Reuters. May 18, 2000
Analysis

Analysts say managements, heavy with executives who have served in government, reflect Singapore's conservative approach to fiscal matters and decision-making and must also see change.

But quicker disposal of Singapore's more than S$70 billion (US$40.4 billion) in holdings is seen as an important first step that may also help spur some shifts in management and attitude.

"It can't hurt Singapore Inc. to inject new ideas and new blood through strategic sales," said Lim Say Boon, director of OCBC Investment Research.

'Singapore Inc' is a catch-phrase for the view Singapore is run much like a large corporation.

Shrinking the government portfolio is no simple task.

GLC (government-linked company) holdings include controlling stakes in such giants as Singapore Airlines (SIA) and Singapore Telecommunications (SingTel), and represent 25 percent of Singapore stockmarket capitalisation.

"There is an urgency to it, but their holdings are some S$70 billion. To divest that is difficult to execute," said Lim Jit Soon, head of country research at Salomon Smith Barney.

GO PUBLIC, YOUNG ECONOMY

But in the wake of the second rejection of a SingTel multi-billion dollar regional acquisition bid in three months and rumblings about how much SIA should be able to buy in foreign airlines, analysts say accelerated divestment is necessary, however difficult.

The move may help defuse criticism such acquisitions offer Singapore influence over other countries' internal affairs, as well as giving the city-state a more open economic image.

Other potential merits to sales by the nation's investment arm, Temasek Holdings, include broader shareholder profiles for companies and use as a springboard for strategic equity tie-ups with cutting edge multinationals.

"It may from time to time be useful for corporations to be seen as Singaporean and not Singaporean government," said Lim.

Some analysts said management changes should accompany any share sale, noting GLCs often reflect the Singapore government's operating style -- conservatism and cash stockpiles.

"They're managed like Singapore manages the economy," said Michael Leutwyler, managing director of relative value adviser San Francisco Sentry.

"Singapore is sitting on at least S$100 billion in reserves, and you've got (billions) in SingTel's hands...but they don't use it."

Two blue chip GLCs, DBS Holdings and Neptune Orient Lines (NOL), have brought in "foreign talent," or managers, to lead their operations, but other firms' approach is still seen as too much like the government.

Singapore is known for a careful and lengthy process of consultation and consensus in its decision-making, in which leaks can result in serious consequences.

Such standard operating procedures may not be advantageous in the merger and acquisition world, where using the media to counter criticism and quick decision-making can be crucial.

An article in Singapore's own Straits Times newspaper suggested SingTel might have succeeded in a bid for Malaysia's Time Engineering had it moved faster. It quoted a Time official who said it wanted to sign a definitive deal early, knowing the sensitivities, but SingTel insisted on doing due diligence first. "When you have a window, you have to jump through, otherwise this sort of thing can happen," the official told the newspaper.

GO QUIETLY INTO THAT GOOD DEAL

Since the demise of SingTel's deal with Time last week, Singapore officials have been silent.

But in mid-April, more than a month after a SingTel bid for Cable and Wireless HKT failed, Prime Minister Goh Chok Tong said GLCs faced a perception problem, adding Singapore may divest by putting holdings under unit trusts for public distribution.

Temasek has also recognised that demand to divest is growing.

In a letter to the Straits Times newspaper on May 5, Wong Heng Tew, senior vice president of Temasek, said Singapore constantly reviews whether to reduce its GLC holdings.

"While we agree that times have changed and there are no compelling reasons for the government to hold controlling stakes in the GLCs, we cannot divest our stakes...overnight," Wong said.

Temasek listed 11 GLCs it had divested partially or entirely from, including SingTel, SIA, NOL and Keppel Corp.

Temasek officials contacted by Reuters declined to be interviewed, but Wong said value mattered when considering sales.

"We have to wait for the right time to get the right price." Two candidates are rail company Singapore MRT and port operator PSA Corp, which have announced plans to go public.

Lai Yeu Huan, JM Sassoon investment analyst, said SMRT's initial public offering would likely see pricing of nine times earnings, while PSA would at least see 15 to 20 times.

"It's the world's best port and something Singapore is proud of," Lai said, noting recent firm pricings for IPOs of SIA units.

"All (GLCs) have been very well-priced in that sense."