A very Singaporean problem
By Paul Mackintosh - 10/12/12
Temasek Holdings’ actions regarding its investee Olam International underline the ambiguities that have always accompanied its position as a private equity investor. Is it a market-driven value-focused enterprise aiming only to secure the best possible return on investment (ROI)? Or is it a strategic investment arm of Singapore Inc. using its financial muscle for national economic goals? Partly this reflects a broader challenge now facing Singapore: whether to expose itself more to the disciplines of the market or to stick to the highly managed top-down industrial policy that has served it so well in the past. As with Singapore’s infrastructure and governing levels lately, Temasek seems to be feeling the strain.
Muddy Waters Research, the buccaneering US short seller whose aggressive reports on US-listed Chinese companies triggered a rout of overseas PRC tech stocks, caught a libel suit from Olam in Singapore following its initial report on the agricultural products company, the world’s second largest rice trader. Muddy Waters minced no words in its coverage of Olam, which, it states “runs a high risk of failure,” while citing “incompetence and perhaps significant misconduct,” and drawing comparisons with Enron. Subsequently, Temasek backed a $750 million debt and up to $500 million warrants issue, offering to take up any unwanted rights, to restore confidence in Olam. This move “validates our thesis,” claimed Muddy Waters. Now, Singapore’s Business Times is running comments from a former Temasek senior MD criticising the cost of the exercise, and Olam’s broader strategy. Investors on the SGX, not heeding the Temasek party line, drove Olam to its lowest close since 2009.
“Raising money from the public is a privilege,” affirmed Muddy Waters earlier. “Because Olam has received significant investment from the government of Singapore, Olam’s mismanagement of the public trust is that much less forgivable.”
If Temasek, already Olam’s largest external shareholder with 16% according to Bloomberg, is supposed to be adding value to its investment, one wonders how. Was it fully behind the investment decisions that gave Muddy Waters its point of attack? Did it scrutinise the company’s costs and internal practices closely? Its attempt to restore faith in Olam seems to have backfired, judging by market responses. Furthermore, its major strategic buy into Olam in 2009, in a move out of loss-making financial assets into commodities, preceded many of the acquisitions that Muddy Waters now cites as the source of the company’s financial problems. At the time, Temasek called Olam an emerging global champion.
Flexibility and readiness to admit mistakes do not spring first to mind as qualities associated with Singapore’s leading echelons. Now Temasek seems to be defending a local hero, come what may. Perhaps other countries should consider this the next time they have to decide whether to allow a Temasek investment.