The firm’s annual financial report, Temasek Review 2011, reports a record yearend portfolio value of 193 billion Singapore dollars, up from 186 Singapore dollars billion in the previous year.

 

Temasek continued its 2002 strategy of steady and active international investment, particularly in Asia, to reshape its portfolio for sustainable long term returns.

 

S Dhanabalan, chairman of Temasek Holdings, said, “While Asia rebounded swiftly in 2010, the US and European economies continued to face uncertainties. Rising debt burdens, inflation risks, and political upheaval in the Middle East, tested the resilience of the global economic recovery. Against this backdrop, Temasek continued its steady investment and divestment pace, ending the year with a net cash position, in anticipation of opportunities ahead.”

 

For Temasek, investments made after March 31 2002, when it began shifting its portfolio weight towards Asia, delivered annualized returns of 21percent over the last nine years, or over 5.5 times return for the period. The portfolio of earlier vintage investments made before March 31 2002, comprising mostly Singapore-based investments, delivered creditable annualized returns of 11 percent over the last nine years, or under 2.7 times.

 

From the shareholder perspective, total return to Temasek's shareholder (TSR) for the year was a modest 4.60 percent. This is based on the value of the overall portfolio, including cash and cash equivalents in the overall Temasek portfolio, as well as dividends to the shareholder and net of any capital injection from the shareholder.

 

Five-year and 10-year TSRs were steady at seven percent and nine percent respectively, while the 20-year and 30-year TSRs were 15 percent and 14 percent respectively. Since its inception in 1974, Temasek has delivered a healthy 17 percent compounded annual return. Group net profit was 13 billion Singapore dollars, more than double from 5 billion Singapore dollars a year ago, due to higher contributions from Temasek investment activities and improved profits from its portfolio companies.

 

Investing for sustainable returns

 

Temasek remains anchored in Asia as part of its strategy to build its portfolio for resilience and sustainable long term risk adjusted returns.

 

During the year, Temasek maintained its steady pace of investments and divestments, with 13 billion Singapore dollars of investments and nine billion Singapore dollars of divestments. It supported the recapitalization of its portfolio companies, and stepped up its investments in the energy and resources sector, as well as in non-Asia growth economies such as Latin America. Temasek closed the year with net cash.

 

China remained Temasek’s largest investment destination. Additional investments included over three billion Singapore dollars in the rights issues of China Construction Bank and Bank of China.

 

In India, Temasek invested 280 million Singapore dollars in GMR Energy, giving it a significant exposure to the growing Indian power sector.

In Singapore, Temasek invested over 100 million Singapore dollars in Hutchison Port Holdings Trust, the first container port business trust listed on the Singapore Exchange.

 

Investments in the energy and resources sectors during the year included an initial 500 million Singapore dollars in Odebrecht Oil & Gas, a leading Brazilian upstream services provider for the oil industry, and 700 million Singapore dollars in Chesapeake Energy Corporation, the second-largest producer of natural gas in the USA.

 

In Mexico, in partnership with Impulsora Mexicana de Desarrollos Inmobiliarios, Temasek committed over 100 million Singapore dollars to pursue land banking opportunities with its first joint investment in Supra Terra.

 

Divestments during the year included Temasek’s stakes in Fraser and Neave, Hana Financial Group and Fortescue Metals Group.

 

Temasek ended the year with an underlying portfolio exposure of 77 percent to Asia, including 32 percent in Singapore. Latin America and other growth regions were a growing three percent, while mature economies of Australia & New Zealand and North America & Europe comprised a steady 20 percent.The portfolio mix is balanced 45:55 between growth regions and mature economies.

 

Ho Ching, executive director and CEO of Temasek explained, “We will continue to invest in the transforming economies of Asia and Latin America. At the same time, we remain open and ready to participate in opportunities in mature markets such as our recent investments in the USA.”

 

Financing framework

 

The annual Temasek Review, Temasek bonds and credit ratings are public markers of its credit quality. They are also an integral part of the firm’s commitment to anchor its institutional framework for financial discipline over the long term, foster good governance, and expand its stakeholder base.

 

Starting with its maiden 10-year Temasek bond in 2005, it has issued additional Temasek bonds over the last two years to build out its debt maturity curve, including a groundbreaking 40-year Singapore dollar Temasek bond in late 2010. To date, it has issued 10 billion Singapore dollars of triple-A rated Temasek bonds in Singapore dollars, US dollars and British pounds sterling, with an average debt maturity of 16 years.

 

In February 2011, Temasek established a USD5 billion Euro-commercial paper (ECP) programme to cover the short end of its debt maturity curve. The Temasek ECP programme has been assigned the highest short term ratings of A-1+ by S&P and P-1 by Moody’s. Both the Temasek bond and ECP programmes form the major building blocks in its financing framework.

Temasek is committed to the wider communities through its philanthropic support and endowment gifts for building people, as well as building the capacity and capability of communities around Asia, and rebuilding lives.

 

Temasek launched two philanthropic foundations in August 2010, following strong returns in excess of its risk-adjusted hurdles in the previous financial year that ended March 31 2009, The Temasek Education Foundation supports educational causes in Singapore, while the Temasek International Foundation promotes and advances international scholarship and fellowship in the broader global community.

 

Looking ahead

 

Temasek remains optimistic on the longer term outlook in Asia and other growth economies, despite medium term inflationary and structural risks, compounded by global imbalances.

 

S Dhanabalan explained, “According to a recent McKinsey Global Institute report, mid-sized cities in growing markets are projected to deliver almost 40 percent of global growth by 2025. We continue to see the rising middle income populations driving rapid urbanization and housing demands. Innovation will spur demand for new services, which could also lead to attractive investment opportunities.”

 

Temasek’s four investment themes of transforming economies; growing middle income populations; deepening comparative advantages; and emerging champions; will continue to guide its investments in the decade ahead as it strives to deliver sustainable long term value to its shareholder.

 

Ho Ching elaborated, “Our strategy is to continue to invest and divest at a steady pace; stay liquid; shape a resilient portfolio and yet maintain the full flexibility to shift our portfolio mix, if and when necessary. Institutionally, we are committed to do things today for the long term. We are here to build a better tomorrow for our future generations. Directionally, we would like to further expand our stakeholder base to include co-investors and retail investors over time.”