Troubles mount for Temasek

Life is getting harder for Singapore’s state-owned investment colossus Temasek, which has run into increasingly stormy weather with its overseas investments. It may be attracting some sympathy for its treatment in Indonesia, where it has been found in breach of competition rules because of its major holdings in two supposedly-competing telecoms companies.

It is likely to have to divest from one of them, even though both had originally been approved by Indonesian authorities. Such is life for the sovereign enterprise of a state offering protection to Indonesian bankers and businessmen who stole billions during the Asian financial crisis, which might have something to do with Indonesia’s current lack of sympathy over the telecoms transactions. And then of course there is that mess in Thailand, where Temasek’s purchase of Shin Corp triggered the downfall of former Prime Minister Thaksin Shinawatra.

But just as interesting as the telecoms situation could be that of SembCorp Marine, a subsidiary of the marine engineering and utilities conglomerate SembCorp Industries, which is itself owned 49% by Temasek. In October shares in hitherto booming SembCorp, a maker of oil rigs, plummeted when it was announced that the company had dismissed group finance director Wee Sing Guan for making unauthorized foreign exchange transactions which cost the company US$303 million in losses.

However, SembCorp is now disputing the liability, at least in dealings with BNP Paribas. It claims the transactions should not be binding and is resisting BNP Paribas’s attempt to recoup $50 million.

In other words, the so-called “squeaky clean” Singapore government entity is trying to wriggle out of the deal. It is trying to make BNP Paribas take a large haircut. The bank is resisting but knows that the odds are stacked against it should it fight this all the way through Singapore’s courts, where decisions almost never go against the government or its officials. Another French bank, Societè Generale has already run for cover and agreed on a settlement and accepted a payout of $115 million to cover losses of undisclosed size. Other banks with smaller amounts outstanding are said to be in discussion with SembCorp.

Whatever the outcome of this case from the banks’ point of view, it reveals some very feeble supervision at one of Temasek’s major associates. And it again raises the issue of whether other countries will trust state entities such as Temasek which enjoy political protection as well as, at least in some cases, investing for political rather than purely commercial reasons.