Temasek bought additional $819m Merrill shares in Feb

By Grace Ng, ST

Temasek Holdings has exercised its option to buy an additional US$600 million (S$819 million) worth of shares in troubled American bank Merrill Lynch.

A filing by Merrill with the United States Securities and Exchange Commission (SEC) on Feb 25 stated that Temasek had bought an additional 12.5 million shares at US$48 apiece. This raised its stake in the bank to US$5 billion.

The Singapore investment company had bought US$4.4 billion worth of Merrill stock at US$48 a share late last year, when the bank sought to raise capital from Temasek and US money manager Davis Selected Advisers.

The agreement signed in December last year also gave Temasek an option to buy a further US$600 million worth of shares by March 28, as long as its holdings would not exceed 10 per cent of Merrill’s total outstanding common shares.

Temasek said at that time that its investment reflected its belief in the ’strong growth potential’ of Merrill.

The US$48 share price then was a 13.6 per cent discount to Merrill’s trading price of US$55.54 on Dec 21.

On Feb 24, a day before Merrill’s SEC filing about the new Temasek purchase, the shares closed at US$53.05.

But the shares have since slumped, closing at US$42.88 on Monday.

This is 10.7 per cent below Temasek’s US$48 purchase price and represents a paper loss of about US$534 million for its entire investment to date in Merrill.

Analysts said Temasek’s move to raise its stake in Merrill reflected its stance as a long-term investor and its confidence that the credit crunch, which has brought major banks to their knees, will eventually blow over.

In January, Merrill raised more capital from Middle East and Japanese investors. But it does not plan to raise any more, according to chief executive John Thain.

Merrill has written down US$24 billion worth of securities related to the risky US sub-prime mortgage market.

The write-downs dragged Merrill into the red to the tune of over US$8 billion last year.

Analysts expect Merrill to suffer further write-downs of US$3 billion to US$5 billion when it reports its first-quarter earnings tomorrow.

GIC, Host Hotels in property venture

By Chua Hian Hou, ST

The Government of Singapore Investment Corporation (GIC) has teamed up with a New York-listed real estate investment trust to invest up to US$2 billion (S$2.8 billion) in Asian and Australian property.

The Singapore firm’s real estate arm and Host Hotels & Resorts, one of the world’s largest owners of luxury hotels, have set up a joint venture with an initial investment of up to US$600 million. This, combined with anticipated leverage, will provide total investment potential of at least US$1.5 billion.

Host, which will provide fund management services to the venture, will own a 25 per cent stake while GIC will hold the remaining 75 per cent.

GIC Real Estate president Seek Ngee Huat said the combination of ‘Host’s core skills in hospitality investment and asset management, and GIC’s regional presence and network’ would serve the venture well.

This places it in a good position to ‘build up a substantial portfolio of hospitality related assets in Asia’.

GIC Real Estate, one of the world’s top 10 real estate investment firms, has a multi-billion-dollar portfolio in more than 200 property-related investments across 30 countries, according to the statement announcing the venture.

Last month, GIC reportedly paid about 80 billion yen (S$1.1 billion) for the 438-room Westin Tokyo hotel, and in January, it announced a joint venture to develop a residential township near Moscow.

Chinese firm buys Tuas Power for $4.2b

By Michelle Tay, ST

Temasek Holdings has sold Tuas Power to a Chinese company for $4.24 billion – well above its initial valuation of $3 billion five months ago.

The deal with SinoSing Power, the wholly owned subsidiary of Chinese power company China Huaneng Group, is expected to be completed by March 24, said Temasek in a statement yesterday.

It will mark the end of the bidding process that began last October, when Temasek announced its plan for the sale of the first of its three wholly owned power generation companies (gencos).

Mr Wong Kim Yin, Temasek’s managing director of investments, said yesterday: ‘China Huaneng is an established player with a strong track record in the power business. Its proposal through SinoSing was the most attractive.

‘It emerged as the winner based on clear considerations of price and acceptable commercial terms.’

Analysts said the sale marks Temasek’s largest-ever divestment in dollar terms and the biggest acquisition of a Singapore company since 2001.

Sources close to the deal told The Straits Times that the $4.24 billion price tag is testament to the strength and stability of the Singapore economy and an endorsement of the growth potential of electricity demand in the Republic.

Tuas Power has a capacity of 2,670 megawatts (MW) and accounts for over a quarter of Singapore’s electricity generation. This means it is worth $1.6 million per MW it generates.

Temasek plans to sell off the two remaining power plants by the first half of next year.

Analysts speculate that Power-Seraya, which has a licensed capacity of 3,100 MW, may be worth $4.96 billion, while Senoko Power, with 3,300 MW, may be worth $5.28 billion.

The state-owned investment company has not indicated which will be sold next.

The plants were transferred from the state to Temasek between 1995 and 2001, on the understanding that it would eventually sell all three companies.

Selling the three gencos is a key step in freeing up the domestic energy market and has been in the pipeline for six years.

Power generation is considered to be a part of the energy market; competition is viewed as healthy for this sector and should be introduced. Private ownership of the gencos should ensure a competitive market and more players can be expected to enter the market as Singapore’s power needs grow.

For the moment, market watchers say that a change in ownership will not affect electricity prices because the three gencos have been operating independently, competing against each other.

Beijing-based China Huaneng is the largest power generation company in China and also owns a 50 per cent stake in Australian power generation joint-venture firm OzGen. It has an installed capacity of 71,000 MW and total assets for the group exceed US$45 billion.

China Huaneng vice-president Huang Long said the transaction was a major step for his company ‘in its goal to diversify its assets across geographies and technologies’.

GIC buying $2.1b stake in Benetton family’s holding firm

By Jessica Cheam, ST

The Government of Singapore Investment Corporation (GIC) is investing 1 billion euros (S$2.14 billion) in an Italian firm run by the famous Benetton fashion family.

The GIC’s private equity unit, GIC Special Investments, will initially hold 3 per cent of Sintonia, with the stake increasing to 14.3 per cent after a financial restructuring.

This will comprise an initial investment of 150 million euros, which will rise to 1 billion euros in total after a capital increase by Sintonia, GIC spokesman Jennifer Lewis told The Straits Times.

Luxembourg-based Sintonia is the Benetton family’s privately run vehicle for infrastructure investments and does not hold shares in the United Colors of Benetton fashion brand.

But it does run highway manager Atlantia, which manages the most extensive highway network in Europe, and has a stake in Telco, the holding company that controls Telecom Italia, Italy’s largest phone group.

The story of the investment first surfaced in Italian daily La Stampa, which said yesterday that a deal was slated to be signed in Luxembourg.

According to Reuters, the deal is expected to be closed in the second quarter of this year.

The family’s empire is controlled by Mr Luciano Benetton and his three siblings. It is best known for the global fashion brand and the sometimes controversial advertising it employs.

Forbes magazine ranked Mr Benetton 323rd in its list of the world’s billionaires last year, estimating his fortune at US$2.8 billion (S$3.9 billion).

The family also owns the retail group Edizione Holding, which controls the Milan-listed Benetton Group, and Sintonia. Together, they have a combined revenue of 9 billion euros.

GS Infrastructure Partners, a Goldman Sachs fund, will also hold a 14.3 per cent stake in the restructured Sintonia.

News of the deal came a day after a private British firm, Orchard Street Investment Management, said it had teamed up with the GIC to create a £300 million (S$840 million) fund to invest in British commercial real estate.

In recent months, the GIC has pumped billions into troubled financial giants in the wake of the US subprime crisis, investing $9.82 billion in Citigroup in January and $14 billion in UBS in December.

Singapore’s other sovereign wealth fund, Temasek Holdings, also bought a stake in a US investment bank, pumping $6.4 billion into Merrill Lynch.

GIC Special Investments has bought stakes in infrastructure-related firms before. In 2002, it teamed up with Keppel Corp’s venture fund unit k1 ventures to buy a stake in US-based Prime Co Wireless for US$14.2 million.

And in 2000, it paid $15 million for a 16 per cent stake in Australian-listed EasyCall International, an internet network infrastructure services company.

The GIC, which manages Singapore’s foreign reserves, manages a portfolio worth over $100 billion, but its exact size is unknown.

DBS sells China unit to Temasek for $44.5m

By Fiona Chan, ST

DBS Bank has sold off one of its subsidiaries, a China investment company, to a unit of Temasek Holdings for US$32 million (S$44.5 million).

The lender, South-east Asia’s largest, yesterday said it agreed to sell DBS (China) Investment to Temasek’s Edgefield Investments.

This comes after DBS last year obtained a licence to sell yuan-denominated investment products directly to Chinese customers. It got the green light to offer savings, call deposits, time deposits, mortgages and general insurance products.

With this, DBS no longer has a need for the investment company, which was meant to hold investments and liaise with customers and prospects. It was set up in December 2005 in Beijing under the Ministry of Commerce with a registered capital of US$30 million.

A DBS spokesman yesterday said it was ‘appropriate’ to divest itself of its investment in DBS (China) Investment now that the bank had obtained the China licence.

Yesterday, Temasek also confirmed that it had acquired the China company. In response to queries on why it had done so, a Temasek spokesman said the purchase would provide Temasek with ‘another platform to explore investment opportunities in China’.

China is ‘a market we continue to believe has good potential and which we remain interested in’, the spokesman added.

Temasek will pay cash for the deal, which takes into account DBS (China) Investment’s net tangible assets and operating expenses.

As at Dec 31 last year, the book value of the firm was about US$30 million and the net tangible assets were about US$31.26 million.

The deal is expected to be completed on May 30. It is not material in the context of the operations of DBS’ holding company DBS Group Holdings, the bank said in a statement.