July 29 (Bloomberg) — Temasek Holdings Pte, reeling from the aborted appointment of Charles “Chip” Goodyear, said the value of its assets slumped by more than S$40 billion ($27.7 billion) and that Singapore’s sovereign fund may allow public investment for the first time.
The company will seek “sophisticated co-investors” and won’t sell the “family jewels” for short-term gains, Chief Executive Officer Ho Ching, the wife of Singapore’s Prime Minister Lee Hsien Loong, said in a speech today in Singapore. Goodyear’s departure was “unfortunate” and Temasek will continue to review its succession plans, she added.
The appointment of Temasek’s first foreign CEO collapsed a week ago because of differences over strategy, raising concerns over transparency and management control after losses on Merrill Lynch & Co. and other financial investments dragged down its performance last year.
“Allowing the public to invest in Temasek would increase the state-run fund’s transparency,” said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong. “It will increase pressure on their managers to avoid investment mistakes.”
The fund predicted last year a 16 percent probability that the value of its assets may drop by more than S$40 billion in the 12 months ended March, Ho said. That figure announced today suggests an improvement from the S$58 billion loss in value for Temasek’s assets the fund reported between April and November.
The state-owned investment company’s assets were valued at S$127 billion as of Nov. 30, compared with S$185 billion at the end of March last year, the Ministry of Finance said in February.
“We are certainly not happy with the negative wealth added in March last year, as well as March this year,” Ho said. The fund defines “wealth added” as returns above risk-adjusted cost of capital.
Temasek would consider creating one more group of stakeholders over the long term, and may invite the public to “co-invest” with the company, Ho, 56, said. It may seek “sophisticated investors” in five to eight years and retail investors in the next eight to 10 years, she added.
“It is important to test this over at least one market cycle during the next five to eight years,” she said. “If this pilot is successful, we may then consider a co-investment platform for retail investors in perhaps eight to 10 years’ time.”
Temasek could attract some “pretty huge investments,” though it will have to balance the interests of shareholders and the state, said David Cohen, director of Asian economic forecasting at Action Economics in Singapore.
“They’ll be subject to greater disclosure and corporate governance but that’s going to be the case going forward anyway with or without external investors,” Cohen said.
Ho, who was due to step down Oct. 1, said the fund will act to enhance value over as long as 30 years and will not sell stakes “for divestment’s sake.”
“We don’t intend to raid the larder nor sell the family jewels for short-term gains,” she said. “We will jealously guard our interest and will invest, rationalize, consolidate or divest where it makes sense, where we can achieve clear, sustainable value.”
Temasek was founded in 1974 to foster development of the island’s banks, airlines and ports. Ho drove an expansion outside Singapore and increased financial assets to 40 percent with stakes in Merrill Lynch, Barclays Plc and Standard Chartered Plc.
Temasek is the biggest shareholder in five of Singapore’s 10 biggest publicly traded companies by market value, including Singapore Telecommunications Ltd., Southeast Asia’s biggest phone company, and DBS Group Holdings Ltd., the region’s largest bank by assets.
Ho said it was “unfortunate” that Goodyear didn’t take the top job, and that the succession review continues for her replacement.
“I just want to reaffirm that the decision was both mutual and amicable,” Ho said. “ We continue to hold Chip in very high regard for his professionalism and his integrity.”
Ho said financial services investments will still form part of Temasek’s core holdings. Temasek is still “fairly comfortable” in the financial services industry, she said.
Loss on Stake Sale
The fund, in the first quarter, sold its 3.8 percent stake in Bank of America Corp., which bought Merrill Lynch, at a loss that may have totaled $4.6 billion. Temasek sold its stake in London-based Barclays at a loss in December and January, Reuters reported on June 3, citing people familiar with the matter.
Temasek is “very comfortable” with its investment in Asia, and the long-term potential returns from the region remains strong, Ho said. Temasek has stakes in India’s ICICI Bank Ltd., China Construction Bank Corp. and lenders in Indonesia, South Korea and Pakistan.
Ho said the company’s senior management have most of their compensation incentives deferred between three years and 12 years.