Temasek Holdings, the investment company owned by the Singapore government, grew its net portfolio value to a record S$215 billion ($173 billion) in the 12 months to the end of March this year, according to the its 2013 review that was published yesterday.
That was an increase by S$17 billion from S$198 billion in the previous fiscal year. The total shareholder return, which includes dividends paid to the government but excludes potential capital injections going the other way, was 8.86% for the year — well above the 1.5% recorded in the previous 12 months.
However, the return in the 2012 fiscal year still lagged behind the long term trend. In the past 10 years, Temasek has generated an annual total shareholder return of 13% and since it was set up in 1974, the average annual return has amounted to 16%.
A key reason for the weaker numbers in the past couple of years is that the returns are closely linked to the stock market performance.
“We are almost entirely invested in equities,” noted Temasek CEO Ho Ching in a written comment. “This means a lot more year-to-year volatility, as we have seen over the last 10 years. We are prepared to ride through the large mark-to-market volatility on our portfolio value, because a portfolio of mostly equities also means we expect higher returns over the long term from our portfolio.”
Last year's improvement came as Temasek made S$20 billion of new investments and divested S$13 billion of assets. The net investment of S$7 billion was unchanged from the previous year.
Notable investments during the year included AIA and Ping An Insurance. The Singapore firm also made headlines when it bought $2.3 billion worth of the shares in a $2.5 billion sell-down in Industrial and Commercial Bank of China by Goldman Sachs in April 2012. Since then Temasek has topped up its investment in ICBC at least three times and according to disclosures to the Hong Kong stock exchange it currently holds close to 8.1% of the Chinese bank’s H-share capital.
It also acquired additional shares in Alibaba Group as part of the financing package put together by the e-commerce giant to finance its buy-back of shares from Yahoo, and increased its stake in troubled supply chain manager and agricultural products provider Olam to 23% from 16%.
In Indonesia it bought a stake in Matahari Putra Prima, a leading operator of hypermarkets, and also participated as a cornerstone investor in the re-IPO of Matahari Department Store.
The composition of its portfolio changed little during the year, either with regard to the geographical breakdown or the sector focus. Singapore remained the largest country exposure with 30%, which was unchanged from fiscal 2012, while Asian investments outside of Singapore accounted for 41% of the portfolio, down slightly from 42% the previous year.
Its second largest country exposure is to China, which accounts for 23% of the portfolio. Temasek didn’t provide a comparable number the previous year.
It continued to increase its exposure to North America and Europe, and at the end of March these regions accounted for a combined 12% of the portfolio, up from 11% in March 2012 and 8% in March 2011. The growth in the latest 12 months was mainly due to S$4 billion of net investments in energy and resources and an investment in German specialty chemicals company Evonik. It also bought a stake in Halkbank, a Turkish lender with a leading market share among small and medium-sized enterprises.
Temasek’s exposure to Latin America also edged up slightly to 2% from 1%.
Ching said the firm sees increasing opportunities in North America and Europe and is setting up offices in London and New York to support its investment activities in these markets. However, Asia is still a key focus.
“While we have increased our exposure in North America and Europe, Asia continued to attract the largest proportion of our investments,” added S Dhanabalan, the Temasek chairman. “We remain anchored in Asia and are optimistic about its long term growth.”
In line with its earlier stated strategy to increase the focus on energy and resources, the S$4 billion invested in this sector was the largest contributor to net investments during the year. Temasek’s combined exposure to energy and resources was unchanged from the previous year at 6% of the total portfolio value, however.
Investments during the year included Repsol, a Spanish-listed integrated oil company with substantial international operations; Cheniere Energy, a US company which is building a liquefied natural gas export terminal; Venari Resources, a US oil company focused on deep water exploration in the Gulf of Mexico; and Turquoise Hill Resources, a Canadian-listed international mining company, which among other things owns 66% of the Oyu Tolgoi copper and gold project in Mongolia.
Its sector exposure to energy and resources was unchanged from the previous year at 6%, however.
Financial services remained its largest sector focus, accounting for 31% of the total portfolio, which is unchanged from the previous year and supported by its substantial stakes in DBS, Standard Chartered and Indonesia’s Bank Danamon. This is complemented with sizeable investments in Bank of China, China Construction Bank, ICBC, Ping An Insurance and AIA.
Telecommunications, media and technology, remained the second largest sector exposure at 24%, also unchanged from a year earlier.
In September last year it reduced its stake in Singapore Telecommunications to 52% from 54.5% through a $1 billion block trade that marked its first sale of shares in the telecom operator since 2006. SingTel remains its largest single investment, however, accounting for 14% of the portfolio value.
Other major divestments during the year included Asia Pacific Breweries in Singapore and Bharti Infratel in India.
Temasek’s net profit for the year to March 2013 was unchanged from the previous year at S$11 billion, while its shareholders equity increased to S$169 billion from S$158 billion. Its portfolio value has more than tripled in the past 10 years from a trough of S$61 billion in the fiscal year to March 2003, supported by S$59 billion of net investments.