Australian Financial Review, October 30 2010

One of the central objections against Singapore Exchange’s takeover of ASX Limited has been the fact that SGX is partly owned by the Singapore state. Are people right to be worried?

In Singapore most big blue-chip stocks have at least some government ownership, usually though the sovereign wealth fund, Temasek. For example, Singapore Airlines (55%), leading bank DBS (28%), Singapore Telecommunications (54%) and top regional property developer CapitaLand (40%) all feature significant Temasek shareholdings.

Australians might recall Temasek for hiring former BHP Billiton chief executive Chip Goodyear to replace current executive Ho Ching, who is the wife of the prime minister, Lee Hsien Loong. It didn’t go well: the two parties decided to go their separate ways before Goodyear had even formally started his job, apparently because of irreconcilable differences. Ho remains in charge.

The episode did not cast Singapore in a good light in terms of independence or a willingness to listen to new ideas. But that’s unfortunate, because in truth Temasek is probably among the most commercially-run and transparent sovereign wealth funds in Asia, not that that’s a particularly tough field to lead.

Its board has more independents on it than government figures, and includes internationals like Scandinavian banking magnate Marcus Wallenberg and former Danone and Sara Lee executive Simon Israel. Although it reports in to the Ministry of Finance, the ministry pretty much leaves it alone to make whatever business decisions it thinks best; and in its big blue chip holdings it is mainly a passive shareholder, usually appointing someone to a board but only tending to get involved on things like governance issues. Standard Chartered, for example, in which Temasek holds a 19% stake, has never voiced concern about interference in management beyond the way any major shareholder will protect its interests. In smaller, pre-listing companies, it is more active, taking something of a private equity role.

Nevertheless, Temasek has had a harder time going overseas sometimes, and never more so than when it took over Shin Corp, the Thai telecommunications group owned by then-prime minister Thaksin Shinawatra and his family. Thais were outraged on three grounds: the wealth it brought to Thaksin; the sense of a state jewel (albeit a private sector enterprise) being sold to little benefit to the country itself; and in particular the sense that such an important piece of national infrastructure was going into the hands of the Singapore state.

Temasek pleaded that it was only interested in commercial principles like any other investor, and it proably meant it. No matter: Temasek represents Singapore Inc, and so it received a toxic reception in a regional rival. It is not drawing too long a bow to say that the incident played a big part in Thaksin’s eventual deposition as prime minister.

Singapore Exchange is a slightly different case in that its state ownership is through a different organization. Its largest shareholder is SEL Holdings Ltd, which holds 249.99 million shares representing 23.45% of the company. That, in turn, is a special purpose vehicle set up to hold shares for the Financial Sector Development Fund, which is administered by the Monetary Authority of Singapore, the country’s central bank. The fund exists to promote Singapore as a financial centre, to develop and upgrade the skills required in financial services, to support educational and research resources, and to build infrastructure to support the financial services industry. In that respect, while the MAS would doubtless see the ASX acquisition as helpful in its attempts to build Singapore as a financial hub – a vital ambition in a country with no mineral resources, no agriculture and no room – it is unlikely to seek to railroad national interests through a listed blue chip in which it holds less than a quarter of the stock.

But Singapore still faces a problem. No matter how passive a shareholder, it is inescapably sensitive to have a foreign state, as opposed to just a foreign corporation, having a meaningful stake in the running of something as nationally iconic as a stock market. The likelihood of Singapore’s cabinet sitting down and plotting how to reshape Australia’s public markets is absurdly remote. But when it comes to sovereigns and the national interest, it’s all about perception.

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