Singapore Stumbles
By Eric Ellis

(FORTUNE Magazine) - Is Ho Ching losing her touch? That's what some are asking about Temasek Holdings' formidable chief executive after a string of embarrassing setbacks.

In February the Singapore government investment agency's wholly owned PSA was trumped by Dubai's deep-pocket sheikhs, who outbid it for Britain's port operator, P&O. Temasek walked away with a $50 million profit on its stake, but it was cold comfort for losing the chance to become the world's No. 1 port operator (though subsequent challenges could yet undo the Dubai deal).

Then Temasek's $1.9 billion purchase of Thailand's Shin Corp., owned by Prime Minister Thaksin Shinawatra's family, filled Bangkok's streets with protest. Thais are grumpy that Thaksin paid no tax on his windfall and that he sold strategic assets to a foreign-government-owned agency.

"Temasek underestimated the political fallout," says Thitinan Pongsudhirak, a professor at Bangkok's Chulalongkorn University. "The deal has not been transparent. Whether they like it or not, Temasek has made itself a player in Thai politics, and that puts its investment at risk."

Temasek is also under fire in Jakarta, where politicians want the group it to unwind its investment in communications giant Indosat. With another Temasek-owned company, SingTel (Research), owning a half stake in competing mobile operator Telkomsel, they fret about Singaporean domination of Indonesia's phone market. That was after the Indian government denied Temasek approval to buy into mobile operator Idea Cellular, India's fifth-largest, because SingTel already owns part of Bharti, the No. 1 operator.

Temasek's problem--and advantage--is that it is 100% owned by Singapore's Ministry of Finance. Its board is studded with bureaucrats and businessmen. Its $80 billion portfolio includes majority stakes in most of the city-state's leading companies, including Singapore Airlines (Research) and defense contractor Singapore Technologies. CEO Ho is the wife of Prime Minister Lee Hsien Loong, who is also Finance Minister.

With that pedigree, it is little wonder Temasek gets its calls returned. But it also makes it a magnet for controversy across Asia, where the trend is for governments to get out of business. Even in Singapore some consider Temasek too powerful. "Singapore would be better served," says Manu Bhaskaran, CEO of Centennial Asia Advisors, a Singapore economic-risk consultancy, "with companies in the hands of an array of private-sector shareholders."

Some of Temasek's investments are proving troublesome on the financial as well as the political front. Fiber-optic cable operator Global Crossing (Research), in which Temasek took a 62% stake in 2003, lost $336 million in 2004 and another $278 million in the first nine months of last year. In February, the Temasek-controlled DBS Bank took a $700 million writedown on its Hong Kong operation, the former Dao Heng Bank, which it bought in 2001 for $5.4 billion, a price it said then was fully valued. And Temasek's 60%-owned wafer business, Chartered Semiconductor (Research), although poised for a turnaround, has had losses of more than $1 billion since 2001. Chartered shares have lost 90% of their value since 1999, an affront to Ho's mantra that Temasek is a value investor.

To be sure, market leaders like Singapore Airlines and SingTel are stellar performers, helping bring Temasek profits of $4.7 billion on revenue of $42.2 billion for the past fiscal year. But some, like Steve Chia, a member of Singapore's Parliament, don't think that's good enough. Chia described Temasek's shareholder return of 1% annually over the past five years as "poor," compared with the Singapore Straits Times Index's 2.7% gain over the same period.

Temasek, which declined to make Ho or any other executives available for comment, has maintained that it is simply a benign investor and that there's no government involvement in its dealmaking. Perhaps. But that's not how others see it. "We hear a lot from Singaporeans about transparency and what integrity they have in business," says Thitinan, the Thai professor, of the Shin Corp. deal. "But I'm afraid that by their own standards, Temasek has failed the test."

A SERIES OF SETBACKS HAS RAISED QUESTIONS ABOUT HO'S STRATEGY. Top of page

YOUR E-MAIL ALERTS