SINGAPORE REACTS TO LEADERSHIP CHANGES AT TEMASEK

C O N F I D E N T I A L SECTION 01 OF 02 SINGAPORE 000131

SIPDIS

STATE PASS USTR
NEW DELHI FOR EHRENDREICH

E.O. 12958: DECL: 02/11/2019
TAGS: ECON EFIN EINV SN
SUBJECT: SINGAPORE REACTS TO LEADERSHIP CHANGES AT TEMASEK

Classified By: Charge d'Affaires Daniel L. Shields for reasons 1.4 (b)
and (d)


1. (C) Summary: Despite denials from Temasek leadership, the
announcement of the upcoming departure of CEO Ho Ching from
Singapore's sovereign wealth fund Temasek Holdings is
suspected to be at least partly a result of the fund's recent
poor performance. Ho oversaw a broad expansion and
diversification of Temasek's assets during her tenure, but
many investments proved controversial and Temasek now sits on
multi-billion dollar paper losses from untimely investments
in the financial sector. Ho's marriage to PM Lee was also
seen as a drawback as Temasek tries to allay international
fears that the fund could have political as well as
commercial interests. Chip Goodyear, an American who only
joined Temasek's board in February, has been named her
successor. Temasek-watchers speculate that the fund may have
named a non-Singaporean CEO to ease the way in pursuing
further overseas investments and to convert Temasek into a
truly international conglomerate. End Summary.


2. (SBU) Temasek Holdings announced February 6 that Ms. Ho
Ching, its CEO since 2004, would step down from the sovereign
wealth fund as of October 1. Ho is also the spouse of
current PM Lee Hsien Loong. In a press conference, Temasek
chairman S Dhanabalan gave no reason for Ho Ching's
departure, but said that the board had begun succession
planning in 2005 and had already tentatively identified her
successor in 2007. Ho said she had no future plans
post-October, but some press has speculated that she will run
for political office.

A Gentle Shove?
--------------


3. (SBU) Dhanabalan insisted at the press conference that
Ho's departure was not connected to her relationship with PM
Lee and concerns over nepotism, nor to the poor performance
of many of Temasek's investments under Ho's leadership. Ho
had been credited earlier with tripling the size of the fund
from 2004 to March 2008, the date of Temasek's most recent
annual report. However, four days after the announcement
Senior Minister of State for Finance Lim Hwee Hua revealed to
parliament that Temasek's net portfolio value had fallen 31
percent from March to November 2008, from S$185 billion
(US$123 billion) to S$127 billion (US$84 billion). Since
November, many of Temasek's equity investments have continued
to decline and press sources estimate the current losses
since March to be closer to 40 percent. Dhanabalan said
Temasek takes a long-term view and contended it was too early
to judge the performance of the investments.


4. (SBU) Under Ho, Temasek changed its focus from primarily
domestic assets and undertook bold overseas investments.
Temasek's investments are now split roughly evenly between
Singapore, the rest of Asia, and developed countries.
However, a number of recent investments have since gone awry,
particularly financial sector holdings which had reached 40
percent of the fund's portfolio. Journalist Assif Shameen of
The Edge business newspaper calculated that Temasek's US$5.9
billion stake in Merrill Lynch (now held in Bank of America
shares) has dropped in value to approximately US$1.2 billion.
The company is also sitting on multi-billion dollar paper
losses in its investments in Standard Chartered and Barclays.
The US$1.9 billion purchase of Thailand's Shin Corporation
in 2006 touched off protests in Thailand that paved the way
for the ouster of then-Prime Minister Thaksin Shinawatra,
partly due to the convoluted ownership structure Temasek used
to bypass foreign ownership restrictions. That investment
has also lost approximately two-thirds of its value.


5. (C) Local press reported the sharp fall in Temasek's
value, but also gave broad play to the GOS's spin, stressing
the long-term nature of its investments and favorably
comparing the performance of the fund to broader indexes
which fell even further in 2008. Nevertheless, Temasek
co-Executive Director Simon Israel told the Charge February
10 that although the Singapore press has not been critical,
the more freewheeling Internet blogs have savaged Ho Ching
for her performance. On the recent S$58 billion in Temasek
losses, one blogger wrote, "Only in uniquely Singapore can
someone lose $240 million of public money a day for eight
months and there is no public demonstration."

Bad Times Call for Goodyear
--------------


SINGAPORE 00000131 002 OF 002



6. (C) Charles "Chip" Goodyear, a 51-year-old American, will
replace Ho as CEO on October 1 and will be the first
non-Singaporean to captain Temasek. Goodyear was formerly
CEO of BHP Billiton, the world's largest mining company, and
was named to the board of Temasek only on February 1, 2009.
A senior Temasek manager speculated that the company named a
non-Singaporean as head to allay fears overseas that the
sovereign wealth fund was an instrument of the government and
could be serving Singapore's political rather than commercial
interests. Nancy Wei, Head of Research for United Overseas
Bank, told Econ FSN that the move also likely reflected
Temasek's transition from a mainly domestic player to an
international conglomerate and the consequent need for
stronger international experience on the board. As a former
mining executive, Goodyear may also bring a new direction for
Temasek toward investments in natural resources.


7. (C) Comment: Despite the Temasek chairman's denials, the
announcement of Ho Ching's resignation seems connected to
Temasek's untimely investments in the financial sector and
the private criticism of Ho's performance. Although
Singapore can be quick to crack down on public criticism of
its leadership, the government is sensitive to low level
grumbling and often moves swiftly to head off complaints
before they become serious issues. It fits the Singapore
style for Ho's resignation to have been made public on
February 6, while confirmation of Temasek's major losses only
came on February 10. The nine-month delay in Ho's departure
may be a face-saving measure, designed to reduce any
impression that she is being punished for Temasek,s
performance while still blunting public anger and criticism
over the losses to Singapore's reserves under her watch.

Visit Embassy Singapore's Classified website:
http://www.state.sgov.gov/p/eap/singapore/ind ex.cfm
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