a military coup, a recession, four governments, a crisis of the monarchy and leaving Thailand deeply divided for the foreseeable future, an instability that ultimately impacts on neighbours like, well, Singapore, when South-East Asia is lumped by investors from afar. That’s a harsh assessment but try telling that to outraged Thais who set fire to Ho and  husband’s effigies after Temasek did Thaksin tax-free deal (which lost Singaporeans about another $1 billion, by the way.)

Compliant Singaporeans, who’ve never known rule by any other party apart from the Lee family’s People’s Action Party in near five decades of independence from London, are not used to speaking out against their authorities. But Ms Ho’s failures at Temasek have many uncharacteristically incensed. To them, Temasek’s mismanagement of their money abuses the social contract they’ve made with their rulers; to accept considerable restrictions on personal liberties in return for a world-class standard of living.

They point out that none of the chiefs executive of the Western banks Ho plunged their hard-earned into are in their posts any longer, victims of excess and incompetence. But the PM’s wife remains in hers at Temasek, despite losing enormous amounts. Ho remains an enigma; she studiously avoids media as Temasek’s spin machine specialises in meaningless corporate-speak twaddle; all ‘strategic direction’ this and ‘going forward’ that, but saying very little of substance. In a post-GFC business world where openness is supposed to be the New Black, it promotes a perception of secrecy, that Temasek has something to hide, maybe even the bumbling CEO herself.

The domestic fuss around Ho and Temasek has become such that even the Straits Times, mostly employed to run cover for Temasek, was moved to ask how ‘‘private sector’’ it can really be. “Like it or not, Temasek cannot get away from the fact that it is inextricably linked to the Singapore Government,’’ it opined. Political activity as one understands it in Britain is by and large banned in Singapore. But for Singapore’s neutered opposition, criticising Temasek has become a subversive pseudo-political act aimed at winning votes in a polity so comprehensively stacked against it. They predict a “Temasek Effect’ to chip away at the ruling party’s majority in the next election, expected next year. If that’s the case, the Lees had better hope markets continue to turn around – Temasek boasts its portfolio has added $25 billion in this year’s rally - lest the PAP be visited by a landslide Singapore-style, the embarrassment of their gerrymandered majority slipping under 60%.

To be fair, its not for a want to trying to remove Ho from senior management. One of Temasek’s more embarrassing episodes this year, in a year of embarrassments, was the farcical manner it handled the entrance and exit of the executive hailed to chart Temasek into a new non-Ho-Lee era. The American Chip Goodyear made billions for the Anglo-Australian mining giant BH-Billiton by pointing it at the China and Indian booms. Having failed on Wall St and in the City, Temasek was be saved by Goodyear in much the same way he rescued BHP-Billiton. In February, Ho was quoted as being “delighted that between myself, a couple of my colleagues and Chip's wife, we persuaded him to join." But in July, Temasek and Goodyear cited “strategic differences.’’Chip got chopped before he had really joined Temasek.

I met the boss of a Temasek satellite a few days after the Goodyear fiasco, and he was genuinely perplexed. Goodyear had been doing the rounds of Temasek satellites and the lieutenants liked his vision. So what happened? The government press said Goodyear’s proposals to shake up Temasek were viewed as “too risky” by the board. Too risky? After Ho’s $30 billion in losses in banks? Another take has it that the government was disquieted by the arrest in China of Rio-Tinto executive Stern Hu. That sent a message that China’s hardliners were worried the rampant economy was slipping away from party control. It wouldn’t do now, so goes the thinking, for a foreigner expert in the Chinese resources sector to front sovereign Singapore’s ambitions in China.

Temasek liked to portray itself as the model for sovereign funds, and a time of massive state intervention in the global economy, its time should’ve come. Delegations fall at Temasek’s feet, seeking tips on how a state’s strategic jewels can be packaged into an investment vehicle that maintains the appearance – or is a fiction? - it is somehow separated from government. Temasek’s model appeals more to the more authoritarian and less democratic of states, such as Kazakhstan, which the Nazarbayevs run on family lines.

But Singapore Inc has a problem. Temasek says it wants to internationalise its management. But for the moment at least its stuck with the local woman who lost it billions, boasting links which support the market’s conviction that dealing with Temasek is de facto dealing with the Government.

In the meantime, Temasek is continuing its international search for a new boss. The money will need to be good.