Since she took the helm in May, more than half a dozen top executives at Temasek-linked companies have quit, raising the question whether they've been "eaten for lunch." The list of resignations includes executives at Chartered Semiconductor Manufacturing, ST Assembly Test Services, DBS Group Holdings, Keppel Telecommunications & Transportation, the Singapore Exchange, PSA Corp., and even the Singapore Zoo.

Others, meanwhile, are busy defending their positions against a barrage of criticisms about generous executive packages and less-than-stellar corporate performance--especially when the economy has stalled and minority shareholders are demanding better returns and protection of their rights. Temasek has talked for years about improving the performance of government-linked companies, or GLCs, and now investors are getting impatient.

It's an important issue for Singapore's economy too, as Temasek's vast holdings dominate most industry sectors.

According to a July 2001 research report by investment bank ING Barings, GLCs make up 41 percent of the Straits Times Index by weight. David Ding, an associate professor of banking and finance at Nanyang Technological University, estimates that GLCs make up about 33 percent of the market capitalization of the Singapore Exchange, the country's stockmarket, based on December 2000 figures.

In a statement in July, Temasek insisted the departures from some of the companies in the Temasek family were "independent decisions taken between the CEOs and their respective boards" and that Temasek "is not involved in these decisions." Yet many private analysts and business people regard Ho as one of few in Singapore with the clout to shake up Temasek's holdings and challenge some of the retired military men, former civil servants, politicians and imported "foreign talent" who run many of Singapore's GLCs.

That's because Ho, 49, gained a reputation as a no-nonsense manager when she headed Singapore Technologies. She is also politically well-connected. She is married to Lee Hsien Loong, the deputy prime minister, and is the daughter-in-law of Singapore's founding father, Senior Minister Lee Kuan Yew. "She's tough. It's difficult to say 'no' to her," concedes a former colleague who worked with her when she headed Singapore Technologies and transformed it from a clutch of former defence-linked companies into one of the country's largest conglomerates.

Tough or not, her mission to review, rationalize and consolidate Temasek's holdings hasn't yet produced the results--wide-ranging divestments, better performance, and a clearer focus--that people are looking for. During her first few months on the job, a handful of prominent Temasek-linked companies have faced setbacks and come in for a savaging for their poor performance, poor treatment of minority investors, and muddled strategy.

Temasek claims all decisions are taken by the management of the individual companies, but some investors say that simply begs the question: Why hasn't the majority shareholder played a more active role in setting goals and holding individual managements to account? In September, the Ministry of Finance said Temasek, which reports to it, did not need to be "an inert shareholder" and that its role was to "work with its companies on their values, focus, and human capital and help them in their strategic development and their efforts to achieve sustainable growth."

HERCULEAN TASK

The extent to which Temasek has been involved in corporate decisions at companies in its stable isn't clear: Ho declined to be interviewed for this article. Over a period of two months, Temasek promised to schedule interviews with other executives, but failed to deliver. The REVIEW submitted a list of detailed questions, but a spokeswoman said Temasek didn't feel "quite comfortable with the angle of [the] story," and declined to respond when asked if Temasek required more time to reply. The spokeswoman also said that it "may not be appropriate for us to comment" on certain listed companies in the group. The questions largely pertained to Temasek's business strategy, the performance of its companies and the benchmarks it uses to measure their performance.

The questions were no different from what any fund manager or securities analyst would demand to know of the companies he covers, or what any chairman of the board or chief executive officer would need to answer to his shareholders. "What would be really nice is if investors can get a proper perspective of how management at GLCs are measured in terms of their performance and how they are held accountable, because at this stage it's not very apparent," says Lim Jit Soon, head of country research at Salomon Smith Barney in Singapore. "To become globally competitive companies, the GLCs must benchmark themselves against world-class companies. The realities of the marketplace have to be put to bear on the GLCs. If management doesn't deliver, out it goes."

Indeed, if Ho is to succeed in transforming Temasek, she must turn a good chunk of Temasek's investments around. A critical challenge will be to convince shareholders that their interests are being protected and not sacrificed for the sake of Singapore's "national" interests. Longer-term, she's also got to roll back Temasek's influence over the economy and restructure its portfolio, deciding which companies to sell, which ones to keep and which ones to help go overseas to become global champions.

It's a Herculean task. Before Ho took the helm, many Temasek companies had a reputation for performing rather poorly when measured by standards such as return on equity, return on assets or economic value added. The global economic downturn hasn't helped, but neither has decisions taken by some of Temasek's companies in the last few months.

In addition, some investors initially welcomed Temasek's new mission statement, or Charter, released in July. They were pleasantly surprised and pleased when two Temasek-linked companies quickly announced divestments and restructurings--NatSteel's management planned a buy-out and SembCorp Industries proposed to take its ship-repair operations private.

Investors have now raised questions about both deals. Not only that, but decisions taken by two other listed Temasek-linked companies have wiped off hundreds of millions of Singapore dollars from their stockmarket capitalization, leaving many investors stunned and furious at their treatment. "How can they talk about corporate governance after the way they have treated minority shareholders?" asks one fund manager. "I have a very negative view of these deals."

Among the deals the fund manager considers particularly disturbing: a rights offer by Chartered Semiconductor that was a spectacular flop; SembCorp Industries' failure to take its ship-repair unit private; SembCorp Industries' offer to sell its shares in a listed food unit to another Temasek company and other SembCorp shareholders; and the fact that Temasek is not only selling NatSteel but is backing one of its potential buyers. "Small investors are concerned about pricing and they don't want to be shortchanged," says David Gerald, president of Securities Investors Association (Singapore), which represents small investors. "They are worried about the way these companies are going about these things."

In the last week of August, rumours started to circulate that Chartered Semiconductor, which is controlled by Temasek-owned conglomerate Singapore Technologies, was planning a rights issue.That knocked the wind out of its share price. Things got even worse when, on September 2, Chartered issued a revenue warning and announced a rights issue with the shares priced at a deep discount, causing a collapse in the stock price to the horror of Chartered's minority shareholders.

Singapore Technologies took up its allotment of rights, but the underwriters, Merrill Lynch, were left holding at least 10 percent of Chartered's stock, according to a Chartered statement. Merrill Lynch declined to comment. The stock price plunged from S$2.10 on August 30 to below S$1, closing at 94 Singapore cents on October 28. By Chartered's own calculations, that wiped S$565 million off the firm's market capitalization, which includes the new ordinary shares. Investors were livid. Chartered was criticized by the Singapore Exchange over its response to media inquiries about the rights issue rumours. In a statement released on September 25, the Singapore Exchange noted that Chartered "could have given the market more information."

After it announced the rights issue, Chartered explained it had considered other options for raising money but concluded "in the current weak and volatile market environment, a rights offering presents the best option for a successful capital raising, providing relative certainty of proceeds and preventing dilution of existing shareholders who would subscibe." Chartered also later said it originally planned to launch the offering in the second half of September. But as rumours of an offering hit Chartered's share price and pushed up trading volume, eliciting a query from the stock exchange on August 30, Chartered said "in the interests of our shareholders, we decided to accelerate the offering."

Chartered is one of the companies that some analysts believe the government should divest. "The biggest issue the government has with Chartered is, do you let it die a natural death or [do you use it] to develop Singapore as a technology hub," says Christopher Wong, an investment manager at Aberdeen Asset Management Asia in Singapore.

But it's not just Chartered where Temasek needs to decide about ownership. Temasek needs to wade through much of its portfolio and reorganize and consolidate its conglomerates along clear business lines, analysts say. But even that isn't going to be easy. Take the ship-repair business as an example. A year ago, two Temasek-controlled groups, Keppel Corp. and SembCorp Industries, said they were in talks about possible ways to collaborate, including merging their overlapping businesses. A few weeks later, the discussions were called off, but analysts predicted the two groups would still try to merge their respective ship-repair and marine units.

So when SembCorp Industries announced plans in June to take SembCorp Marine private, the decision was regarded as a step towards a merger. But minority shareholders voted against it by a small margin on October 21, scuppering hopes that SembCorp Marine and Keppel's unit, Keppel Offshore and Marine, would eventually be merged--and leaving some investors wondering whether SembCorp had made a vigorous enough effort to convince investors of the importance of taking it private. Certainly no one is blaming Temasek for this, but it underscores how difficult it will be for Temasek to restructure its corporate empire.

Then there's Singapore Food Industries, or SFI, which supplies food to the armed forces, hospitals and schools--an area that some Singaporeans regard as an example of government involvement in a business that should be left to the private sector. On September 10, SembCorp Industries offered to sell its stake in SFI to SembCorp shareholders, which include another Temasek company, Singapore Technologies, at 70 Singapore cents per share--a price that was 9 Singapore cents below the stock's trading price and 8 Singapore cents below SFI's original initial-public-offering price. Minority shareholders fumed as SFI's share price plunged 12% in response to the offer, wiping about S$50 million off its stockmarket capitalization.

In a statement on September 10, SembCorp said the deal was part of its strategy of divesting noncore assets, and said the offer price represented a discount of 11.4 percent to the last transacted price. "In the short term, it doesn't really matter because we are long-term investors, but we would have liked the price to be higher," says Wong of Aberdeen Asset Management.

Temasek is also trying to sell its minority stake in NatSteel. In a rare move, the management of NatSteel proposed a management buyout. Since then, a consortium of investors--including a Temasek company--has made a higher offer for NatSteel. Tazwell, an indirect subsidiary of Temasek, holds a 20 percent stake in the consortium. That has raised eyebrows among minority investors who wonder why Temasek is considering selling its steel assets to another Temasek-linked company.

UBIQUITOUS

Traditionally, Temasek likes to downplay the extent to which its companies dominate Singapore's economy. But since Temasek was formed in 1974, its holdings have penetrated every key segment of the economy from ports, telecoms, stockbroking and shipping to power, food, the media, logistics, airlines, engineering, property, healthcare, education and even zoos and aviaries.

ING Barings has calculated that if the government were to sell down all of its listed holdings it would raise about S$45 billion. The GLCs, plus the non-GLC public sector and statutory boards, account for about 21.8 percent of the country's GDP, according to government figures.

Temasek's portfolio has also become a tangled web of often-competing companies. Temasek, for instance, has holdings, indirect or direct, in all three of the big telecoms operators, including a 67.5 percent stake in SingTel. Domestic rival StarHub is 50.5 percent owned by Singapore Technologies Telemedia, while MobileOne is 35 percent owned by Keppel Telecommunications and Transportation. Temasek also owns stakes in property companies Keppel Land and CapitaLand.

While many would like to see Temasek consolidate and divest some of its holdings, they have been disappointed so far.

When Ho unveiled Temasek's new Charter, she sent a signal that while she was willing to dispose of some noncore businesses, she wanted to retain control of companies considered strategic or with potential for international expansion.

But she declined to give a timeframe for divestments or a list of companies that were up for sale.

The Charter noted that Temasek would retain control of companies it deemed critical to the economy, such as the airport, seaport and utilities, but was willing to dilute interests in other sectors or even divest holdings in companies which have no potential to grow beyond Singapore. "Government needs to own and control companies for various reasons," Temasek noted. "These include critical resources--where ownership of a resource is critical to Singapore's security or economic well-being."

It also said it needed to have a controlling stake in companies that enabled the government to achieve specific policy objectives by providing services for the public good. These companies include gaming, public broadcasting, subsidized services in healthcare, education, housing and public amenities like the zoo and birdpark.

But some critics have rated Temasek's new Charter a disappointment and argue it doesn't go far or fast enough in rationalizing, consolidating and divesting GLCs where it makes commercial sense, benefits shareholders and carves out more room for the private sector. Others argue Temasek must ensure the GLCs are commercially run and are not asked to do "national service."

Says a Western consultant in Hong Kong: "The Singapore government should look radically and creatively at how to introduce the private sector more into its economy . . . [They should ask themselves:] Why are we in a particular industry? If we are in it, why can't the private sector do it?'"

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