On Monday, state-owned Temasek and a group of Thai investors paid $1.87 billion for a 49.6 percent stake in Shin Corp, the leading Thai telecoms company -- a deal some analysts say could have been a good fit for Temasek's listed telecoms company, Singapore Telecommunications.

The same could be said of Temasek's $1.5 billion purchase of a 5.1 percent stake in China Construction Bank last year, its plan to buy a 5 percent stake in Bank of China and its acquisition of stakes in other Chinese, Indonesian, and Malaysian banks in the recent years. Each time, Temasek did the buying, not its listed bank, DBS Group Holdings.

Earlier this month, Temasek's wholly owned port operator, PSA, also made a $6.12 billion bid approach for British ports and ferries group P&O.

The Shin and PSA deals, if the latter goes ahead, are together worth $8 billion, or as much as Temasek spent on acquisitions in the whole of its last financial year.

Temasek's shopping frenzy raises the question: Why is the parent company, and not its listed units, doing the buying?

"The question is at what price are these deals done, and...whether there is an entity doing the bidding of the Singapore government that furthers its strategic interests," said David Robinson, an investor at Prodigy Capital Partners in London who invests in Asian stocks.

"It's much better -- from our standpoint as investors -- if it's done by a company that's state owned, than by a company which has minority shareholders."

State-owned Temasek, with a portfolio valued at $63 billion and operations that generated $7.68 billion in cash last year, is headed by Ho Ching, wife of Singapore Prime Minister Lee Hsien Loong.

The investment agency includes politicians among its directors and management, and aims to "create and maximise sustainable shareholder value."

PAYING TOP DOLLAR

Unlike a listed company, Temasek can take a long-term view without worrying about the short-term impact on its share price. That allows it to make big, risky bets such as its investments in China's banking industry, where non-performing loans and corporate governance are a big concern.

The acquisition of a stake in Shin and the bid approach to P&O shows Temasek and its wholly owned companies can afford to pay top dollar to buy strategic investments.

For instance, Shin Corp. shares traded on an estimated price-earnings multiple of 16.1 times, compared with an average of 11.8 for the Thai telecoms sector, according to Reuters data.

P&O shares, which rose as high as 503.5 pence after Temasek's PSA topped a 3.33 billion pound bid by Dubai Ports World, now trade at 3.88 times book value, compared with 1.28 times book for Hutchison Whampoa <00.13>, the world's biggest port operator.

Some of the Temasek units that have made big acquisitions overseas have seen their share prices plummet as investors determined they were overpaying for their purchases.

When SingTel, in which Temasek has a 63 percent stake, made a US$7 billion offer in 2001 for Cable & Wireless Optus, Australia's No. 2 telecoms company, SingTel's share price slumped, wiping billions of dollars off SingTel's market cap.

DBS, in which Temasek has a 28 percent stake, suffered a similar jolt. Investors balked at its $5.7 billion bid for Hong Kong's Dao Heng Bank Group in 2001, equivalent to three times book value, and the stock price plunged.

EYEING SYNERGIES

Some analysts and investors say Temasek is taking the lead in making strategic acquisitions outside Singapore, absorbing the short-term market risks of overpaying, while possibly planning eventually to sell some stakes to its subsidiaries.

The acquisition of Shin Corp is a good example, analysts said. With the purchase of a 49.6 percent stake, Temasek must make a general offer for the rest of Shin, and for the remaining shares in its Advanced Info Services (AIS) unit. Shin owns 43 percent of AIS, while SingTel has 21.44 percent.

"Temasek could possibly sell its shareholding in AIS to SingTel eventually. There are also cost savings and synergies that can be achieved from the relationship," said Woon Soon Tong, analyst at Daiwa Institute of Research.

The same goes for some of Temasek's bank investments, which could be injected into DBS to form a bigger regional bank, some analysts predict.

But local media reported on Tuesday that Temasek has no plans to sell its stake in AIS to SingTel, citing Temasek's managing director of investments, S. Iswaran.

"As far as we are concerned, our companies and us, we make independent investment decisions. It's the boards and management of our companies that make the investment decisions," said Eva Ho, spokeswoman for Temasek.

Taking a strategic view can be costly though.

Temasek figures show that two of the firms units, Chartered Semiconductor Manufacturing Ltd, the world's fourth largest supplier of custom-made chips, and STATS ChipPac Ltd, which tests and packages microchips, have destroyed shareholder value for the state-owned investor, with negative compound annual returns over three years.

However, both companies are in the important electronics sector, which the government considers critical to the city-state's manufacturing industry. In addition to providing jobs, they attract foreign investment in related industries.

Temasek's poor performers have cut into its overall returns. Over five years, Temasek's total shareholder return was a mere 1 percent a year, against 2.7 percent for the Straits Times Index.

Temasek isn't short of funds and seems set to do more, not fewer, acquisitions as indicated by a hiring spree that has brought in several investment bankers and consultants such as Charles Ong, formerly at Deutsche Bank and now Chief Investment Officer at Temasek.

"Temasek is looking to boost its long-term returns and is getting more proactive," said Spencer White, regional strategist at Merrill Lynch in Hong Kong. Singapore "has surplus capital and needs to find drivers for growth outside its home market."

(Additional reporting by Jennifer Tan)

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