Temasek in Asia

Ladies and Gentlemen, good afternoon.

Introduction

When Kamath sent me an email invitation to this ICICI Securities Conference 3 weeks ago, two thoughts struck me.

First, I was pleasantly surprised, and of course very happy, to know that ICICI has chosen Singapore for this annual conference of top Indian companies. It speaks volumes on how a leading bank like ICICI sees Singapore’s role in Asia. So a big thanks to Kamath and all of you, for your presence and contributions to our economy.

Second, the conference theme of “India Unlimited” struck me as very appropriate as India and Indian companies stand at the threshold of unlimited potential, growth and opportunities.

Asia Unlimited

Since the Asian Financial Crisis in 1997, the word “Asia” had lost a bit of its sparkle. But that sparkle is beginning to return. In the 60s and 70s, the Asia economic miracle referred to East Asia, specifically Japan. The 70s and 80s saw the emergence of the four Asian Tigers of Korea, Taiwan, Hongkong and Singapore. In the decade before 1997, Southeast Asia was a growth engine that did not seem to sleep.

Today, the Asian miracle is undoubtedly China, rapidly developing and providing jobs and opportunities to her teeming millions. As a small indicator, even as financial crisis hit Asia in 1997/98, Singapore’s trade with China only took a small pause, and regained momentum with renewed vigour, doubling from about S$14 billion (about US$8 billion) in 1998 to reach S$28 billion (about US$16 billion) by 2002. The compounded annual growth rate (CAGR) was a hefty 17%, only slightly below the 18% CAGR for the decade from 1992 to 2002.

Now is India’s turn to stir, standing at an inflexion point, after 10 years of market liberalisation and corporate restructuring. Since 1997, Singapore’s trade with India grew by 50%, or a respectable CAGR of about 7.5%. Confidence is brimming in India, and Indian companies began to reach out boldly to the world over the last 5 years.

All these waves of development have shown that Asia, with a combined population of 3 billion, has been resilient. If Asia continues to work hard and work smart, honing her competitive strengths and leveraging on her complementary capabilities across borders, the outlook in the next decade or two looks very promising indeed. This perhaps best exemplifies the “Asia Unlimited” spirit, with “India Unlimited” clearly very much part of the Asia growth story in the coming decade.

The India-Singapore CECA

For Singapore, the AFTA (Asean Free Trade Agreement) came into effect in 2002. The JSEPA Japan-Singapore Economic Partnership Agreement kick-started last year before January 2003. The USA-Singapore FTA swung in action in January 2004 this year. These trade liberalisation agreements strengthened and built on Singapore's traditional trading ties with various parts of the world. Meanwhile, the India-Singapore CECA (Comprehensive Economic Co-operation Agreement) is another keenly awaited development to create greater economic opportunities for both economies, as well as for companies and peoples in both countries and the Asian region.

For example, trade between Singapore and China was about S$5.5 billion (~US$3 billion) in 1992. This is slightly more than double the S$2.5 billion (~US$1.5 billion) trade that Singapore had with India in 1992. By 2002, 10 years later, Singapore’s trade with China was 4 times what she had with India - S$28 billion vs S$7billion (~US$16 billion vs ~US$4 billion). Singapore trade with China boomed at a compounded 18% annual growth rate over the last 10 years, while trade with India grew at a strong clip of 11% compounded annually. However, trade between India and Singapore slowed to 7.5% compounded annual growth over the last 5 years in the aftermath of the Asian financial crisis.

CECA could enable both Singapore and India to leverage on each other’s strengths to power bilateral trade and fuel further economic growth. A bold and liberal CECA would provide the requisite impetus to open up the stride in both countries. It will boost the bilateral trade growth rates to strong double-digit levels. Confidence for further investments will be renewed.

India-Singapore Partnership in Financial Services

As you may have heard this morning, one area of cooperation between India and Singapore is in financial services - both countries can leverage on each other’s complementary strengths, to the benefit of companies and people in our both economies.

India has a large and growing domestic market with an increasing demand for financial intermediation. Singapore is an attractive base for international financial institutions to serve Asia, particularly through a well-developed and diversified capital market, treasury and asset management industry.

An India-Singapore partnership through the CECA could offer a comprehensive value proposition to financial sector players and investors of both countries as well as players from third countries.

First is the access to an interlinked equity capital market. The rapid growth and expansion of Indian companies has led to an increasing need for them to seek diversified funding sources, not just in India or from the developed markets, but also from Asia, as they seek to invest more into Asia. More than 25% of the companies listed on the Singapore Exchange, or SGX, are non-Singapore companies. This list is growing - demonstrating the SGX’s regional characteristics. According to Thomson Financial Data, 14 Chinese companies listed in Singapore last year, making Singapore the fastest growing IPO market in the world in the first half of 2003. I understand that SGX has had exploratory discussions with their counterparts in India on the possibility of exchange linkages. If realized, businesses can hope to see greater investor interest and liquidity growth in both markets. This will clearly benefit real economy businesses represented in this room, as well as investment companies like Temasek.

Secondly, the debt market in Singapore has grown substantially over the past six years. The total corporate debt outstanding tripled from S$32bn (< US$20 billion) in 1998 to S$102bn (about US$60 billion) in 2003. This is more than 25% CAGR over a 5 year period. Foreign issuers comprised a significant proportion of the issuers. They include such high profile US names like Fannie Mae, Freddie Mac and international agencies like the IFC (International Finance Corporation). In addition to these supra-national agencies, multinational companies such as Ericsson, Cargill and a range of international financial institutions have also raised debt papers in Singapore. The recent relaxation of ECB (Euro-Commercial Borrowings) limits by RBI (Reserve Bank of India) will also open up opportunities for more Indian corporates to tap the Singapore debt market.

The third area is in fund management. This sector has grown in tandem with the capital market in Singapore as it represents the "buy-side" of the industry. More than 200 international fund management and private equity firms have operations in Singapore. Many have investment interests into India. Over the past 6 six years, assets under management of Singapore-based fund managers have doubled from S$151bn (about US$89 bn) in 1998 to S$344bn (about US$202 bn) in 2002 (CAGR >22%).

The strong economic growth in India has led to greater accumulation of individual wealth and corporate cash flows. With the continuing liberalisation on offshore investments, Indian investors seeking greater diversification or growth opportunities for their investments, could tap on the reach and expertise of these Singapore-based asset management firms.

Conversely, companies in Singapore, including more than 5000 multinationals, have not been slow in recognising India's potential. Many Singapore-based companies and financial institutions have seized the opportunities to invest in India. We ourselves in Temasek are pleased with the opportunity to invest a 7% stake in ICICI bank recently. For us, this long-term investment represents a leveraged index into the Indian growth story. Fund managers, including Temasek’s fund management unit, are also increasingly looking to Indian stocks and financial papers for better diversification and returns. Similarly, Indian banks such as Bank of India, Indian Bank, Indian Overseas Bank, State Bank of India, UCO Bank and of course ICICI are already well represented in Singapore. I am sure they are also keen to expand their activities to serve Indian corporates as they expand in the region.

We certainly believe that a successful and early agreement between India and Singapore on CECA will help to build on and facilitate this inter-twined growth through closer financial markets integration between India and Singapore.

I must declare that I have a personal interest in this - I have an outstanding bet which I am happy to lose, to host a dinner for the Singapore CECA negotiators, if they can achieve a successful close of CECA by April this year.

Temasek – India Connection

Allow me at this juncture to talk a little about Temasek.

We are a 30-year old investment holding company owned by the Minister of Finance Inc. We operate as a company regulated by the Companies’ Act, no different from any other company incorporated in Singapore. As one of the three 5th schedule company under the Singapore Constitution, our annual budgets are approved by our board, and cleared by the Elected President of Singapore to ensure that there is no draw down on past reserves without explicit presidential approval. Our major investment decisions are authorised by our board which comprises a majority of business-minded and independent directors. Operating and other investment decisions are the responsibilities of our management teams. We make our investments strictly on commercial merits. Our investments are neither directed by the government, nor do we invest in tandem with our bigger brother, GIC, who has a very different mandate is to preserve and grow the reserves of Singapore.

As an equity house with the mandate to maximize long term returns on our investments, we are keen to deepen our connection with India, as part of our wider interest in Asia.

Already, some of our Temasek-linked companies (TLCs) have had broad interests in India.

Singapore Airlines operates 58 flights between India and Singapore every week and can do more - many top businessmen, Singaporeans and Indians, as well as international investors, have told me often that they are keen to see more daily SIA flights to the very many cities of India for business as well as for tourism. SATS, an SIA subsidiary, also has a joint venture with the Tata group for airport catering. SingTel is a 28.5% stakeholder in Bharti, while companies like Keppel, CapitaLand, SembCorp and others have already operations in India or are exploring opportunities. CapitaLand, for instance, has an international real estate platform, from offices in London to shopping malls in Shanghai, from housing in Australia to hotels in Turkey, from real estate trusts in Singapore to service apartments in Beijing – they are keen to serve international and domestic demands in India. Others with strong interest in India include PSA in ports, DBS in banking, and STT in telecoms.

For Temasek, apart from our recent investment in ICICI Bank, we have also established a US$100 million Merlion India Fund with Standard Chartered Private Equity. We are also exploring other investment opportunities, both indirectly through other funds, as well as directly. A key thesis in our investments both in India as well as elsewhere in Asia, would be the promising companies with the ambition, competitive potential and management depth to compete regionally or globally.

At the macro level, we are optimistic about the medium to long term prospects for Asia. Not only are foreign reserves at record highs in many countries in Asia such as China, Thailand, Indonesia, Pakistan, as well as India, inflation and interest rates have come down sharply. The leading companies within these economics have successfully restructured and transformed themselves into internationally competitive players. This is also the case for many outstanding Indian companies today. This steady recovery in Asia has brought about a common engine of growth across Asia - the emergence of the middle class and the rise in consumer sophistication. More importantly, governments and the voting public in Asia are also recognising the benefits of market economies and free trade. India is an excellent example of this as it embraces dramatic market reform and industry transformation.

We at Temasek are therefore keen to explore opportunities to establish win-win partnerships with Indian or non-Indian companies to achieve maximum long term commercial returns, both in India and in the world at large.

There are a few investment approaches which we may take.

First, Temasek may have a view on the opportunities in India, and may invest directly in Indian companies. In this aspect, we may take a different posture or view from our investee companies, and may even invest in their competitors. Examples include our stakes in the fiercely competing telco companies in Singapore, and our stakes in 2 Indonesian banks with different partners. So Singtel’s investment in India with Bharti would not preclude Temasek or other Temasek-Linked Companies from participating in India perhaps with different telco partners. The concept from a Temasek portfolio perspective is to increase or broaden our exposure to an attractive sector, directly or indirectly. Clearly, we will ensure that the commercial confidence is preserved between competing entities, if we have direct stakes. Our investee companies also make their own commercial judgement and investment decisions independently of Temasek within the ambits of the Companies’ Act.

Secondly, we may co-invest with non-Indian companies, who are also actively looking for opportunities in India. These may include our investee companies in Singapore or from other parts of the world, such as Quintiles of USA, or funds such as the Merlion Fund. We will consider the merits of such opportunities independently of our investee companies. We may also co-invest with other 3rd parties into India.

Thirdly, we may also invest in or with Indian companies, which have the potential to scale beyond their domestic markets to reach into Asia or into the world. Such co-investment opportunities could include investments into the Indian parent companies, or co-investments with them into third countries.

My colleagues and I certainly look forward to the many opportunities ahead to work with many of you in this room, old friends and new, as you grasp your future in your hands. Indeed, we hope some of the on-going dialogues and discussions may come to fruition within the next 3, 6, 12 months, and beyond.

Manish Kejriwal, whom many of you know well, is heading our India team. As our other senior management members, he will have both country responsibility along with specific sectoral coverage. In this way, we operate through a matrix of “investment partners” among our management teams to provide both in-depth and broad coverage in the countries and sectors of interest. While our India office will focus initially on the direct investment opportunities, we will in due course also have our CRM (Capital Resources Management) side of our house on the ground as well, so as to broaden our exposure to the Indian equity and debt markets for our treasury operations. As is done in Singapore, we will maintain a strict China-wall between the direct investment side of our house from our public markets CRM unit.

Conclusion

In conclusion, Singapore can be one of the international bases for Indian companies to realize their regional and global aspirations. A strong partnership between Singapore and India, especially through far-sighted CECA, will bring forth immense benefits for the peoples and companies in both countries, and also the rest of Asia. Like you, Temasek looks forward to the opportunities to invest in India and with India, to participate in as well as to contribute to Asia’s growth and development, to realise opportunities and build a future for our fellowmen, and our future generations.

Thank you.