Portfolio theories

Temasek telco trade offers few clues for StanChart

Will they or won’t they? Every time Temasek tinkers with its portfolio, the Singaporean fund revives speculation that it might also sell its 18 per cent stake in Standard Chartered. Temasek’s decision to offload $1.1 billion of shares in Singapore Telecom has stirred up the question again. But one sale offers few clues about the other.

Selling a bit of SingTel looks more symbol than strategy. Temasek has controlled the operator for two decades — an initial public offering in 1993 boosted the mark-to-market value of the fund’s portfolio roughly seven-fold. Temasek has sold repeatedly since then, and still has a controlling 52 per cent stake. If there is a strategy, it looks like sensible diversification. SingTel is now around 14 per cent of Temasek’s $161 billion portfolio, compared with 30 per cent back in 2004.

Financially, the sale makes sense too. True, since Temasek bought its shares in StanChart in 2006, SingTel stock has performed better, returning an annualised 10 per cent versus StanChart’s six per cent, assuming dividends were reinvested. But track back to 1993 and Thomson Datastream shows the annualised return on SingTel stock is three per cent — pedestrian compared with other emerging markets.

StanChart shares would be harder to offload. Dripping shares into the market would create an overhang that would depress the bank’s value. The only likely buyers for the entire stake are other banks, and since Basel III rules punish minority shareholdings in other financial institutions, a purchase would only make sense as a launch-pad for a full takeover. A Chinese bank like China Construction Bank, which boasts a $15-billion warchest, could be reckless enough. But the 33 per cent increase in CCB’s overdue loans over the first half of 2012 argues against a big deal.

Temasek likes to present itself as financially motivated, so at the right price nothing is out of the question. But it’s worth noting that last October, Temasek issued a bond exchangeable into StanChart shares at a price 25 per cent above their level both then and now. If that’s a sign of price expectations, StanChart and the Singaporeans still have a future together.