Strategic Shift At Temasek & Co.

Temasek Linked Companies (TLCs) are letting the mother ship (Temasek) decide on the acquisition decisions, while they focus on fixing their balance sheets.  This means the TLCs (Singtel, Starhub and the like) are paying back dividends to ALL shareholders and the minority ones (non-Temasek) are sharing in the windfall.  Excerpts from the FT article entitled “TLCs finally offer some love” -

…..SingTel’s share price was punished severely after it bought Australia’s mobile phone operator Optus in 2001.  The deal was widely criticised as being too expensive, and SingTel has reduced its foreign buys since then.  NOL’s difficult absorption of American President Lines, which it bought in 1997, led to a more cautious approach on expansion.

STATEGIC SHIFT

• TLCs such as SingTel and NOL amassed large cash piles as they curbed an appetite for acquisitions abroad, partly in response to concerns among minority shareholders.
• SingTel will soon pay out S$4bn ($2.5bn) to shareholders ; this follows a S$652m payout by the Starhub telecoms group and S$1.3bn by Neptune Orient Lines, among others.
• Temasek, wholly owned by the finance ministry, has largely taken on the risk of big overseas deals in the past few years, which has reassured investors in TLCs and helped lead to the rise in share prices. 
• The focus of TLCs is now on improving their balance sheets.  They no longer feel the pressure to expand abroad since Temasek is now doing so directly.

RATIONALE

• Minority shareholders also benefit, as those TLCs with an excessive amount of capital decide to distribute the funds instead of sitting on the cash or spending it on dubious diversification. 
• The reason for the generosity is that Temasek, as the dominant shareholder, wants the money to finance its overseas expansion.  Among its big recent buys have been stakes in Standard Chartered and two of China’s four main banks, along with the takeover of Shin Corp, Thailand’s leading telecoms and media group. 

DRIVERS & EFFECTS

• Analysts credit Ho Ching, the wife of the prime minister, for the switch in strategy to unlock shareholder value after she became Temasek chief executive in 2002.
• Temasek’s example has created a ripple effect, with Singapore’s private sector companies, such as the UOB and OCBC banks, increasing dividend payments as well. Total payouts this year alone could nearly equal the S$10bn that shareholders have received in the past three years.
• The high dividend policy is likely to continue.  One reason is that most TLCs have strong cashflows, declining capital expenditures and low debt levels, which is encouraging them to increase payouts.  SembCorp and Keppel, Temasek’s biggest conglomerates, are reporting record profits, mainly due to their booming oil rig manufacturing businesses.
• In addition, TLCs are disposing of domestic assets, which will further increase their cash reserves.  The recent sale by SembCorp of its logistics business to Australia’s Toll resulted in a special dividend payment…..

Reference : http://www.ft.com/cms/s/19483f86-241e-11db-ae89-0000779e2340.html