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Temasek is backing a wave of international deals by some of its biggest companies, as Singapore’s state-owned investment firm faces pressure to boost returns on its S$382 billion (US$282 billion) portfolio.
The global investor has been an influential proponent “behind the scenes” of major mergers and acquisitions of companies in which he has stakes, including Singtel, ST Engineering, Singapore Airlines and Sembcorp Marine, two people familiar with the transactions said.
According to one of the sources, more such deals are in the pipeline, encouraged by Temasek, whose profits are a major source of revenue for the government’s national budget.
While Temasek has become a major investor in public and private markets worldwide, Singapore-based companies still make up 54 percent of the portfolio. It was established in 1974 to own and manage the shares and assets of the government. By comparison, GIC, the country’s sovereign wealth fund, invests outside Singapore and manages the country’s foreign reserves.
“Temasek seeks to boost the animal spirit of its Singapore companies so that they become more global and have better growth prospects. [helps] “It’s a matter of self-interest, especially with a general election coming up,” one of the people said.
Many of the companies involved were struggling with low growth prospects or falling share prices, she added.
“I wouldn’t say Temasek is forcing it… because being an activist investor is not their style, but there is certainly a message through greater engagement that they want portfolio companies to engage. They have been very supportive of this M&A activity behind the scenes,” they said.
“There has been pressure from the government for some time to increase returns,” says another person familiar with the situation. “We’re going to see more of this [deal activity].”
Temasek declined to comment. The company said publicly this year that greater involvement in portfolio companies had created “an increase in value north of S$10 billion.”
The focus on dealmaking follows Temasek reporting one of its worst annual results in recent times for the year to March 2023. The company reported a 5.07 percent decline in shareholder returns, its worst performance since 2016. The group slowed its investment pace for the period, calling it “the most challenging year for markets” in the past decade.
Temasek is owned by the Ministry of Finance of Singapore. Lawrence Wong, who became Prime Minister of Singapore last month, has also been Finance Minister since 2021.
Temasek’s one-year total shareholder return has been negative for two of the past four years. However, the state-owned group prefers to call growth longer-term, reporting a three-year increase of 7.7 percent and a 10-year increase of 6 percent in 2023.
Another person close to Temasek said talks on yields with the government were “no more than usual” pressure to improve them during a period of prolonged global economic uncertainty.
Recent deals involving Temasek-backed companies include telecom provider Singtel, of which it is the majority shareholder, and this month led a $1.75 billion investment in digital infrastructure company ST Telemedia Global Data Centers – another Temasek-backed company. Singtel’s share price is at its highest level since 2022.
In March, Singapore approved the merger between Tata-owned Air India and sister airline Vistara, a joint venture between Tata and Temasek-backed Singapore Airlines. The deal is touted to boost the national carrier’s presence in the fast-growing Indian market once it closes in 2025.
Last year, Sembcorp Marine completed a merger with Keppel Offshore & Marine to create one of the world’s largest energy operations and maintenance companies. Temasek, the majority shareholder of Sembcorp Marine, was “strongly behind” the deal, one of the people said.
Temasek has also done some deals of its own. The fund this month sold liquefied natural gas trader Pavilion Energy to oil major Shell for an undisclosed sum, though the fund valued it at $3.63 billion in March 2023.