Temasek’s new bets

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One of the riskiest destinations for investments must be Nigeria, a country riddled with corruption, violence and a long-running Islamic insurgency. But Singapore’s state-owned investment company seems to have decided there is sufficient reward in betting on the African country’s potential in the oil sector.

In taking its baby steps into Nigeria, Temasek Holdings is joining forces with the private sector arm of the World Bank Group and taking a US$150 million stake in Seven Energy International Ltd., a company owned by a local oil tycoon, Kola Aluko.

As Temasek’s investments go, this is a drop in the ocean, but it still shows an appetite for risk and a need to put its eggs in as many baskets as possible to achieve good returns – something Ho Ching set her targets on when she became executive director in 2002 and CEO two years later.

CIMB’s Song Seng Wun told The Edge Review: “Temasek has to be opportunistic. The financial sector has been done to death. It needs to spread its wings to other areas. But the Nigerian play is not a major shift; it ticks off all the boxes as Nigeria is an emerging market and resources is an area no serious player can ignore.

“Yes, there are pluses and risks, but nothing ventured, nothing gained. Right?”

On the flip side, Nigeria is the most populous country and the top oil producer in Africa and has just leap frogged South Africa as the continent’s largest economy. All this bright news puts Nigeria in the race to become one of the world’s top 20 economies.

Shell’s problems there, however, have forced the multinational company to rethink its investment. Its annual report for last year speaks of “crude oil theft, sabotage, illegal refining,” leading to a loss of US$1billion for the oil conglomerate last year.

That is why Temasek is taking its first foray into the African country in a slow-mo fashion, investing a small figure and joining forces with a respected partner like the World Bank.

The bigger Temasek story is its significant shift in strategy to betting on the burgeoning affluent consumer, with its recent US$5.7 billion deal with Hong Kong’s richest man, Li Ka-shing, for a 25 per cent share of his health and beauty retailer, AS Watson, and a US$4.2 billion offer to swallow up the commodities company, Olam.

The Financial Times says these two investments are record breaking in that Temasek has not sunk that kind of money into other investments.

The head of the company’s investment group, Chia Song Hwee, is quoted as saying: “The consumer retail sector is a good proxy to growing middle income populations and transforming economies.

“This is very much part of our investment theme as we shape Temasek’s portfolio for the long term.”

A breakdown by Dealogic confirms Temasek’s spread-the-wings strategy, with life sciences, consumer and real estate taking fourth spot, at 12 per cent of its portfolio of investments, behind financial services (31 per cent), telecoms, media and tech (24 per cent) and transport and industrials (20 per cent).

The people behind this push by Temasek is a five-person group of dealmakers set up in 2011 whose co-head is Jonathan Popper, who was poached from Morgan Stanley a year ago. Temasek has said that the team was put together to advise “on larger and more complex transactions.”

Behind all these moves is Temasek’s obsession with a healthy rate of return. When Ho Ching, who is the wife of Singapore’s prime minister, took over the company, she promised more transparency, with a focus on providing healthy returns. For 10 years from 2002, Temasek’s investments have delivered an annualised return of 18 per cent in Singapore dollar terms.

The prime minister’s wife will surely want to continue that record, with opponents waiting to spoil the party if things slip up.

This article first appeared in The Edge Review