Temasek looks further afield for growth areas

Singapore investment fund revising portfolio to include retail and African resources sectors

PUBLISHED : Tuesday, 06 May, 2014, 12:42am
UPDATED : Tuesday, 06 May, 2014, 2:39am


As it approaches its 40th year, Singapore investment giant Temasek is stretching its legs, moving away from its finance-based comfort zone into sectors such as retail and African resources to ensure future growth, analysts say.

With worldwide holdings worth S$215 billion (HK$1.33 trillion) at the end of March, Temasek is listed as one of the top 10 global players by the United States-based Sovereign Wealth Fund Institute.

Its wide spectrum of interests spans banking, telecommunications, transport, life sciences and property, while more than 70 per cent of its investments are in Asia.

But with the global economy still readjusting five years after a crippling financial crisis, the firm, established in June 1974, is re-evaluating its portfolio to find new growth areas and minimise its exposure in the event of another downturn.

Analysts say businesses that cater to the needs of the growing middle class in emerging markets, as well as energy and resources, are expected to comprise the main areas of interest for the fund.

"One of the key investment strategies that Temasek has been pursuing in recent years has been to diversify its portfolio to tap into the rapid growth in spending by the middle class in emerging markets," said Rajiv Biswas, the chief Asia-Pacific economist at IHS Global Insight.

"The rise of Asia's consumer middle classes will be one of the key global megatrends driving change in the global economy over the next two decades."

Kelly Teoh, the managing director at IR Resources, said Temasek's venture into resources in Africa "shows their willingness to look beyond the norm".

Temasek in March bought almost 25 per cent of AS Watson, the retail chain owned by Hong Kong's richest man Li Ka-shing, for HK$44 billion.

Its flagship brand Watsons is a household name as Asia's largest health and beauty retailer, with more than 4,000 personal care stores and 1,000 pharmacies in countries including China, South Korea and the Ukraine.

A Temasek-led consortium in March offered S$2.53 billion to buy out minority shareholders of Olam, which supplies products such as nuts, coffee, cocoa and sugar to food and beverage manufacturers.

Olam also sells its own brands of packaged foods in Africa, which its website describes as the fastest growing continent for consumer products over the next few decades.

Market research firm Euromonitor projects the global retail market to be worth US$16.12 trillion by 2018, up from US$13.92 trillion last year, with the Asia-Pacific region accounting for more than a third of the total.

The global beauty and personal care market, which includes grooming products and fragrances, is forecast to be worth US$523.51 billion in 2018, up from US$454.11 billion last year.

Temasek has also ramped up investments in the energy sector, venturing into Africa.

In the financial year to March last year, it reported net investment of S$4 billion in the energy and resources sector.

This included stakes in Spain's integrated oil firm Repsol, Cheniere Energy, a US firm which is building a liquefied natural gas export terminal, and Venari Resources, a US company focused on deep-water exploration in the Gulf of Mexico.

Pavilion Energy, wholly owned by Temasek, bought a 20 per cent stake in three natural gas blocks in Tanzania for US$1.3 billion late last year.

Last month, Temasek invested US$150 million in Nigeria's oil firm Seven Energy.

"African oil and gas developments can play a significant role in supplying Asia's future energy needs forecast to grow strongly in the next 20 to 30 years," Biswas said.

Energy and resources made up 6 per cent of Temasek's global portfolio last year, up from 3 per cent in 2011.

The International Energy Agency projects world energy consumption to rise 56 per cent between 2010 and 2040, much of it coming from emerging markets.

But there were also other factors driving Temasek's investment in the sector, said Ravi Krishnaswamy, the Asia-Pacific vice-president for energy and environment practice at business consultancy Frost & Sullivan.

Krishnaswamy said at least 30 per cent of oil and gas reserves were in remote areas, requiring new technologies to explore and the necessary infrastructure to deliver them.

Financial services still form the biggest chunk in Temasek's global portfolio, accounting for 31 per cent at the end of March but down from 40 per cent in 2008.

"This was a sector that hurt Temasek which is why they have diversified from it," said Teoh.

But Temasek spokesman Stephen Forshaw said financial services "will remain a pillar" of the global portfolio.