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Temasek Holdings’ delayed opportunism

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Bloomberg reports that Temasek Holdings may be considering “opportunistic investments” in depressed assets:

March 24 (Bloomberg) — Temasek Holdings Pte, the Singapore sovereign fund that hired BHP Billiton Ltd.’s former chief executive officer, will consider further mining investments as slumping prices force producers to seek partners.


The Reuters/Jefferies CRB Index, which tracks 19 raw materials, dropped 36 percent last year in the biggest annual decline since at least 1957, crimping profits for miners including Brazil’s Vale. About $200 billion of mining projects were shelved in the global recession, Vale’s Barbosa said.  

Looks like the Financial Times guessed correctly.  The news comes after recent reports that Temasek sold its stake in China’s Minsheng Bank and the bulk of its holdings of India’s Gateway Distripark.  It appears rumors that Temasek may be gearing up for a huge buying spree just like China’s CIC may have been accurate. 

Questions may be asked as to why Temasek stood by while China negotiated a deal over buying Rio Tinto and maybe Fortescue Metals as well.  Why didn’t Temasek or GIC (Government Investment Corporation of Singapore) show any interest?  Could it be because of the extent of their (undisclosed) losses?  The figures given by the Singapore government was 31% loss by Temasek about US$33 bn by GIC (number given by the WSJ, not Singapore govt.).  The 31% loss was weighted as of last Nov 08.  It is unclear how much that US$33 bn constituted of GIC’s reserves and portfolio, though analysts at Morgan Stanley estimated in 2008 that GIC manages about US$300 bn in total. 

Given that both sovereign wealth funds are sitting on top of so much capital, one might think they woud have seized the opportunity earlier to buy up Rio Tinto, where China is currently negotiating a US$19.5 bn stake.  Or perhaps Fortescue Metals, where China’s CIC’s is looking at a mere US$3 bn stake.  Or maybe even Australia’s OZ Minerals, where again China is seeking to inject US$1.8 bn.

Unless of course their losses are greater than that reported so far, and they have shied away from making such purchases.  But that doesn’t quite add up as well (at least for Temasek), since Temasek is currently angling to buy AIA of AIG:

AIG has informed bidders for AIA that the auction has been put on hold, a person with knowledge of the matter has said. Manulife Financial Corp., Prudential Plc and Temasek Holdings Pte made bids, according to another person familiar with the matter.

So why exactly have they been missing out on such much action?  A related question would be whether it was wise for Temasek to have sold its stake in Minsheng Bank and India’s Distripark to raise capital for a buying spree.  China’s government recently instituted a new rule effective May 1st requiring a minimum price for which state-owned stakes may be sold to foreign institutions, apparently borne out of concerns that Temasek acquired its Minsheng stake too cheaply in 2004.  Given that both China’s and India’s corporations have largely been untouched by the financial conflagration which is consuming American banks, was it wise for them to have liquidated their holdings in those countries?  Especially when both China and India are both rising world economic powers?  I leave that question to the reader.

Written by defennder

March 24, 2009 at 5:42 PM

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