NEWS RELEASE

TEMASEK RECOMMENDS THAT EXPENSING OF STOCK OPTIONS SHOULD NOT BE MADE MANDATORY

       Singapore, 03 June 2003 - In response to the consultation paper issued by the Council on Corporate Disclosure and Governance ("CCDG") on accounting for stock options, Temasek Holdings ("Temasek") announced today that it had recommended to the CCDG that the expensing of stock options should not be made mandatory for Singapore companies.

2      Temasek made the recommendation on the basis of the following:

(a)    Adequate shareholder controls

Singapore, unlike other countries, has regulations to adequately protect shareholders' interest in employee share option plans. By way of an example, shareholders' approval is required for stock option plans and a cap is placed on the total number of shares which can be issued under these plans. This ensures that the corporate excesses seen in the US for example will not take place here.

(b)    Ongoing debate on whether stock options are an expense to companies

While it is clear that stock options, when exercised, will lead to a dilution of the interest of existing shareholders, the issue, as to whether they are a real cost to the company as to be recognised in the profit and loss statement, remains debatable.

(c)    Valuation Challenges

The inherent difficulties which exist in accurately measuring the fair value of options can cause distortion to financial statements, lead to volatility in reported earnings and ultimately confuse investors.

3      Temasek proposes that, instead of prematurely making the expensing of stock options mandatory, CCDG could require companies to disclose, in the Notes to the Accounts, more information on share-based payments, including stock options, so that investors and analysts can themselves re-cast the financial statements to account for the impact, if so desired.

4      As part of the review process pertaining to the issue of expensing stock options, Temasek has sought the views of its major TLCs including The Ascott Group Ltd, CapitaLand Ltd, the DBS Group, Keppel Corporation Ltd, Neptune Orient Lines Ltd, Raffles Holdings Ltd, Singapore Airport Terminal Services Ltd, SembCorp Industries Ltd, SembCorp Logistics Ltd, SembCorp Marine Ltd, Singapore Airlines Ltd, SIA Engineering Co Ltd, Singapore Telecommunications Ltd, SMRT Corporation Ltd and Singapore Technologies Engineering Ltd.

5      Feedback showed that while these TLCs are wholly in support of the continued disclosure of stock option information, the majority hold reservations over the mandatory expensing of stock options.

6      Temasek has also sought the views of key fund managers who are invested in Singapore. Their view is that while it is important to disclose stock option details, it is not necessary to require the mandatory expensing of stock options. If expensing were required, some would have to adjust P&L statements to ascertain actual operational performance.

7      In light of the above considerations, Temasek has recommended to the CCDG not to make the expensing of stock options mandatory for Singapore companies. Instead, as mentioned above, the CCDG could mandate the disclosure of more stock option information in the Notes to the Accounts. Such additional disclosure could include fair value of options, the assumptions and parameters used for calculation and status of stock options.

8      In addition to greater disclosure, Temasek further proposes that companies be required to pass separate shareholders' resolutions to approve the more contentious issues, such as the repricing of stock options.

9      Temasek believes that the debate on expensing stock options is likely to be a long drawn-out one and that there is no compelling reason for Singapore to prematurely adopt the practice. CCDG could monitor the progress locally and internationally, and review the position in one to two years' time.

10    Temasek is of the view that the provision of appropriate shareholders' approval and regulations, coupled with enhanced and meaningful disclosure of stock option information, will be far more effective in curbing abuses and better serve the needs of investors than any mandatory expensing requirement.

For media enquiries, please contact:
Rachel Lin (Ms)
Associate Director,
Corporate Communications
Temasek Holdings
DID: 6828 6766
Mobile: 96661855
Email: rachellin@temasek.com.sg