Singapore shops abroad

Raffles'' acquisition of Swissotel shows how Singapore Inc. is trying to escape its geography.

The news that Raffles Holdings is to buy Swissotel Holding from SAirGroup in Switzerland is just the latest example of a venerable Singaporean company going overseas to expand. What is interesting is that it is also the latest Singaporean company that has bought outside Asia.

After acquisitions by Singapore Power (GPU Powernet, Australia), Singapore Airlines (Virgin Airlines, UK), Keppel T&T (Computer Generated Solutions, US), Singapore Telecom (Cable & Wireless Optus, Australia) and others, Raffles' latest foray into non-Asian acquisition confirms that the trend is deliberate. It is as if corporate Singapore is trying to escape from its roots in Asia. This is hardly surprising given two factors: history and geography.

Historically, Singaporean companies have suffered from investing in their neighbours. Bank investments in Thailand and The Philippines have been less that successful; property and telecom deals in neighbouring Indonesia have similarly had to be written off. Even the government-sponsored science park at Suzhou in China had to be aborted.

It is widely understood that Singapore's greatest challenges are presented by its geography. Small and vulnerable, it relies on trading for its income and its neighbours for its natural resources. And while the sashaying crowds along Orchard Road betray no sense of danger, the government is acutely aware of it vulnerability. This is why the government has risked the wrath of its neighbours in Asean to pursue free trade agreements with its largest non-Asian trading partners, New Zealand, Australia, Japan and the US.

Singapore realizes that its future cannot be just in Asia, and definitely not Southeast Asia. Rather it has to be global and it is encouraging its corporate elite to think along similar lines.

This notion was confirmed at a recent meeting with the regional head of M&A at a large US investment bank. He reported that whenever he went to see Singaporean companies with acquisition ideas, they all told him that they were only interested in investing in OECD countries and non-Asian OECD countries at that. While this bodes well for the international investment banking community, it unfortunately is bad news for Singapore's neighbours who are so desperate for fresh investment.

Corporate Singapore is markedly different from the rest of corporate Asean - that is why it is so successful. The country has none of the characteristics of its neighbours, namely chronic corruption, incipient violence, chronic disregard for the rule of law, nor, it must be said, even the slightest hint of democracy. Yet is does have rich companies that are run efficiently and profitably. The fact that these companies do not want to invest in the extremely cheap region is surely a sign of how bad the situation is in Southeast Asia. It also shows how risk averse Singapore is.

But in their desperation to buy overseas, Singaporean companies are paying fairly hefty prices for the deals they do. Singapore Telecom's acquisition of Cable & Wireless Optus in Australia, DBS's acquisition of Dao Heng Bank in Hong Kong and even Raffles' acquisition of Swissotel have all been called overpriced. Analysts say that the trend is for Singapore companies to overpay to ensure success, so desperate are they to secure non-Asean revenues. This is loosely being called the Singapore Premium.

Understandably, the companies themselves vehemently deny that they overpay for assets. Whether expensive or not, one must recognize that something of a feeding frenzy is going on. And the Singaporean companies are in the rather unexpected position of being the hunters rather than the hunted. It appears that these hunters have got a taste for international cuisine, ignoring the Asian fare from their own backyard.

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