Money & Investing: Singapore Inc. Puts a Premium On Deals to Be a Global Player
July 18, 2001
By HENNY SENDER
Staff Reporter of THE WALL STREET JOURNAL
SINGAPORE -- When Singapore Telecommunications Ltd. reached an agreement in March to buy Australia-based Cable & Wireless Optus for US$7 billion, the news was greeted with relief at home and derision elsewhere: Investors decided Singapore had paid too much, and SingTel's stock plunged.
The same was true this year when Development Bank of Singapore purchased Dao Heng Bank Group in Hong Kong, shelling out more than three times book value for a mature, well-run bank. Singapore Inc. was finally closing deals in its desire to expand beyond the confines of its 520-square-kilometer home, but only by laying out substantially more than others were willing to spend.
The "Singapore premium," as it's now being called, is well established. For those who believe Singapore is paying too much for what it's buying, the comparison that comes to mind is the "dumb money" shelled out by the Japanese in the 1980s. Then, companies around the world licked their lips when they saw Japanese buyers coming along with fistfuls of cash.
But Singapore isn't Japan. To judge Singapore Inc.'s investment performance on the basis of what it pays is to miss the point, some Singaporeans argue. "Investment is the only thing Singapore can do," says Kheng Nam Lee, president of Vertex Management, a member of the government-linked Singapore Technologies group.
Certainly, the task is challenging. Today, Singapore not only aspires to be an astute investor, earning respectable returns on the money it invests, but it also invests for a different reason: to create not only good returns, but also new companies and, indeed, a whole new culture.
Singapore is using its awesome investment machine to keep the small city-state from becoming a marginal sunset economy, to take it from a successful 20th century entrepot to a dynamic 21st century innovator and a global player.
"High-tech investment is our future," declares Soo Boon Koh, founder of iglobe Partners, a local venture-capital fund that has been seeded with money from the Economic Development Board's Technopreneurship Investment Fund. "We are driven by a sense that we are small and vulnerable," says Teo Ming Kian, the chairman of the Economic Development Board. "Our challenge is to figure out how we can be value-added."
Whatever their return, the scale of Singapore's investments is certainly of Japanese tsunami proportions. Singapore's government reserves of US$120 billion make it one of the deepest pools of capital in the world -- and tens of billions of dollars of its money now sloshes around the world. Both its property arm and its private-equity arm are among the world's largest.
Singapore Inc. has taken stakes in everything from Cisco Systems Inc. and Citigroup Inc. in the U.S. (in which it is one of the largest shareholders) to investment bank China International Capital Corp. in China. It controls real estate from the center of Chicago to the heart of Tokyo.
Singapore also was part of every one of the three bids when Indonesia's chief automobile assembler, PT Astra International, was up for grabs last year; it was an investor in the first U.S. buyout fund established by Kohlberg Kravis & Roberts in the mid-1980s.
No question, Singapore is in the big leagues of world investment. As for performance, though, the record is mixed, with frequent missteps in timing and in targets. Like a model student, Singapore does its homework; it's well versed in the pitfalls of venture-capital funds, but that doesn't always translate into savvy decision making. "They have a sophisticated theoretical understanding, but no practical sense," says the managing director of an international fund, who is based in Singapore.
Such fears that Singapore may have trouble managing what it's bought can cost the country big. Last year, for example, a 50% stake in Hong Kong-based ASAT Ltd. was up for sale by its parent, QPL International Holdings Ltd., which is listed in Hong Kong. Chase Asia Equity Partners submitted a bid that valued ASAT at US$400 million, while Singapore Technologies made an offer that valued ASAT at 16% more than Chase's bid.
Yet, the board of QPL rejected the Singaporean offer, fearing slow decision making and bureaucratic meddling, according to its chairman, Tong Lok Li.
As for practical shortcomings, consider SingTel's all-cash offer last year for Cable & Wireless HKT, made after insufficient consultation with the authorities in either Beijing or Hong Kong. That led to an embarrassing rejection in favor of Pacific Century CyberWorks Ltd.: Singapore offered cash instead of PCCW's mixture of cash and high-priced stock, but lost anyway. Other rejections have been far less public but no less embarrassing.
"Singapore companies have made decisions that are commercially and strategically smart," says Michael Berchtold, head of Asian investment banking for Morgan Stanley & Co in Hong Kong. "Execution, though, will determine whether they are winners."
Of course, there have been cases where arms of Singapore Inc. have proved to be value-added investors. When SingTel took a minority stake in Delhi-based telecommunications company Bharti Group, its fellow investors at E.M Warburg Pincus & Co. were wary. But SingTel has been a world-class investor, says Dalip Pathak, a managing director of the investment firm. SingTel has provided everything to the Indian company from technical assistance to lessons in game theory to help Bharti in its current bid for the cellular licenses that are up for grabs in India.
But a series of setbacks in Asia have led Singapore to refocus on investing in the U.S. The meltdown in Indonesia has cost the Government of Singapore Investment Corp. Pte. Ltd., or GIC, alone between US$50 million and US$100 million, and Singapore could never get an industrial park it started near the Chinese city of Suzhou to work as it should: Foreign companies in China tended to choose a nearby government-owned park instead
"There is always the insider-outsider problem in Asia," says Dr Teh Kok Peng, president of the special investments division of the GIC. "The U.S. is more open. We are not at a disadvantage there."
While it made a loss in the technology meltdown, it could have been a lot worse, says Dr. Teh. "The bad news is that we were late," he says. "The good news is that we were very late. We have experienced down rounds and paper losses. But 75% of our powder is still dry. We were only 25% invested."
GIC doesn't release a complete list of its investments, nor does it account publicly for its gains and losses.
Still, to measure Singapore's track record in regard to its latest high-tech initiative is tricky. Should it be measured by the number of start-ups? The number of companies in which it invests abroad who chose to establish a presence in Singapore?
It is still the early days. Last month, partner 3I brought 40 of its portfolio companies to Singapore. Another partner, JH Whitney, plans a similar roadshow shortly.
Visitors see plenty of reasons to be impressed. The intellectual capital of Singapore easily surpasses that of rival Hong Kong. Already 6,000 multinational companies have offices in Singapore. Many of them, including Sony Corp., Hewlett-Packard Co., Siemens AG and Philips Electronics NV, have research centers as well. Major U.S. universities have established campuses in Singapore. In the last decade the number of research engineers has gone from 28 to 70 per 10,000 people.
It's hard to mandate innovation and entrepreneurship, and capital doesn't always create leverage. But Singaporeans believe that they have no other choice.
Write to Henny Sender at henny.sender@awsj.com1.
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