Category Archives: The market

What is the Point of Our Government?

 

I read the news today that Rebecca Loh, the woman who pushed her disabled nine-year-old son out of a window, would plead guilty to culpable homicide not amounting to murder. Though she was diagnosed as suffering from post-schizophrenic depression at the time and has a history of schizophrenic illness, IMH still judged her fit to stand.

We need answers to the following questions:

 

  1. Why was Rebecca left to fend for herself with a nine-year old son who suffered from osteoporosis and numerous other debilitating conditions? The report says that she did not intend to kill her son only wanted him injured so that he would be taken to a home.
  2. Was there a social worker assigned to her case by MSF?
  3. As she had a history of schizophrenia and police had been called to her mother’s flat on several occasions when she had beaten and strangled her mother, why was the child not put on an “At Risk” register as in other countries like the UK? She had also been arrested for threatening a stall holder with a chopper in 2011.
  4. What help did the Ministry of Social and Family Development (MSF) provide? Rebecca should have been entitled to close to $1000 a month from Public Assistance as her mother was earning below $1700 a month. Perhaps because she lived with her mother MSF deemed her ineligible for assistance? When foreigners write about our Government being stingy they assume that the levels of assistance they promise to provide are in fact provided. However they are not aware that this is frequently not the case. Our bureaucracy seems especially skilled at denying those in need the help to which they are entitled
  5. Why do we not provide Special Assistants to disabled children like Rebecca’s son so that they are able to attend school? Again this would be the case in most first world countries. Her son’s disabilities were physical not mental.

Unfortunately the questions will not be answered now that Rebecca has pleaded guilty. In other advanced countries there would be outcries against the social workers and the Ministry responsible for letting this happen. The role of MSF and the social workers (if any) has not been examined. An incident like this would also normally lead to changes in policy to ensure that this does not happen again. There would be a public inquiry. Yet this has been quietly brushed under the carpet.

Lee Kuan Yew after all is well known to be a supporter of eugenics and his philosophy is embodied in such policies as providing financial incentives to poor women and single mother “who keep their families small” with free family planning through the HOPE scheme..

 Recently we have been working to help another woman in a similar situation to Rebecca Loh. I first met Madam S while conducting block visits with my volunteers in Radin Mas. Since the 1980s she has been the sole carer and provider for her son who suffered severe brain injuries as the result of a hit-and-run car accident. Her son was seven when he was injured but now is in his mid-thirties. As a result of his injuries he has a range of disabilities, both physical and mental, is an epileptic and unable to work.

The driver of the vehicle was never caught and it is not clear what compensation Madam S received, if any, from the special fund set up by insurers to compensate the victims of hit-and-run accidents. Madam S has been unable to work for years as she has to look after her son full-time and is in any case too old to work now.

At the time I first met her she seemed quite cheerful despite her sad story and  hard life challenges. She asked to have a photo taken with me and I gave her my contact details to get a copy of that photo. A few days ago  she phoned me to say that her situation had deteriorated and she was feeling quite desperate. She was particularly concerned that had no money to buy food or new clothes for Hari Raya.   She had been suffering from asthma attacks which really needed hospitalization but this was a luxury she could not afford as she had full-time care of her son.

When I saw her she seemed in a very bad way and far from the happy smiling woman of the first photo. I asked her whether she was getting help from CDC and she said no. I pointed out that she should be getting around $800 a month from Public Assistance She has been to see her MP but he does not seem to have been able to help her. She has also approached MUIS but said that MUIS were unable to give her much help.

This is where our team of volunteers and members came in aided by the power of the internet where we put out a call for help. .Thanks to our great team of volunteers and public response, we were able to put Madam S. in touch with a lovely woman called Zarina who runs a charity called 3R Sincerely and Giving. I will quote from her Facebook post:

“Just for info, I’m the admin from 3R Sincerely & Giving. We are just a small outfit currently assisting needy family and adopting few families with long-term need. We are self funding as such we won’t be able to extend large monetary to any one family. At most we can give her $200 per month till more permanent solution is found. We also do a monthly visits to our adopted family more like a befriender programme. Sometimes, we rope in their neighbors to keep an eye on them and beep us if there’s a need.

 Admittedly, we are rather stretch as we have only a small team doing the errands and currently very involve in our Ramadan Charity Drive.”

 Zarina has already been to see her and has given her some NTUC vouchers and a set of baju kurung for Hari Raya. Some of our volunteers, though not by any means well off, have also made personal donations. They will follow up with MUIS to see what help she is getting.

As for me, I will pick up her case to see why she is not getting Public Assistance.  I will follow up on that with CDC and the Family Service Centre. I understand that CDC stopped helping her some time ago and Madam S. has shown me a letter from CDC over a year ago promising to look into her case.  Till now nothing has been done. If this is correct, then that is absolutely unacceptable but unfortunately I frequently see these cases where people fall through the  cracks and paperwork gets lost.  I have been helping an elderly gentleman again in Radin Mas in a wheel chair to liaise with AIC in order to get him a mobility scooter.  After a few months when there had been no progress I chased them up and it turned out they had lost his contact details. They asked me to go and visit him and tell him they were trying to contact him. Often those who are most in need are worn down by the paperwork and the necessity of chasing people up by phone. If they are carers as Madam S is then visits to these offices are almost impossible.

Towards a  longer term solution I will try to establish whether Madam S did receive compensation from the insurance fund for her son’s accident and if not whether it is still possible to apply.

The charity is now also working with her to try to persuade her to let them clear out her living space and give it a lick of paint.

 So even if our Government, which runs a surplus of over $30 billion a year, is unwilling to help its own citizens, it is good to know  that people like Zarina  and our volunteers, with hearts of gold,  are prepared to step in and help even though the resources at their disposal are modest.

It would be too easy to contrast this case with Rebecca Loh, who appears to have had no resources or charity network to call upon,because Rebecca’s case is one of mental illness, schizophrenia. As such I have been told by  charities that they would not have worked with her as they are not professionally trained. This make it even more unbelievable that Rebecca was deemed fit to take care of her son, day in day out without any respite.

We need to ask what is the purpose of Government?  Why do we elect one that wriggles out of even the most basic responsibilities to care for its people? Why does the Government need excess assets of $400 billion and to force us to save so much through CPF? As the Government runs a real Budget surplus of $30 billion a year why can in not afford to help the citizens who fall through the cracks?

More importantly as it is our money can we not afford to help these citizens. I would like to make it clear here that form an economist’s point of view I am not a big fan of the Nanny State or the Welfare State model.   Even the Swedes are no longer fans of the Scandinavian model , putting back their retirement age at which they can draw their generous pensions. So I am not suggesting we use this surplus to fund a full welfare state and a dependency culture. If I could sum up my  philosophy it would be that I believe in less STATE and more WELFARE, rather than a welfare state. My reading of the Government’s figures shows that we can afford to be more generous with welfare neither needing to raise taxes or cut  spending elsewhere.

Certainly on an individual and small group level this case above shows that Singaporeans are caring generous and  compassionate. How strange then that our government so poorly reflects the citizens on the ground being heartless,  stingy and  uncaring.

I dedicate this article to all the volunteers in charities or individually who devote themselves to helping in our communities and catching those in need before they slip through the cracks.  Thank you. You make a difference.

Votker 2: Readers want electoral system changes

kjeyaretnam:

Now the topic of Reforming the GRC system is active again Alex Au’s brilliant poll and analysis is well worth re -reading.

Originally posted on Yawning Bread:

A large majority of Yawning Bread readers would like to see Group Representation Constituencies (GRCs) abolished, and comprehensive overseas voting catered for. There was also considerable support for lowering the voting age to 18 and introducing proportional representation.

This came out of the second Votker poll which opened for responses on 14 September morning and closed at midnight 19/20 September.

View original 828 more words

Temasek fails to persuade over connection with rise in CPF minimum sum

Ho Ching

In an extraordinary turn of events the State Times published a letter in its Forum page yesterday from Temasek Holdings. It seems that last Saturday ST published an article (“Ways to improve CPF”) which quoted an unnamed person as saying he suspected the Central Provident Fund Minimum Sum was raised “because Temasek or GIC lost money overseas”. ( See more at: http://www.straitstimes.com/premium/forum-letters/story/temasek-doesnt-invest-or-manage-cpf-savings-20140604#sthash.jRLqDrka.dpuf)

Temasek wrote their letter in response to that comment and presumably to deny that rumour. I say it is extraordinary because not only does it fail to prove that CPF monies do not help to finance, even indirectly, the government’s injections of capital into Temasek,  but a large part of the letter is  simply a setting out of current government CPF policy and an explanation of the PAP’s stated reasons for increasing the minimum sum. You know, the one about increased life expectancy blah blah.

The letter was written for Temasek by

Stephen Forshaw

Managing Director Strategic & Public Affairs

Temasek

If you want to know more about Mr Forshaw here is the blurb from an interview he gave to  mumbrella.asia – a site about Asian media and marketing.

Stephen Forshaw is the managing director of corporate affairs at one of Asia’s most powerful investment firms, Temasek Holdings. He is also managing director of Temasek’s operations in Australia and New Zealand, and president of the Institute of Public Relations of Singapore.

In this interview with Mumbrella Asia’s editor Robin Hicks, Forshaw – who was comms chief for Singapore Airlines and Microsoft before joining Temasek – talks about how corporate communications is changing, how brands should respond to disaster, and why he’s a big admirer of Shell.

 
” A big admirer of Shell?”  You should be panicking by now.

So now we have an Expat explaining our own government’s  CPF policy  to us. Who made him spokesperson for CPF and for the PAP? As he works for Temasek but is being paid to spell out the PAP’s justification for raising the minimum sum in CPF he only adds weight to the argument that the two (CPF and Temasek) are co-mingled. What will we have next? The Head of Standard Chartered ( in which Temask has a 20% stake) writing to ST to explain to us Singaporeans why women will have to start doing National Service? Or the head of Sheng Shiong writing  to tell us why GST is being raised?

So does Forshaw actually dispel the fear that the minimum sum has been raised because Temasek has lost money and the government needs to get the money from somewhere else?  No. This is what he does say.

“As for Temasek’s performance, we have more than doubled our portfolio value since 2002, excluding any net new capital.

As of our last reporting date of March 31 last year, returns to Temasek for newer investments made since 2002, when we started investing directly in a growing Asia, have exceeded returns since 2002 for older investments made prior to 2002.”

So, that’s as clear as mud. It seems Temasek are saying that positions put on since 2002 have done better in the 11 or so years up to 31 March 2013 than those before 2002 but again doesn’t say whether this is from 1974 up to 2002 or  for example, 1992- 2002.

Is the  date 2002 significant?  Well it could be that 2002 has been chosen for this division of performance into pre and post 2002  because it is the  year Mrs PM took over as head of Temasek. (I’ve said before that it is hugely embarrassing and a conflict of interest to have the PM’s wife head up our sovereign wealth fund.)

But I believe 2002 was chosen because that date was during the post-9/11 recession and at the lowest point for the markets before the  Great Recession of 2008) so of course anything after that is likely to look good, by comparison

Temasek doesn’t provide a link to the balance sheets or any other data. Critically for me or anyone wanting to study their performance, Forshaw doesn’t provide information on the valuation criteria that Temasek uses. I am particularly interested  in their unlisted positions. Again it comes down to transparency and public listing would achieve that.

Still this divide into older badly performing stock and the better performance post 2002 is worrying. If I ran a fund in which all the longer term positions were performing worse than the newer ones, I would expect my investors to be concerned. Consistency is everything.

Of course it begs the question of why aren’t the poorer, older performers culled? Or is there another explanation for recent out performance such as recession recovery or another more sinister explanation or even a bubble waiting to burst.

Actually I have already provided an answer for part of this previously when I highlighted the Olam takeover scandal. That kind of manoeuver allowed Temasek to put the complete purchase on the books as a profit because they had owned shares before what is widely believed to have been a leak in the takeover process, that pushed the share price up enormously. Other Assets such as Changi Airport were transferred to Temasek for a 10th of their true market value. Instant profit.

Go back to the quote again and see that Forshaw tells us “As for Temasek’s performance, we have more than doubled our portfolio value since 2002, excluding any net new capital. -

Let’s look at that “new capital“. That is money that the government injects into Temasek from time to time.  The government is able to inject money or assets into Temasek because of the  constant stream of new investment it receives from CPF. So Temasek is getting CPF money indirectly. Temasek’s answer to the public via the ST forum is economical with the truth to say the least.  CPF may be invested elsewhere and not directly into Temasek or vice -versa but it all comes from the same pot which is government capital or surpluses.  As the CPF monies are available for the government to invest elsewhere, it frees up capital to inject into Temasek.

Let’s look at that doubling of the portfolio value since 2002. The S&P 500, the Hang Seng and most global stick indices have doubled over the same period since the low of 2002. So in other words if you had been investing in an index Fund and gone on holiday since 2002 you would have done as well as Temasek. Had Temasek done nothing in that time, the simple fact of the market rising would have created the same doubling over that period. Bravo!

Temasek Holdings writes that it is not investing or managing CPF money. This is simply sophistry. It is half a lie and wholly economical with the truth.   Money that the government receives from CPF savings goes to GIC and the profits that GIC earns investing  those funds  swells government surpluses enabling the government to  inject more capital into Temasek. Furthermore Temasek’s own internal rates of return that it is supposed to earn on new  investment will no doubt be related to CPF interest rates. Like everything else we have no disclosure on this but trust me, this is how it is done.

The question is unanswered. Why is the Central Provident Fund Minimum Sum being raised ?

http://www.straitstimes.com/premium/forum-letters/story/temasek-doesnt-invest-or-manage-cpf-savings-20140604

When immigration stops being the elephant in the room and becomes the great white shark in your parliament.

Elephant-in-the-roomOn April 23 the Straits Times (ST) hosted a roundtable to sit around and discuss a survey of people’s perceptions of key policies, three years after the 2011 General Election. The panelists were the usual PAP-approved pundits.  A safe group carefully selected to be more interested in the con than the conversation.

One of this panel was Eugene Tan, who is now seeking a second term in that affront to parliamentary sovereignty the NMP position. Even though I would never be invited and my alternative model is never represented in the media or in forums, I noted that my ideas are very much NOT non-ideas.  I have seen them enter the mainstream of Singaporean political thinking to such an extent that on this occasion Eugene Tan could not avoid paraphrasing me. He even used  a title and the ideas from an article I wrote a few years back.  This is what Eugene Tan said:

I had some issues with how immigration came out in the survey, the issue was ranked rather lowly in terms of the different concerns. I look at immigration as the mother of all issues in our political landscape. You can trace all the different complaints about transport, housing, cost of living, national identity very much to immigration. So I think like in 2011 GE, immigration is a dog that didn’t bark in the survey.

 Immigration is the elephant in the room, it will be very much in the hearts and minds of voters and candidates in the next GE.”

My article, published in December 2011, was entitled “Immigration is the Elephant in the Room”.   I was prompted to write it because of an article I saw  in the ST on rising inequality in Singapore. While two economists in that article rightly brought up the subject of stagnation in real incomes for the majority and absolute decline for those in the bottom 20%, they could not bring themselves to mention the main cause. The main cause of rising inequality which I highlighted – is the fact that the PAP government implemented an open-door foreign worker policy with no minimum wage or protections for Singaporean workers.  Here’s a quote from that article which you have probably all forgotten by now.

However they fail to mention the elephant in the room, which is immigration policy or the lack thereof. Undoubtedly the government’s determination to allow our wages to be determined by those in the poorest economies in Asia has played a major part in depressing real wages, particularly for the lower-skilled workers. Not only was there very little restriction on foreign labour, and no restriction at all for those earning more than $2,500 a month, but there appears to have been lax enforcement of what rules there were and ample loopholes. This has been demonstrated by a recent case where an employer was jailed for putting phantom Singaporean workers on his payroll to allow him to bring in more foreign Work Permit holders.

 Whether we have a minimum wage, or a cap on foreign labour (which amounts to the same thing), this is The Elephant in The Room whose emissions are causing the inequality. Unfortunately, we risk the Elephant turning into a Raging Bull if the xenophobic ranting in cyberspace is anything to go by. What we need now, and urgently, is some serious and open and reasoned debate on the future of Singapore.”

Not only does Eugene seem to be channeling me in this recent discussion but my predictions about the raging Bull make it seem as though I had a time machine.

Since I wrote that article the Elephant in the Room has indeed metamorphosed into the Raging Bull. Witness the current declarations of war ( metaphorical) over the Philippines Independence Day Celebrations.  Sadly kicking those weaker than you is not an appropriate way for Singaporeans to vent their anger with the PAP government’s policies. Not only is it not appropriate it is also plays into the PAP’s hands as it allows the government to paint those  people as xenophobes and continue to divide and rule. Fanning the flames of anger and hatred will probably ensure more seats for the PAP in the next GE.

Raging BullSomeone posted a marvelous quote on the Facebook tribute page for my late father recently. ” If your Dream starts to fade,wake up!”   Well the 10% of the elites in Singapore are fully awake and benefitting just as the  bottom 20% are fully awake and unable to dream due to suffering  but when will everyone else wake up?. Will they wait for that fading dream to become a full-blown nightmare?

The problem is simple. The PAP government knows only one economic model. That model which I first pointed out and which these days is explained back to me by taxi drivers is this. It is a sausage making machine.  You feed in additional inputs of labour at one end of the sausage machine to produce additional units of output, or GDP, at the other. In between there is no rise in underlying productivity. Despite a Budget devoted to productivity in 2010 and Tharman’s promise to raise productivity growth to 2-3% per annum and real incomes by 30% by 2020,the facts show that productivity growth was -2% in 2011 and 0% in 2012. That’s a clear sign for you. Wake up!

A Nobel Prize-winning economist Paul Krugman exposed this same model in the 1990s when he debunked the Asian economic miracle and that led to the downfall of the Soviet Union in 1990. This is a basic model of economic development that has been around since 1954 when Arthur Lewis first propounded it (“Economic Development with Unlimited Supplies of Labour”). Sooner or later this model just runs out of steam or collapses because there is no innovation. The PAP have just put off  the day of reckoning by opening the floodgates to cheaper and cheaper labour supplies from the developing countries of Asia.

Eugene Tan seems to be saying that the PAP have only to solve the Immigration issue to win back the voters.  I wonder if that is true? But even if that was the easy solution to another 50 years of PAP rule, it is not that simple. Firstly, I don’t think PAP can abandon their model. It would remove their raison d’être. Not only that, but it would lead to a severe economic slump at least in the short-term.  The answer is surely to change the economic model by putting a better one in place and that would mean removing or fatally wounding the PAP government.

The unfettered population issue is not just about crowding on the SMRT. Everything in Singapore, from ceaseless construction activity to inflating property prices, is dependent on continued population growth. That growth through immigration depresses wages and increases returns on investment. Without continued population inflows, the whole fake bubble of inflated values for HDB leaseholds will collapse. It will no longer be economically viable to regularly tear down old HDB blocks to put bigger and taller ones in a smaller area of space. The illusion of ever rising prosperity for HDB owners will be destroyed. Already Khaw Boon Wan is warning you that SERS will only happen where it is profitable for the government.

The real reason you need to wake up dear readers is this. To the PAP, Singaporeans have no value in themselves. The only value is in the real estate and then only because of Singapore’s strategic position. The PAP’s ideal is to dispense with citizens altogether and just have a disenfranchised global population who come to Singapore to work and then go home or get deported without ever being a burden on State services.

The PAP government is the principal owner of land and capital. By transferring resources from us the workers to themselves, facilitated by the role of immigration in depressing wages and pushing up land prices, that wealth stays out of our hands. Make no mistake, in the last 50 years that wealth could have been used to develop a strong middle, each generation better off than the one before, free universal education, joined up health care, a professional paid army, benefits for the most needy.
Instead our sick are housed in tents like the wounded in a war zone and that wealth disappears abroad into unaccountable entities controlled by Temasek and GIC. Every year Tharman makes the pretence that part of the returns is recycled back to us but as I have exposed in 2012, this is an accounting sham (see “Smoke and Mirrors in the Government’s Accounts“)

Any attempt by Singaporeans to gain any information about the true level of assets and investment returns,  as well as the remuneration of the PM’s wife and relatives who work for these entities, is met with the arrogant and contemptuous rebuff that the disclosure of such information is not in the public interest.I should know having taken the government to court in an effort to get them to live up to their obligations of due process and accountability.

Great WhiteSo immigration is not the elephant in the room everyone is trying not to mention.  It is  the doomed policy of a Great White Shark. The shark is a dangerous, efficient but fairly primitive organism that can only survive if it continues to keep moving and water flowing over its gills. If it stays still it drowns.  In the same way the PAP must continue to keep our population growing rapidly as it is the only way they know to create growth. This leads to the myth that  somehow the laws of Economics don’t apply to the PAP and that they alone have invented an economic miracle.

The only miracle here is that so many blindly believe in this myth that the PAP have fabricated.  I’ll end with an uplifting quote from the song Mac the Knife in the Threepenny Opera by Kurt and Weil.

“Oh the shark babe has such pretty teeth, dear. And he shows them pearly white.”  

Links

http://sonofadud.com/2013/02/01/the-paps-white-paper-on-population-reveals-that-the-government-has-all-the-benefits-of-surround-sound-and-a-wide-screen-picture-at-the-cost-of-losing-the-plot/

http://sonofadud.com/2014/04/04/cpf-and-hdb-10-real-dirty-tricks/

http://mafhom.files.wordpress.com/2013/02/23-things-they-dont-tell-you-about-capitalism.pdf

 

 

A Fresh Round of Wayang about Competition?

 

 

StarhubSingapore Monopoly Then and NowSetWidth360-Singtel-logoToday the Infocomm Development Authority  (IDA) announced that they were looking to increase competition in the mobile sector by expanding the role of Mobile Virtual Network Operators (MVNO).

To those who are not familiar with the jargon of the mobile industry, MVNOs, as the name suggests, do not operate their own networks but instead lease spectrum from other operators and piggy-back on their networks. They then attract customers by offering slightly cheaper price plans than the main operators. They are wholly dependent on the main operators for maintenance of the network.  Service standards are thus usually considerably worse. The main operators will prioritize their own customers in the event of any breakdown.  It can sometimes take weeks to get services restored as I discovered to my cost when using a MVNO for my broadband service in the UK many years ago.

At present there are up to six small MVNOs in Singapore mainly serving foreign workers with a collective market share of less than 1%. Virgin, the UK company controlled by Richard Branson, tried to enter the market as a MVNO in 2001 but quickly gave up, presumably because it was unable to get attractive terms for its leased spectrum.

This may have had something to do with the fact that all the mobile companies, like all the telecoms companies and indeed most of the large corporations serving the domestic market, are controlled by the government through the octopus-like tentacles of Temasek.

As I have long argued, extensive domestic monopolies and cartels, the majority of which lead back to the government, mean that Singaporeans pay more for many goods and services than citizens of other countries and often suffer from a lack of innovation. This is particularly true in mobiles. Mobile plans in Singapore require you to buy a mobile separately. Mobile operators in other countries often offer handsets and include the cost of this in the price plans.  Surprisingly Singaporeans often pay more for their plans without a handset than residents of the UK and the US do for mobile plans that include a new handset.

We also lag behind in innovation. While Singapore may not look bad in a comparison of international broadband speeds we have to consider that we are just a city and a fair comparison would be with speeds in the major cities. The actual broadband speeds, in my experience of Starhub’s network, were nothing like the advertised ones, because it was shared with many users. While SingTel is now rolling out  plans with advertised speeds of up to 500 Mbps, this compares with speeds in major US  cities offered by Google and others of up to 1,000Mbps. And the major US mobile operators rolled 4G networks a long time before Singapore. I also read today that the regulator had to intervene to stop the state-owned mobile companies from charging their customers for what should be a free upgrade to the 4G network. 4G was rolled out in the UK last year so we are lagging behind.

This is what I wrote back in December 2011,  in ” Another Round of Monopoly Anyone” when there was the last round of wayang over competition:

In Parliament on Monday the Government announced changes to the Telecommunications Act designed to give them powers to require a telecoms company, or Telco, to divest its assets and business to a separate entity should it be found to be engaging in anti-competitive behaviour. Also the government now has the power to take over any network or services if it is in the National or public interest to do so.

 According to the Minister for Information, Communications and the Arts, Dr. Yaacob Ibrahim, the Government is committed to ensuring fair competition ‘because ultimately we believe that this will drive prices to an affordable level for all Singaporeans’. This sounds suspiciously similar to what I have always said. Namely, that competition is as vital in business as it is in politics. In particular I was sceptical not so far back, of the Worker’s Party plans for  nationalising the transport industry when I felt that competition (with a strong neutral regulator ) would always be in the best interests of the consumer. My caveat was that I always point out that what we think of as privatised here in Singapore is not really that privatised.

Are these proposed changes to the Telecommunications Act anything other than a public relations charade designed to give the appearance of opening up the domestic economy to more competition?  In fact they do nothing to reduce the power of government-owned or controlled cartels which dominate many of the key consumer sectors of the economy?

 Who, after all, is the ultimate owner of the three Telcos operating in Singapore? SingTel, though listed, is majority-owned by Temasek. As is Starhub, in which Temasek has an interest, either directly or indirectly, of about 57%. Even the third player, M1, has Keppel Telecoms (an 80% owned subsidiary of Keppel Corporation in which Temasek holds 22%) and SPH Multimedia (part of Mediacorp) as holders of a third of its shares. The Malaysian state Telco, Axiata, owns a further 20%. In any case, a large number of the directors and senior managers at all three Telcos are either MPs, or have a Civil Service or GLC background. Since the Government clearly controls the telecoms industry already, the need for extra powers to nationalize it in the public interest would appear to be unnecessary.

 Without the sale of Temasek’s stakes in at least one of the dominant mobile operators (SingTel or Starhub) here to the private sector, it is difficult to see how we are going to get a more competitive environment, and thus lower costs and greater innovation. Monopolists’ desire to protect their previous investments is going to be a big factor inhibiting their take up of new technologies. Fiddling at the edges with weak players, like MVNOs, who will remain dependent on the regulator to ensure they get treated fairly, is not going to change that.

We are moving globally to a world where quantum leaps in technology and productivity are reducing marginal costs to zero in many industries.  While this might seem a natural recipe for monopoly,  technology is changing so rapidly in many industries that the state capitalist model that Singapore espouses risks being left trailing in the dust. Our state-owned companies may try to hold back innovation and restrict consumer choice at the PAP’s behest to make sure they control the free flow of information and continue to reap monopoly profits. However technology will invariably find a work-around.

One example is the fight unfolding at the moment in the US where a tiny start-up, Aereo, whose business model allows consumers to by-pass the established networks and cable companies and watch TV over the internet, is being challenged in the Supreme Court by the same companies.

I have long advocated a radical dismantling of the state capitalist model and a strengthening of competition regulation if we are to encourage innovation. Mobile telecoms is just one area where government monopoly does not serve consumers’ interests nor our ability to compete globally in new technology industries.

An Familiar Tale of An Ordinary Singaporean and His Problems with An Unsympathetic HDB Bureaucracy

Screen Shot 2014-04-21 at 22.11.27Recently someone posted to my timeline on Facebook an account of another person who claimed to have received unsympathetic treatment from HDB. I have inserted a screenshot of the Facebook post above. The post received nearly 5,000 likes very quickly. After reading about it I invited Mr S to come and see me at the Reform Party office. He came down to see me yesterday afternoon accompanied by a neighbour, Mina, who has been assisting him in his  brush with the HDB and CPF bureaucracy.

I will summarise his case briefly. Mr S was forced to sell his HDB flat in May 2012 because of debt problems.  He is married with three children, two girls aged 19 and 16 and a young boy. Since he sold his HDB flat he has been living with his sister and her husband in their four-room flat. However his sister’s family now need the space back. Very sadly Mr S has recently been diagnosed with late-stage cancer and is no longer able to work. Previously he had his own business but I understand it was closed down due to insolvency. He is currently receiving $1,000 a month from ComCare, which is insufficient to cover his and his family’s needs.

However, despite his lack of liquid assets or income, Mr S has over $200,000 tied up in his CPF Ordinary and Special Accounts.  He applied for a BTO three-room flat last year and was successful in getting one. He put down a $1,000 deposit, which did not come from his CPF savings. Unfortunately the new flat will not be available till 2017 . He needs to find new accommodation immediately. He returned to HDB in November 2013 and requested to be put on the HDB subsidised rental scheme, as he cannot afford to rent a property on the open market. Mr S claims that the HDB rental officer told him that he could not be placed in the scheme, as he had already been successful in applying to buy a new flat. He then went and cancelled his application and forfeited his $1,000 deposit.  However, after cancelling his application, he was told that he was ineligible as he had sold his former HDB flat less than 30 months before and furthermore his level of CPF savings was too high. HDB are denying that they gave him this advice and that they told him from the outset that he would not qualify for a rental flat.

Mr S had ended up in the Uniquely Singaporean trap of having substantial savings in his CPF but being unable to use any of it. As the PAP government has broken its promises and unilaterally and repeatedly tightened the rules on withdrawal, introducing first the Minimum Sum Scheme and now replacing that with CPF Life, it really looked as though Mr S and his family would end up homeless. The letter from HDB, which I reproduce here (with the names redacted), seemed to suggest that it was an acceptable solution for Mr S to send all his children to India while he and his wife rented a room.

 

IMG_0026Mr S and Mina told me that HDB was advised that Mr S was of the seriousness of his medical condition and that his life expectancy had been reduced. Therefore I find it staggering that none of the staff could advise him that there was a simple solution to his problem. CPF allows those who have a medical condition that significantly shortens their lifespan or who are permanently unable to work to withdraw their CPF savings provided they leave the Medisave Minimum Sum in their account. Mr S obviously qualifies. Since CPF and HDB are so closely connected it seems inconceivable that the staff are so poorly trained as to be unaware of this fact. Perhaps they are incentivized only to sell flats and not trained to give appropriate financial advice. Or they are told not to tell customers of this scheme as it might encourage Singaporeans to contract a terminal illness just so they can withdraw their CPF savings early? That would be exactly  the PAP government’s way of thinking. I recall the PM in his National Day Speech 2013, advising Singaporeans that the best way to keep medical expenses down was just to stay healthy.

Anyway I am pleased that I was able to point out there was a fairly easy solution to Mr S’s problem though sadly there is no miracle cure for the poor man’s illness. Tomorrow I will assist him in filling in the online application for early withdrawal.  I will also go with him to see his MP in Jurong GRC at the next MPS and to HDB in order to try to get his deposit back. Mr S also wrote to PM Lee on his Facebook page and was contacted by an individual who took down the details. That was two days ago and he has yet to receive a response.

 

 

 

An Open Letter to the Chairman of the Securities Industry Council

18A Smith Street

Singapore

058932

 

 25 March 2014

 

J Y M Pillay

Chairman

Securities Industry Council

25th Storey, MAS Building
10 Shenton Way
Singapore 079117

 

Dear Sir,

I am writing to you in your capacity as the Chairman of the body responsible for seeing that market participants adhere to the provisions of the Singapore Code on Take-overs and Mergers (“the Take-over Code”).

There has been overwhelming public interest in seeking an explanation for the unusual price movements and trading volumes in Olam International Limited (“Olam”) from 4 February 2014 to 13 March 2014 when the stock was suspended immediately prior to the takeover announcement the next day. During this period Olam’s stock rose just under 40% without any announcement. By comparison its peers in the same sector, Wilmar and Noble Group, rose 11.2% and 12.6% over the same period. The STI index only rose by some 2.3% over the same period. Average daily trading volumes in Olam more than tripled in the month prior to the announcement. While volumes also rose in the other two stocks the increase was much smaller. Moreover the rise in the share prices of Noble and Wilmar and increase in volume is likely to have been driven by index rebalancing and quantitative trading as a direct result of the rise in Olam’s share price.

The Stock Exchange (SGX) put out an announcement on 17 March 2014. This drew attention to the obligations of the Offeror and Offeree companies under the Take-over Code to monitor trading activity in their stocks and make an announcement “if there appears to be a leak of information on the possible offer which is material.

The announcement went on to say:

Under SGX’s listing rules, listed companies may temporarily withhold material information relating to a matter under negotiation. However, companies should make an immediate announcement of the yet-to-be disclosed material information or call an immediate trading halt if market activities suggest that the requirement of strictest confidentiality is no longer satisfied.

 From 3 March 2014, listed companies are also required to notify SGX on a confidential basis if they are in discussions which are likely to lead to a takeover. We do not discuss our dealings with regards to individual companies including notifications as required under the listing rules. If there are possible breaches of rules or requirements, we will investigate and take appropriate action.”

SGX refused to disclose whether Olam or Temasek had notified them of take-over discussions on 3 March when the new rules came into force. The rest of their announcement was devoted to an extraordinary explanation of why Olam’s share price movement had not been unusual and boilerplate language about SGX’s commitment to maintain the highest standards.

This failed to convince most market participants and independent observers that there was still not a case to answer of breach of the Take-over Code and SGX rules as demonstrated by this Wall Street Journal article on the same day:

“Even after all those upgrades, the consensus target was only 1.68 Singapore dollars (US$1.33), according to FactSet, just a single Singapore cent higher than at the start of the year and far below the S$2 the stock hit just before the deal was announced. Back in November 2012, before Mr. [Carson]  Block’s accusations, analysts had a consensus of S$2.33. The stock then plunged to S$1.40, not reaching that consensus price, ever. Temasek’s buyout bid is priced at S$2.23. Nobody said explaining markets is easy, but this begs another look.”

Similarly, in a March 16th article, Bloomberg Business Week quoted Mr. Sachin Shah, a special situations and merger arbitrage strategist at New York based Albert Fried and Co, on his concerns that “there’s been leakage in the deal process”.

It may be your Council’s view that only foreign short sellers have suffered actual loss as a result of the movement in Olam’s share price prior to the bid announcement. However many Singaporean small shareholders lost out as well either because they were short the stock or because they sold out too early.

Reform Party therefore believes that in order to maintain the integrity of our public markets you are obliged to conduct an independent investigation as to whether there have been breaches of Articles 2 and 3 of the Take-over Code, dealing with Secrecy before Announcements and Timing and Contents of Announcements respectively.

SGX cannot be said to be independent of the Offeror in this case, as Temasek indirectly owns at least 23% of SGX through SEL (even though they may be precluded from voting their stake).

Similarly the SIC also contains at least nine members who have potential conflicts of interest arising from their employment with government-linked companies or with companies where a former Minister is Chairmen of the Advisory Board. In addition one of the members is a currently serving MP from the ruling party. I am also concerned that the other members of the SIC drawn from the legal profession may be partners of firms where a substantial portion of the revenue comes from government, statutory boards or government-related companies.

In view of the potential conflicts of interest it is Reform Party’s view that any investigation should be conducted by an entity with no ties to the government. The investigation should take evidence from those affected and its conclusions should be made public as soon as possible. If there is evidence that suggests insider trading then this should be passed to the AG as soon as possible with a view to potential prosecution of those suspected to be responsible. Any breach of the Take-over Code should be subject to sanctions.

 Reform Party believes that swift and decisive action on your part will prove that we have a robust regulatory regime and that we do more than pay lip service to the rules. This will boost confidence in our stock exchange and Singapore globally as a transparent and investor-friendly trading centre.

 

 

Kenneth Jeyaretnam

Secretary General

Temasek Loses the Plot

LostLast week I pointed out * that it made no sense for Temasek to pay a huge premium for Olam’s equity when Olam’s short-term debt refinancing was likely to be problematical, to say the least.  Lenders would likely have become increasingly nervous about extending more credit and rolling over existing facilities without a convincing strategy to achieve positive free cash flow and worries over the transparency of Olam’s accounts,

If Temasek saw long-term value in Olam,  the moment at which lenders would no longer extend credit  would have been the ideal moment to step in. They could then have offered to buy the debt at a substantial discount to face value, taking control of the company in that way.  Instead of waiting for Olam’s credit problems to become unmanageable and swooping in to get our citizens a bargain,  Temasek has in effect bailed out the foreign lenders. By doing so they are providing them with the reassurance of state ownership, even if not a direct guarantee.

For those of you who are sentimental about our sovereign wealth fund stepping in to save a Singaporean company from going under and believe it is worth the cost, I should point out that all of Olam’s production and most of its employment is overseas in places like Nigeria. Originally headquartered in London, it only moved to Singapore in 1995 and the CEO himself is a relatively new citizen.

On Monday Moodys, the US credit-rating agency called Temasek’s inexplicably generous offer for Olam “credit negative” **

This is what Moodys had to say about the Olam acquisition:

“Bringing a new company under the Singapore umbrella negatively pressures portfolio liquidity. Furthermore, Olam’s dividend yield in 2013 of 2% is well below Temasek’s overall dividend income yield of about 3% in the year to March 2013.

 In terms of currency, 65% of Temasek’s investments are in Singapore dollars. The high concentration of investment in Singapore-listed companies and the large size of each shareholding reduce portfolio liquidity. This feature is markedly different from the typical, more broadly spread sovereign wealth funds that can adjust their holdings rapidly without moving markets or requiring placements or trade buyers to effect disposals.

 It is highly unusual for investment companies to seek full control of a business.

If you want to know how a Sovereign Wealth Fund should be run for the benefit of its citizens,then look at Norway.  The Norwegian Sovereign Wealth Fund takes stakes of 1% or less in the equity of most of the companies it invests in and has a maximum stake size of 5%.  Some might object that a significantly concentrated portfolio leads to significantly higher returns. However the concomitant of higher concentration is significantly higher risk.

The Moodys report also highlighted the relatively weak state of Olam’s finances:

“Olam’s credit profile is relatively weak with gross debt of SGD9.1 billion and a reported last-12-months EBITDA of SGD1.2 billion as of 31 December 2013. Now with Temasek firmly in the picture, Olam will benefit from the financing halo effect, although Temasek does not guarantee the debts of its operating subsidiaries.”

Singaporeans should be very worried by this acquisition. It casts doubt on the  investment competence of  Temasek’s management.  However if this acquisition is worrying,  an investment company that acts in complete contradiction to its stated strategy is even more worrying. In a recent Reuters article about Temasek and Ho Ching’s new strategy,  “Temasek’s pivot to private investment heralds billion-dollar listed asset sales,  Temasek was described as cutting back on big stakes in publicly listed firms and putting more emphasis on private equity.

To quote from the article:

Under the guiding hand of chief executive Ho Ching, the wife of Singapore’s prime minister, the $170 billion state investor is morphing into a leaner form. The firm’s returns have often lagged its own internal metric in recent years due to its focus on big stocks.

Which goes on to say:

“Now they’re allocating capital in smaller chunks to these publicly listed firms, so that they are no longer a significant stakeholder in the company,” said Melvyn Teo, a professor of finance at Singapore Management University who has observed Temasek’s strategy closely over the years.

So lets just recap here.

  • Temasek invests the citizens’ money for the citizens’ benefit
  • Temasek is morphing  into a leaner form
  • Temasek is no longer going to take significant stakeholder positions
  • Temasek aims to raise its returns relative to an internal metric
  • Temasek is shifting its focus towards stakes in smaller companies and private equity investments

I fail to understand how Temasek’s takeover of Olam fulfills any of these aims.

So is Temasek fit for purpose and is our money safe? I am not convinced.This complete contradiction provides yet more evidence that the management of Temasek do not know what they are doing. Far from investing for the long-term (which again is almost certainly being used as a way of justifying ex-post any number of poor short-term investment decisions), in making the offer for Olam in such haste and overpaying they appear to be reacting to short-term pressures (possible bankruptcy?)

It has been suggested that Olam was on the verge of collapse and Temasek were trying to shore up the banking system. But that hardly makes sense as Olam’s debts of $9 billion are not that significant in relation to  total deposits in our  banking system.

It may be that Temasek are deliberately paying far too much for Olam because they want to mark their existing shareholding to the offer price and book the  resultant goodwill on their balance sheet as profit. It is ironic that this is exactly the tactic that Carson Block accused Olam of using to artificially boost their profit. By keeping Olam listed with negligible free float they may be able to  claim further mark to market profits by pushing up the share price. That is why we had Nomura coming out with a recommendation yesterday ( that investors hold on to their shares because they are likely to rise further.)

It is no coincidence that the Lead Nonexecutive Director of Olam  happens to be the Chairman of Nomura Singapore. The Securities Industry Council (SIC) need to look at whether parties allied to Temasek but outside the “Concert Parties” (as defined in the offer document) were involved in pushing up the share price. Given the conflicts of interest that the members of the SIC have, an independent investigation is unlikely to happen.

Another worrying sign is the fact that both Josephine Teo and Inderjit Singh spoke  in Parliament (“Govt spending needs won’t drive GIC, Temasek investments”) in an obviously choreographed performance to deliver the message that Temasek and GIC must not be put under pressure to deliver short-term returns to meet spending demands.  Josephine Teo said that “GIC and Temasek “must continue to invest with the aim of achieving good, risk-adjusted returns over the long term”.  As Keynes said about returns over the long-term, “In the long run we are all dead”.

If the returns are as the managers of Temasek and GIC claim they are, then why does the PAP give the impression that its idea of the long term will be well past the lifespan of any Singaporean alive today or even their grandchildren? Why are Singaporeans willing to put up with this nonsense. We need proper accountability and transparency now and this can only be achieved by listing Temasek and GIC and distributing shares to Singaporeans?

Temasek claims a track record of 17% p.a. annualised. I hope I have shown my readers over the last three years that the track record quoted  was only achieved because when Temasek was set up the government transferred its shareholdings to Temasek for close to zero consideration. When these companies (SIA and SingTel are two prominent examples) were later floated, Temasek claimed the revaluation gain as part of its returns. This blatant padding of Temasek’s real track record would not have passed muster with an independent regulator if Temasek were a private sector investment company marketing funds to the public.

This practice still continues. A case in point is the  injection of Changi Airport Group into Temasek in 2009 at a book value of around $3 billion or less when the real value of the airport is probably upwards of $16 billion or so (see my article “Has Temasek Found A Cure for Balding?”).

As I first said in an interview*** in 2010 (which was quoted all over the world), if Temasek were a private company, heads would have rolled by now. That was in 2010 but the situation has not improved.  The irrational investment decisions, the contradictions of policies announced just days before and inability to stick to an investment strategy, coupled with the lack of transparency and use of dubious accounting to artificially boost returns would all raise red flags with investors. I can tell you that if I were a private investor I would not be putting my own money into this company.

Ho Ching

*Questions for the Prime Minister’s Wife on Temasek’s Olam Acquisition

**Temasek Unit’s Offer for Olam Is Credit Negative, Moody’s Says

***http://in.reuters.com/article/2010/03/12/idINIndia-46873320100312

SGX denies wrongdoing and possibility of insider trading in Olam takeover.

sgx

In my blog yesterday I wrote about the inexplicably high offer that Temasek had made to buy out Olam, a Singaporean commodities firm hemorrhaging cash and burdened by debt repayments falling due.  As this offer was inexplicably generous and the timing irrational I feared that at least US$2.1 billion that belongs to the citizens of Singapore was being squandered  recklessly and that Temasek was trying to mask its real performance by increasing the proportion of  private companies in its portfolio.

I also said that in the period before the deal was announced, it appeared that Olam and Temasek had breached the Singapore Takeover Code which is regulated by  the Singapore Securities Industry Council.

Yesterday I said “ (the code) places very clear obligations on both the offeror and offeree companies to keep any offer discussions secret. In the event of an unusual movement in the share price of the offeree company or an increase in turnover they are required to make an immediate announcement as to the possibility of an offer.” 

I believed there had been a breach of the Code because I saw “unusual movement” in Olam’s market price that to me looked like absolute evidence of failure to protect the secrecy of the deal process.  That is not to say there was a deliberate leak or intention to commit the offence of insider trading but more that, with so many players involved, leaks do happen and that is why SGX and Temasek need to be vigilant. Temasek must have seen the increase in volume and upward movement and  should have made an  immediate announcement.   Trading in the stock should have been suspended earlier by SGX so as not to penalise the minority shareholders and to give everyone  a fair chance. Not to make that announcement was  a breach of the Takeover Code and has allowed those with prior knowledge of the Olam deal to profit unlawfully.

Temasek eventually made the official announcement of an offer to buy all the remaining shares in highly leveraged and cashflow negative Olam,  on March 14th.  However in the month preceding that offer being made, Olam’s shares rose by 35%, with no good news announcement to explain that rise and no similar rise being seen in its peers or the market itself.  The Straits Times Index only rose by 2.3 % in that period, for example. Once the official offer announcement was made the preceding 35% rise in Olam’s price looked like evidence that the cat had got out of the bag early.

I am not the only person who noted this. In a March 16th article Bloomberg Business Week quoted Mr. Sachin Shah, a special situations and merger arbitrage strategist at New York based Albert Fried and Co, on his concerns that “there’s been leakage in the deal process”.

there’s been leakage in the deal process

In fact you wouldn’t need to be an expert in M&A activity as I am or an analyst specializing in this area like Mr. Shah, to have serious concerns over “deal leakage”. Any reasonable observer would reach the same conclusion and apparently many of the minor shareholders who sold early in the process are already crying foul.

cash

I seem to have hit a nerve with my article because today SGX has published an astoundingly defensive statement that not only fails to rebut my concern that a breach had occurred but even seems to give evidence to support it.

Naturally, I stand by yesterday’s blog when I stated that the movement in Olam’s share price was “unusual” by the definition of the takeover code and the failure to make an earlier announcement had been a breach.

Here is what SGX said in reply:

“Market commentaries noted that in the six weeks from 3 Feb 2014, Olam’s share price increased 34.8%, higher than those of its peers such as Wilmar International which rose 11.2% and Noble Group which rose 12.6% over the same period. During the period, the Straits Times Index rose 2.3%. Such comparisons should be conducted with care as the financials and outlook of individual companies may differ even if they are within the same industry. While we do not prescribe a view of value or pricing of stocks, we note that of the 13 analysts who issued reports on Olam in February 2014, seven raised their target price by an average of 10.4% with the highest increase being 21.4%. The 13 analysts had target prices of $1.50 to $2.00 for Olam. In the case of Wilmar, eight analysts raised their target price by an average of 2.6% with the highest increase being 4.8%.  For Noble, one analyst raised the target price in February. Trading in these three stocks were within the price ranges set out in the research reports, suggesting they were trading within the general market view of these stocks with Olam shares reflecting a more positive market view.”

The so called clarification by SGX fails to answer the question as to why Olam rose so much more than its peers pre-announcement. A 34.8% rise was three times more than the average of 10.4% by which analysts raised their price target for the stock.

SGX quotes the rise for peers Noble and Wilmar but the statistics for Noble and Wimar only back up my assertion that Olam’s rise was unusual. The rises for those two companies were much smaller and completely in line with the general movement in the MSCI agricultural commodities index over the same period. In any case the large movement in Olam would have the effect of pulling up its peers due to technical activity driven by index rebalancing and quantitative trading.

Nothing that SGX has said above allays my suspicions that there had been “leakage” and that failure by Temasek to respond with an immediate announcement broke the Takeover Code with consequences that regulation is supposed to prevent. A defensive and unclear statement by SGX is not sufficient in the light of the failings being exposed.  There are a large number of investors who sold the shares in ignorance of an impending deal who will need to be compensated and there may be other investors who bought the  same shares, in the same month, in full  knowledge of the imminent takeover.

So, not only has the Code had been breached but the Stock Exchange also needs to conduct a convincing investigation into possible insider trading. If evidence  is found that anyone with prior knowledge of the deal profited from that knowledge, then prosecutions MUST follow. Unless SGX and other authorities responsible for regulating the market act and act swiftly, investor confidence could be fatally damaged.  Singapore’s reputation as a financial centre will be indelibly tarnished.

handcuffs-business500

However who is going to conduct such an inquiry?  SGX is itself not sufficiently independent since SEL, a Temasek holding company, controls 23% of SGX (and a further percentage could be held by nominees).  The chairman of SGX, Chew Choon Seng, is also the chairman of the Tourist Promotion Board and the former CEO of SIA. It thus has a clear conflict of interest making its statement of little value and  SGX clearly cannot investigate itself on suspicions of insider trading or violations of the Code by either or both parties.

How about the Securities Industry Council responsible for the Takeover Code?  Similarly the composition of the Securities Industry Council needs to be proven to be independent.   What we do know is that Lee Kuan Yew’s son and our Prime Minister’s brother sits on the Board of SGX and Lee Kuan Yew’s daughter–in–law and the Prime Minister’s wife, heads Temasek.  At least 7 members of the Securities Industry Council are connected with the Government or Government Linked Companies.

I therefore urge SGX, SIC and the government to appoint  an independent body to investigate this The investigation will need to come from outside Singapore as an investigation of accusations of possible misconduct by a Government-owned company is likely to face difficulties in finding individuals who do not have a conflict of interest given Temasek and the PAP government’s pervasive control over the economy and given that members of the same family are in key positions at Temasek, in the government and at SGX.

Meanwhile I repeat my offer to assist naturally extends to any aggrieved investors.

Questions for the Prime Minister’s Wife on Temasek’s Olam Acquisition

Olam Share Price

Olam Share Price

My suspicions were raised yesterday by the news that Temasek has put up $2.1 billion dollars to buy out any remaining shares they do not already own in Singaporean commodities trading firm Olam International Limited (“Olam”).  The offer was inexplicably generous. Though Temasek is only offering 12% above the stock’s last traded price, the offer is in fact  a staggering 55% above where the shares had been trading on February 4th  2014.

Why would Temasek be willing to pay such a high price for Olam no matter what the cost to its stakeholders, the citizens of Singapore? Naturally, at that 55% premium it can expect to get the vast majority of the shares except for those held by the founding shareholder and the company’s management, who have agreed not to tender their shares beyond a set percentage.  It would also seem that upon acquisition Temasek intends to take Olam private which means it would become unlisted. Unlisted holdings within an already secretive Temasek are bad news for Singaporean citizens.  Being unlisted allows a firm to hide a weak balance sheet or even catastrophic losses without the pressure of Singaporean public scrutiny and without the need to publicly report quarterly and annual earnings.

As you all know I am at the forefront of demanding greater transparency from Temasek. One of the reasons I have campaigned for Temasek to be listed publicly is so that we CAN apply public scrutiny and have complete transparency over its reported earnings. At the very least Temasek should produce the level of detail and transparency in its annual reports that Norway’s sovereign wealth fund does, allowing the figures to be scrutinized by Parliament.

My concern is that Olam is part of a movement by the government led by the Prime Minister and Temasek led by the Prime Minister’s wife, towards further secrecy. In the past few years I have been highlighting discrepancies and black holes in our government’s accounting procedures and simultaneously raised serious doubts over Temasek’s published rates of return. In the two years since Chip Goodyear suddenly left, Temasek has increased the percentage of private firms in its portfolio by 22%. As of March 2013 a very significant 27% of Temasek’s portfolio was in privately listed companies whose accounts are invisible to us. That percentage of private companies
may be even greater by the time the next reports come out around July.

The move towards private companies and accompanying secrecy may not matter if those companies are profitable but what better way for Temasek to hide its losses in a company they have made a bad bet on than by acquiring more than 90%, taking it private and burying it?  Is this in fact what they’ve done with Olam?  Did Temasek in fact, put up billions of our dollars in what amounts to a face saving exercise or to inflict financial pain on anyone who dares criticise them?

On the face of it Olam does not present as a good bet at a 55% or even a 12% premium. Olam’ has had a turbulent stretch recently after its weak balance sheet and its accounting practices came under the scrutiny of Carson Block and his research firm and short-seller Muddy Waters (“MW”) in November 2012.

carson blockFor those of you who don’t know MW they were behind the exposure of the Canadian-listed Sino-Forest Corp for misrepresenting its timber assets. Sino-Forest subsequently filed for bankruptcy in 2012.

In November 2012, Carson Block labelled Olam another “Enron”, described its equity as worthless and its accounting as highly questionable and announced that he was shorting it.  MW pointed out that Olam was burning up cash. Even on the company’s own figures it would not have been able to generate sufficient cash to meet the large debt repayments falling due over the next couple of years.

Enron, I’m sure you all remember, was a US energy-trading company with creative accounting whose apparent profitability relied on revaluing assets using dubious financial models. At the same time its cash flow was consistently negative and it was only managed to survive as a going concern on the generosity and gullibility (or venality) of its bankers. When it collapsed in 2001, as a result of the recession, there was a huge scandal and most of the top management ended up with long prison terms.

I have told you before that Temasek have an unerring ability to find the only banana skin in the room and promptly slip up on it (see “Chesapeake Energy and Temasek: A Tale of Two CEOs and Shareholder Democracy”) So my readers will not be surprised to learn that Temasek were the biggest shareholder in Olam, apart from the founders of the company, at the time that MW came forward with its negative assessment.

Olam’s stock dropped 20% on MW’s announcement and hit a three-year low in December 2012. In fact the company may have collapsed if Temasek had not come to Olam’s rescue within days of the MW announcement by agreeing to buy a US$750 million debt issue with warrants. This move may also have relieved the company’s debt refinancing issues temporarily and been a precondition for the banks to roll over short-term maturing debt. However the rapidity with which Olam turned to Temasek for assistance and the high cost of the new debt indicates that the MW hypothesis that Olam had been in danger of collapse was probably correct.

In addition Mr Verghese, the CEO of Olam and a true son of Singapore even though he is a new citizen, threatened to sue Carson Block and MW for defamation. There are some things we do so well in Singapore and using defamations suits to silence criticism is certainly one of them. Mr Verghese, reported to be politically well connected in Singapore, actually started proceedings, with Olam as the plaintiff, in the Singapore courts. However he decided to drop the suit after realizing that Olam would be unlikely to be able to enforce any judgement obtained in a Singapore court against a US company with no assets in Singapore. Furthermore the suit was not helping the stock price or Olam’s credibility.

Returning to the subject of why Temasek chose to make an offer to the shareholders at this time, I would quote Carson Block’s comments: “The Singapore sovereign wealth fund’s timing is interesting given that Olam has $1.2 billion of debt maturing this year and is still burning cash, and that the stock has inexplicably outperformed in the past month.”

As I described above Olam has continued to hemorrhage money. As of June last year, Olam already had long-term debt of S$5.9 billion compared with S$4.3 billion at the end of June 2012.  Temasek’s bail out via Olam’s Convertible Bond and Warrant issue was only a stopgap replacing cheap debt with expensive debt. Olam continued to be over-leveraged.

More importantly by February of this year Olam still faced an enormous re-financing problem with billions of dollars of debt falling due in the short-term without any positive free cash flow to draw on.
Even with the lifeline provided by Temasek through new lending, Olam would likely have been unable to continue as a going concern just as Carson Block of MW had predicted.

Given the circumstances, the timing of Temasek’s offer is peculiar and I am afraid inexplicable.  So is the offer’s huge premium to where the stock was trading in early February. Even if Temasek genuinely sees future value in Olam as a global commodities trader and producer they have a fiduciary obligation to their shareholders the citizens of Singapore not to overpay.  The rational strategy would have been to buy the debt of Olam at a big discount to face value and then take control of the company by forcing a restructuring, wiping out the equity holders in the process. To make an irrationally generous offer for a failing company with public money is rewarding foreign shareholders at the cost of the Singaporean taxpayer and CPF holder. Temasek has a case to answer here and questions need to be asked.

Some analysts have argued that the massive premium was justified because of a turnaround in fundamentals for the company. They point to rising agricultural commodity prices as well as better capital spending discipline by Olam. However it is hard to see that this is the case. Olam last month posted a 12.5 percent drop in second-quarter profit on weaker sales and commodity prices. While Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) rose slightly over the previous half-year, cashflow from operations continued to be strongly negative and debt continued to rise.

Undoubtedly the company had addressed some of the concerns raised by Block’s report but I don’t see this as anything approaching a turnaround. It certainly does not explain a 55% rise in the share price in one month. The MSCI agricultural commodities index only rose by 13% over the same period.

In fact I would go so far as to say that Olam and Temasek might have breached the Singapore Takeover Code.  This mirrors the UK Takeover Code and places very clear obligations on both the offeror and offeree companies to keep any offer discussions secret. In the event of an unusual movement in the share price of the offeree company or an increase in turnover they are required to make an immediate announcement as to the possibility of an offer. The movement in Olam’s share price was clearly unusual and should have led to an announcement much earlier. The stock exchange also needs to conduct a convincing investigation of possible insider trading and if evidence is found prosecute those responsible. If any MPs, NCMPs or NMPs wish to raise this issue as well as the broader question as to why Temasek chose to pay so much for Olam, then I am more than happy to assist them.

This episode only seems to demonstrate that the managers of Temasek and in particular the CEO, the PM’s wife, do not seem to feel under any capital discipline or fiduciary obligation to achieve the best returns for their stakeholders, the citizens of Singapore. Singaporeans should rightfully be angry that money can be so gratuitously and unnecessarily squandered in this manner. Foreign shareholders and lenders have not only been let off the hook but rewarded generously.  This seems to be for no other reason than to administer a painful lesson to those who would expose the mistakes made by Temasek’s investment managers. The irony is that the virtually unlimited resources of our sovereign wealth funds that enable their managers to do this have only been built up through our sacrifice.

Value destruction on this scale is only possible because of our willingness to allow the PAP government to get away with not giving us the true picture of our public finances. Instead we meekly submit to conditions of austerity that are totally unnecessary. The next time we are told by the government that taxes will have to rise to finance greater social spending, or that we have to queue in tents at SGH like some Third World war zone, we should remember what our refusal to stand up for our rights is really costing us.

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