Singapore steps into the spotlight as state funds invest overseas

Lee Kuan Yew dragged his country into the 21st century in a few short years in 1960s
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The Independent Online

Until only a few months ago, most in the City thought of Singapore simply as an exotic haven for shopaholics, a short stop-off on the way to Australia or a temporary mooring in a wider tour of the Far East.

Load up on cheap Gucci watches and silk shirts, sip cocktails in the bar of the Raffles hotel (supposedly where Singapore Slings were first slung), but don't chew gum because that's verboten.

Certainly, only a select few in the know would have heard of Temasek, the investment arm of the Singaporean government. Still fewer would have been able to offer any details about its make-up or ambitions.

Then, in December, the Singaporeans stepped tentatively out of the shadows as it emerged that the Port of Singapore Authority, wholly owned by Temasek, had lifted its holdings in the British ports operator P&O. An attempt to unsettle a bid from its rival, the state-backed Dubai Ports World, failed but the Singaporeans were undeterred.

They returned, this time via an arm of the Government of Singapore Investment Corporation (GIC), another state-owned investment vehicle, as a member of a consortium looking to take a tilt at another ports operator, AB Ports. GIC, with the Wall Street investment bank Goldman Sachs and a Canadian pension fund, is mulling a £2.3bn offer for the operator of 21 British ports.

On Monday night, the Singaporeans unveiled their latest foray into London, the acquisition of almost 12 per cent of the emerging markets bank Standard Chartered. Temasek's decision to take on the shares held by Malaysia's Khoo family since the 1980s made the Singaporeans the single biggest investor in Standard overnight.

The deal ended months of speculation surrounding the stake after the death of the Khoo family patriarch, Khoo Teck Puat, two years ago. It also poured an ice-cold cocktail over widely held hopes that Standard was poised to attract a hefty bid from the likes of Citigroup, JP Morgan, Bank of America or even Barclays.

Standard shares fell 42p to 1,482p yesterday as City experts including Simon Maughan, a banking analyst at Dresdner Kleinwort Wasserstein, told clients to "make like the Khoos" and sell their holdings.

The vast wealth of Singapore has been amassed in part through political design, in part through an accident of geography. Its position at the tip of Malaysia in the South China Sea, at the junction of a network of shipping routes, made the island a natural trade hub.

In January 1819, Stamford Raffles, a young entrepreneur working for the East India Company, sailed into Singapura, arranged a treaty with the new sultan, paid him about £2,860 and declared the place a free port. Fleets of ships carrying goods from the Far East bound for Europe and the Americas anchored for a time in Singapore's deep port. So too did oil tankers bound for Japan from the Middle East, and the Japanese ships laden with consumables making the return journey.

But credit for Singapore's astonishing rise as a modern economic success story is often given to a single man, Lee Kuan Yew, the state's first leader after independence from Malaysia in 1959. Fiercely determined, widely seen as incorruptible, Lee would brook no interference with his "go-ahead" economic policies enthusiastically backed by entrepreneurial Singaporeans.

He dragged his country from the 19th into the 21st century in a few short years. Shipbuilding and repairs gave way to high-earning oil refining, financial services and telecommunications industries. Typically for a state renowned for its authoritarianism, Singapore's rulers compelled its workers and their employers to save a portion of their earnings in the Central Provident Fund, the state pension scheme. By the 1970s, Singapore was awash with cash and its government looked for investment outlets.

Temasek was founded in 1974 to take strategic stakes in companies for the long term. Seven years later, GIC was established with a remit more akin to a traditional portfolio manager. GIC, still chaired by Lee Kuan Yew, now has more than $100bn (£57bn) under management and is among the world's biggest private-equity investors. From offices in Singapore, London, New York, San Francisco and Beijing, GIC buys equities, bonds, money market instruments and property, among other investments. It is thought to hold shares in companies as diverse as BP, AstraZeneca, Microsoft and Coca-Cola.

Meanwhile, Temasek now employs 170,000 people and controls more than a fifth of the local stock market. In recent years it has taken chunky stakes in companies in Burma, China and Thailand. Its reach is extending ­ from Australia into Europe and North America ­ bringing an ever greater number of firms into a portfolio worth more than $63bn.

Temasek's chief executive, Ho Ching, is the wife of Singapore's Prime Minister, Lee Hsien Loong. She was rated the 30th most powerful woman in the world by America's Forbes magazine.

But not all her investments have run smoothly. In Thailand, Temasek was dragged into a political storm over its dealings with the family of Prime Minister Thaksin Shinawatra. And China recently decided to halve Temasek's proposed 10 per cent investment in Bank of China amid concerns over Singapore's growing influence in local banking.

But no amount of protest looks likely to staunch the flow of Singaporean funds into the West. The chances are, the next time you stop over on a business trip or en route to Australia, the Singaporean shop assistant selling those shirts or watches will own a piece of the company back home that is paying for the trip.