While government-linked companies (GLCs) have a reputable business track record, their image of being state-controlled has hindered attempts at making major investments in Asia, analysts said.

Deputy Prime Minister Lee Hsien Loong, in recent remarks to parliament, acknowledged the affluent island-republic's predicament, and sent a clear signal that the government intended to reduce its high-profile entrepreneurial role.

In particular, Lee said the government would remove a special share that enables it to veto major decisions at Singapore Telecommunications Ltd. (SingTel).

The government was also prepared to trim its shares "significantly" in SingTel, DBS Group Holdings and other companies, in the medium term, he said.

Daniel Gay, a senior economist with research house Strategic Intelligence, said Lee's remarks were "not entirely unexpected."

"They're (GLCs) not going to be able to buy foreign companies if they are controlled by the government. Similarly, there are not going to attract foreign investments unless the government has a significantly reduced role," he told AFP.

"It's a measure of last resort to improve the prospect of SingTel's bid for overseas telecom companies," he added.

SingTel, which is 78 percent owned by the government, last year failed in a bid to acquire Cable and Wireless HKT in Hong Kong and Time dotCom in Malaysia.

Analysts said this reflected a reluctance by foreign governments to allow a company with substantial government holdings into an industry considered as nationally strategic.

SingTel is currently locked in a three-way battle with Britain's Vodafone and Telecom Corp of New Zealand for Australia's number two telecom player Cable and Wireless Optus Ltd.

Through its investment holding arm, Temasek Holdings Pte Ltd, the government owns controlling stakes in Singapore Airlines, the Keppel Group, property firm CapitaLand Ltd, Singapore Power Ltd and Singapore Technologies Ltd.

It also holds substantial equity in DBS Group, Southeast Asia's largest bank, Neptune Orient Lines, port operator PSA Corp, subway operator Singapore MRT and SembCorp Industries.

Temasek says its major listed companies comprise about 25 percent of the total market capitalisation of the Singapore Exchange. Total assets are estimated at more than S$70 billion (US$40 billion).

State-linked firms account for a "hefty chunk" of the gross domestic product, but there is debate on the actual figures, Gay said.

He cited a US embassy report which estimated that GLCs account for 60 percent of GDP, but this was disputed by the government which put the figure at around 12 percent.

Dominic Armstrong, head of research at Dutch bank ABN-Amro's regional office here, said Lee's remarks were "extremely encouraging" but he did not expect the government to start divesting soon.

"It's a classic example of flagging policy well ahead of time so that it won't catch the market by surprise," he said.

Deputy Premier Lee noted the concerns over Singapore's state-linked firms.

"Many countries treat certain industries as strategic and fundamental to their national interest and economic development.

"They are cautious about allowing foreign players to enter or buy into their domestic market, especially players with significant government ownership," he said.

"Regulators, political leaders, the press and local constituents tend to perceive the (firms) to be Singapore government controlled, operating on an agenda that overrides normal commercial consideration," he added.

This perception "can unnecessarily politicise and complicate mutually beneficial commercial deals, strategic alliances or mergers and acquisitions," he said.