Temasek Holdings, Singapore’s government-linked investment company, doesn’t like to do things by halves. The company’s inaugural bond, issued in September last year, raised a sizeable $1.75 billion.
This should go some way towards supporting the company’s aggressive acquisition policy that has already seen it amass assets worth over $60 billion, in a portfolio that spans both the globe and industries. Clearly this is a company that likes to think big.
The ten-year offering, the first capital market transaction for the company in its 31-year history, is part of a $5 billion medium-term-note programme put together by the senior management of Temasek. The deal is regarded by many as a highlight of Asia’s 2005 capital market transactions and certainly marks out Temasek as one of the most astute and professional corporate borrowers in the region.
This public issue also marks a departure from the firm’s somewhat guarded past, when details of the company’s figures and strategy remained a closely guarded secret. In a new policy of openness and transparency, Temasek issued an annual report, including financial statistics, for the first time in 2004. Among other details this report revealed that the Temasek group achieved a consolidated net profit of $4.4 billion for the year ending March 2004. Temasek has since reported a 4% rise in group consolidated net profits, to $4.58 billion for the year ending March 2005.
Shortly after the release of this annual report, the firm – again for the first time – applied for a credit rating. Both Standard & Poor’s and Moody’s investor rating agencies gave Temasek a top bill of health with AAA/Aaa ratings respectively.
Strategic move
Eleana Tan, managing director of finance at Temasek Holdings, describes each of these steps as developments in the firm’s plans to develop a capital market dimension to its operations. She says: “The decision to do the debut bond offering was driven by our focus of delivering sustainable value for our shareholders as an active Asian investment house.”
Tan says that the issue has less to do with immediate capital requirements than as part of a strategic move to enhance efficiency within Temasek. “Together with the publication of the Temasek reviews and the credit ratings by Standard & Poor’s and Moody’s, they are part of an overall programme to add a capital market dimension to our institutional discipline,” she says.
They may have been newcomers to the capital markets, but Temasek acquitted itself like an experienced old-timer. Tan is keen to acknowledge the support of lead arrangers Deutsche Bank, Goldman Sachs and Morgan Stanley.
Having waited 31years, the company allowed itself time to select good market conditions for its debut outing into the markets. By choosing a time when global interest rates were regarded as being at very low levels, the company was able to execute the deal favourably.
Covering the globe
As well as putting in place its $5 billion MTN programme, Temasek was disciplined in its approach to marketing the credit to investors. “We had the luxury of being able to launch a five-team road show over two days and were fortunate to be able to price our deal on a day where market conditions were conducive to an efficient and successful transaction,” Tan says.
The teams included coverage of: the US east and west coasts; Europe, primarily Frankfurt and London; the two Asia hubs of Singapore and Hong Kong; and Beijing.
Investors were certainly impressed with the credit. Despite the sudden departure of JP Morgan from the syndicate of arrangers prior to the deal, investors remained comfortable with the deal.
Given the scarcity value and solid creditworthiness of Temasek, investor appetite was predictably strong, with many regarding the investment as a proxy for Singapore itself. (The Singaporean government has never issued international bonds.)
This demand was reflected in the pricing, at the equivalent of between Libor flat and Libor plus 1bp, representing the tightest ever pricing for a corporate benchmark bond. An order book of over $4 billion was collated, allowing the deal to be increased from its original size of $1 billion to $1.75 billion.
Demand was not only strong, it was diverse. “We understand that [investors] are attracted to the fact that we are one of only a handful of AAA/Aaa rated entities in Asia, and we have a track record of commercial discipline and strong corporate governance,” says Tan.
The company, owned but not guaranteed by the Singaporean government, saw central banks, pension funds and insurance companies take 33% of the paper, banks 21% and funds 41%. The other 2% was placed with retail accounts. The geographic split saw Asia take 37%, the US 38% and Europe 25%.
Tan says: “We are satisfied with the outcome. It helps to have a sophisticated investor base who understood our credit. At the same time, credit must also go to the world-class syndicate team from our three arrangers.”
The firm has certainly put together an impressive portfolio. As of the end of March 2005, 79% of Temasek’s investments were in AAA/Aaa and OECD countries, with 49% of that total invested in Singapore itself.
In the financial services sector, Temasek has stakes in Indonesia’s Bank Danamon and Bank Internasional Indonesia, India’s ICICI Bank, Korea’s Hana Bank, DBS Bank in Singapore, the Bank of China and China Construction Bank. In March this year Temasek also became the largest shareholder in Standard Chartered after agreeing to buy an 11.55% stake in the bank. “Our focus now is to balance our portfolio and to manage our portfolio with an eye on value creation. We see huge potential in Asia’s markets, particularly sectors which will benefit from the growing middle class in the region,” says Tan.
Despite the stunning success of Temasek’s inaugural capital market transaction, Tan is far from resting on her laurels. Although the company has no definite plans to re-tap the market, Tan is keen for feedback on the issue from bankers, investors and even journalists to ensure that the next deal’s execution is even better than the first.