The companies were driven by long-term commercial motives and not directed by the government, Finance Minister Richard Hu told parliament.

"Like all GLCs (government-linked companies), they operate strictly on a commercial basis.

"The government does not interfere in the commercial decisions of GLCs," he said.

With a domestic base of just four million people, Singapore companies need to look off-shore for expansion but faced perception problems with the government holding high stakes in the corporate sector.

SingTel's bids last year for Cable and Wireless HKT and Malaysia's Time Engineering were said to have been scuttled because Malaysia and Hong Kong did not want a foreign government-owned outfit taking prized assets.

SingTel appears to have succeeded this year with a US$8.8 billion takeover of Cable and Wireless Optus in Australia.

However, a joint-venture satellite programme between Optus and the Australian defence department has raised the spectre of Australian intelligence communications -- and those of allies such as the US -- falling into the hands of a company controlled by a foreign government.

Hu said the expansion of SingTel and DBS, which recently bought Dao Heng Bank in a deal which values the Hong Kong concern at HK$41.92 billion (S$9.8 billion) were necessary for the companies to become regional players.

"The Singapore government has long encouraged local companies, both GLCs and non-GLCs to grow beyond the confines of the Singapore economy," he said.

SingTel and DBS shares have tumbled since the acquisitions were announced, but Hu said the benefits would be realised in the long term.

"Their soundness has to be judged over time ... not by the immediate reaction of the stock market as reflected in their share prices," he said.

Hu said the government would not question whether SingTel and DBS had overpaid, the market view that led to the share decline.

"When you buy a controlling share in a large corporation, you have to pay a substantial premium ... It is not in the government's interest to try and challenge their decisions."

The government through its investment vehicle Temasek Holdings holds significant stakes in several other heavyweight companies including Singapore Airlines, the Port of Singapore Authority (PSA) and airport operator the Civil Aviation Authority of Singapore (CAAS).

Like SingTel and DBS, they are all shopping overseas.

Singapore Airlines owns 49 percent of Virgin Atlantic, 25 percent of Air New Zealand and is now eyeing a slice of Air India.

PSA, with interests from Asia to southern Europe, recently became the biggest port operator in Belgium to gain a foothold in the lucrative northern European trade.

CAAS, in a joint-venture with British-based Alterra Partners is angling for airports in Oman, Cyprus and possibly Amsterdam's Schiphol Airport, one of the busiest in the world. It already owns 7.1 percent of New Zealand's Auckland Internatinal Airport through a subsidiary.

Hu confirmed the government would continue with its plan to pare down stakes in state-owned companies, but there was no set timetable.

"It is our policy to divest as much as possible government holdings in established companies which are ready to be sold to the public," he said.

"The problem is some of these companies are so large that placing of the shares in large amounts would destabilise the market so we have to do it gradually."

Plans to list PSA have already been shelved due to weak market sentiment.