Category Archives: The market

Clash of the Grossly Overcharged Means Alvin Yeo Must Resign

alvin yeo

I am sure the case of  Dr Susan Lim is still in many people’s minds. She was the doctor taken to court by the SMC for overcharging the Brunei royal family and  suspended from practice for three years. The courts found her guilty and after her appeal failed they awarded costs against her.  This means that not only did she have to pay her own lawyers but also the SMC’s lawyers’ costs.

Acting for the Singapore Medical Council (SMC) in the case against Dr Lim were  a team led by Alvin Yeo, Senior Counsel and PAP MP for Chua Chu Kang (CCK) GRC, and  lawyers Melanie Ho and Lim Wei Lee. They submitted their bill to Dr Lim for payment and in one of life’s exquisite ironies Dr Lim herself found that she herself had been grossly overcharged by the MP and his team. Her husband objected to Yeo’s bill and had it sent back to the court to be “taxed” which is the process whereby the Registrar of the Supreme Court scrutinises the bill.

A few days ago I read here that the Supreme Court ordered that Alvin Yeo’s bill be reduced  from $1.33 million to $317,000. That is they found the correct amount to be charged was 25% of the original submitted. In other words Alvin Yeo and the team he led had overcharged by a staggering 300%.

Lawyers, let alone a Senior Counsel and an MP such as Yeo of whom higher standards are expected, who overcharge their clients by that multiple, frequently face disciplinary action and either a large fine or even a suspension from practice.  The judges in previous disciplinary tribunals have made it clear that sanctions include the power to strike off.  So what disciplinary action has the Honourable MP and Senior Counsel faced? At the time of writing this I can find no evidence that any disciplinary action against Yeo and his team is scheduled. 

There have been several precedents where  the consequences have been severe.  For example, in 2011 lawyer, Andre Arul was found guilty of overcharging his client by a multiple of approximately 200% and fined $50,000. In addition costs were awarded against him by a Court of Three Judges (including the then CJ, Chan Sek Kheong, of the teleportation into the polling booth controversy in Cheng San in 1997.) You can read the judgement here  Law Society of Singapore v Andre Ravindran Saravanapavan Arul [2011] SGHC 224The judgement also mentioned three other cases where lawyers were suspended from practice for between three and six months.

In the case of Low Yong Sen, the amount overcharged, which took the form of inflated disbursements for items like stationery and photocopying , was found to be less than $3,000. However the lawyer in question was suspended for six months.

As it was Dr Lim who had asked for the SMC’s costs to be taxed, it is not clear whether SMC will in turn make a complaint to the Law Society about their bill or whether they will just pay the difference between what the court said was a fair amount and the full amount of Wong Partnership’s ( Yeo’s firm) bill.

Even if the SMC are reluctant to make a complaint against a PAP MP  Sections 85(2) and (3) of the LPA allow the Council of the Law Society or a Supreme Court Judge to refer the matter to the Inquiry Committee or, in the case of a Supreme Court Judge, to appoint a Disciplinary Committee directly.

I for one will be watching closely to see if the CJ or the Law Society takes any action or if Alvin Yeo is let off the hook. If he is, then this would appear to be evidence of discriminatory treatment given the penalty meted out to Andre Arul and the other lawyers. The margin of overcharging (300%) was significantly greater in Alvin Yeo’s case than in Andre Arul’s (200%).

Even if no disciplinary proceedings are initiated, I do not see how Alvin Yeo can continue as an MP. I do not see how Alvin Yeo can keep his seat if he is found guilty of gross overcharging and is either fined, censured or suspended from practice.  The law makes it clear that the penalties in these cases are for damaging the integrity of the profession.

For a politician Integrity is also paramount. I would like to draw your attention to one item on the overcharging that I found striking.   Stuck amongst the high figures charged for days in court, up to  $100,000 per hour on  the last statement, was an item for ring binders. Ring binders which SMC’s lawyers  had priced at $6 per unit for Dr Lim to pay were cut to $2.50 per unit after the court found it had used the cheaper version in past hearings. Who overcharges for Ring Binders? The mind boggles that there was not even one item so small that they could not see an opportunity for a mark up of over 200%.

Those with a keen interest in the politics of office stationery will remember that Dr Chee was fired from his job at NUS for overcharging for photocopying and taxi fares. I remember the amount he was found to have overcharged for taxi-fares was less than $10.  Compare that to Alvin Yeo’s charges..

Maybe the PAP should upgrade  Dr Koh’s “everyone owns two cars” to “everyone earns $100,000 an hour”.

Alvin Yeo should resign immediately paving the way for a by-election in CCK. After the Appeal Court’s decision in the case of Madam Vellama, the PM is required to hold a by-election within a reasonable period of time, though that judgement only applied in the case of an SMC. I do not know whether it would be possible to file an action in the High Court to attempt to extend that judgement to GRCs and, if so, whether an action would have any chance of success.

While Alvin Yeo’s conduct is shocking, I am not surprised at the low standards set by PAP MPs and their seemingly insatiable greed. Just as the Communist Party in China has allowed its top officials to accumulate vast wealth to buy their complicity and head off any democratic challenges (see here), so the PAP’s philosophy has been one of vastly overpaying Ministers to ensure that they remain loyal to the leadership and are prepared to ignore whatever principles they may once have had.

The PAP’s philosophy that you go into government to get rich extends to its MPs, most of whom hold lucrative primary jobs, like Alvin Yeo, Janil Puthucheary, Hari Nair, Lim Wee Kiat, and Vikram Nair. For them  being an MP is merely a (very) part-time role. They are enabled to do so by the fact Parliament is little more than a rubber stamp, which works the shortest hours of any legislature while paying its representatives one of the highest allowances (tax-free as well!).

In fact Eugene Tan, a former NMP, in the last Parliamentary sitting drew attention to how poorly attended Parliament was when he had to point out to the Deputy Speaker, Halimah Yaacob, that there were not even enough MPs to constitute the necessary quorum to pass a Bill.

My first thought when I read about the Susan Lim case, was that the Brunei royal family, who are rumoured to be worth at least US$20 billion, should be able to look after themselves. They could have sued Susan Lim themselves or refused to pay her excessive bills.  However Brunei and its royal family are of course extremely important clients of Singapore. One of the SMC’s objectives in bringing the action against Dr Lim presumably was to show wealthy foreigners that Singapore was a safe and reliable place to live and seek medical treatment in and that we uphold the highest standards of professional integrity. In that case this is more than just irony.  It is an attempt to reassure Brunei that has disastrously backfired giving the impression that Singapore is rife with rogue professionals lacking integrity. Unless the full force of disciplinary action is now directed at Alvin Yeo our reputation will be in tatters.

 

quote-you-have-sat-too-long-here-for-any-good-you-have-been-doing-depart-i-say-and-let-us-have-done-oliver-cromwell-304784

 

Leaked: The letter that Ho Ching received from a Nigerian lawyer.

A copy of a letter sent to Temasek Holdings urging them to invest in Nigerian energy company Six Energy has fallen into my hands.  I share it with you. (Warning! I have no way of confirming that this letter was really sent or received. It may even be a parody. Judge for yourself.)

Agabi and Associates.
Solicitors and Advocates for Six Energy.
5th floor, Kelong House.
Lagos.

To the Honorable Madam Ho

Temasek Holdings

Re: Strictly Confidential and Urgent  Business Opportunity.

Dear Madam Ho (wife of glorious Prime Minster of the fully Democratic Republic of Singapore, the Honorable Mr PM LEE)

I am the representative of the Nigerian energy company ‘Six Energy’.  In Nigeria we have long admired you  as a market guru seemingly able to seize every and any opportunity to make money. We are mesmeric by the incredible track record of the company, Temasek Holdings, which effortlessly has made annualized returns of 16% since inception.

Even when your countrymen discovered that you had made elementary mistakes during the financial crisis of 2008 this did not end of your career as in a lesser fund manager. Truly your esteem is such that the Government of your country, headed by your illustrious husband, had sufficient faith in your  abilities,  to confirm his appointment of you as CEO.

Please permit me to make your acquaintance in so informal a manner.  This is necessitated by my urgent need to reach a dependable and trust wordy foreign partner. I am in a position to uplift your esteem even higher and present Temasek Holdings with an unbeatable business offer.

You must have heard over the media reports and the Internet of various huge sums of money invested in our company by such elite organisations as the International Finance Corporation, part of the World Bank Group of companies (see link).

We know you are not a charity despite the fact that Singaporeans sometimes may be forgiven for thinking you are, even if most of your charity work benefits foreigners. We know that Temasek’s principal aim is to make money for its shareholder, the Government of Singapore. We agree with you that this money would be wasted on Singaporeans who are a weak and whining lot, unappreciative of all that you, your husband and your father-in-law, may he live forever, have done for them. We know that without his guiding genius your esteemed country would just be another disgusting mangrove swamp, like much of our coastline after the Western oil companies started pumping oil.

We therefore humbly beseech you for a small investment, nothing too big for an esteemed and magnificent company of your stature cannot handle. S$200 million should be suffice for now though we may kindly call upon your esteemedness for  further and larger amounts in the future. This money will be part of a total fundraising of over S$300 million in new equity capital (alas we do not know where the money we raised before has gone!) and will be invested with most care and utmost diligence in development of our growing portfolio of energy assets in Nigeria.

You may be concerned that all the other participants in our fundraising are there with charitable objectives, to reduce poverty and create prosperity in Africa. You may be worried that the International Finance Corporation, which will be a junior partner in the investment, is principally concerned with ending extreme poverty and creating shared prosperity rather than making money for its shareholder. This may suggest to you that investing in Six Energy would not meet the investment criteria of Temasek Holdings .   Don’t worry this just means that there will be more money for you.

Madam Ho, you may ask yourself why your exaltedness should be investing your country’s citizens’ precious money in a Nigerian energy company when the only other investor is a multilateral institution who is not there to make money. After all your countrymen and women may ask what you know about Nigeria or about investment in Africa.  They may be concerned at the risk that those evil rascals and thorough bad fellows, Boko Haram, are getting stronger on a daily basis and that our army appears powerless to stop them.

Tell these ungrateful wretches to be no concerned. Kidnapping a few schoolgirls and bombing our capital is much different from attacking a well protected  first class company like ours. In case you have trouble with your investment committee, we have prepared many sets of cashflow statements to show you the huge IRRs that your investment will be sure to earn.  Just do not ask us to pay you any dividends. Or if we do pay you a dividend please be advised that instantaneously you must invest that back into new shares. We know that this will not shock you as Temasek and your sister company GIC have used a similar scam to avoid paying any money to their shareholder for years.

We know your immense appetite for foolhardiness and high risk  which has been demonstrated by your decision to double down on your investment in another company, Olam, which has extensive interests in Nigeria. In such case we truly can appreciate the immense generosity and kindness of your benevolent leadership towards the management and shareholders of that company which rescued them  from bankruptcy without them having to lose any of the huge wealth and large properties they had accumulated. We also truly thank the good people of Singapore for going without basic health care or even free education so that others in our countries can be helped. In particular the recent generosity of their Government which put another $5 billion in surpluses extracted from your people into your esteemed organisation is to be highly commended. Even some of our Illustrious former Presidents, like Mr Abacha, clearly have a lot to learn.

Though we have neither seen nor met each other, the information we gathered from an associate who has worked in your country has encouraged and convinced us that with your sincere assistance, this transaction will be properly handled with modesty and honesty to a huge success within two weeks.

Please note that we have strong and reliable connections at the Central Bank Of Nigeria and other Government Parastatals and we hear that you have also banking secrecy in Singapore and do not engage in public disclosure of Temasek deal details,  hence assistance in this regards, would not be a problem.   Indeed Madam, you will be absolutely right when you say that this project is risk free and viable for you (although possibly not so good for your citizens). If you are capable and willing to assist, contact me at once via email with following details:

1.Your Full Name, Company’s Name, Address, Telephone and Fax Numbers. 2.Your Bank Name, Address. Telephone and Fax Number. 3.Your Bank Account Number and Beneficiary Name – You must be the signatory.

Rest assured that the modalities I have resolved to finalize the entire project guarantees our safety and the successful transfer of the funds.

Kindly contact me as soon as possible, whether or not you are interested in this deal, so that whereby you are not interested, it would give us more room to scout for another partner.  But if you are interested, kindly contact me via above email, telephone or fax, so that we can swing into action, as time is not on our part.

I wait in anticipation of your fullest co-operation.

Yours Faithfully,
Dan Agabe

P.S. Also this transaction demands absolute confidentiality which our associate in your country tells us is Temaask Holding’s strong point.  We also understand that your husband’s government is also not strong on transparency. Nevertheless,  on no condition must you disclose it to anybody irrespective of your relation with the person.  In particular do not discuss this with that horrible fellow Vikram Nair who has spread bad words about Nigerian financial schemes in your country.
Thank you and God Bless.

Best Regards, MR DAN AGABE.

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

Follow

Get every new post delivered to your Inbox.

Join 1,067 other followers

%d bloggers like this: