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Temasek buys stake in Barclays Bank – 24/07/07
July 24, 2007, 12:41 am
Filed under: current affairs

  • Temasek bought a 2.1% stake in Barclays Bank.
  • The China Development Bank bought a 3.1% stake in Barclays.
  •  Temasek’s move might represent a shift in strategy from one focused on Asian investments to one complemented with First World exposure.
  • China’s investment in Barclays Bank represents its increasing clout in the corporate world and a desire to invest its forex in more profitable avenues.

Temasek’s new tack calls for new strategy

By WONG WEI KONG
ASSOCIATE NEWS EDITOR

TEMASEK Holdings’ emergence as a player in the tussle for Dutch bank ABN Amro – while extending its track record of major overseas acquisitions – is also a step into new territory. While not a move without challenges, the development is clearly a statement of Temasek’s global intent.

Buying into banks and other assets is not uncommon for Temasek. Indeed, the past few years have seen the Singapore investment company making investments to the tune of billions. In its last reported financial year alone, Temasek made S$21 billion of new investments.

But the acquisitions in recent years have been mostly Asian in theme. Temasek has added stakes in Indonesian, Indian, Chinese, Pakistani and Taiwanese financial institutions to its growing portfolio. Its investment in Standard Chartered Bank – notwithstanding the bank’s London base – is also generally regarded as an Asian and emerging market play.

What’s different this time, however, is that Temasek is playing in the First World.

Temasek is now a part of the world’s biggest bank takeover fight, with its investment (up to a total of &pound2.5 billion or S$7.5 billion) in Barclays plc helping the bank battle a Royal Bank of Scotland Group consortium for the right to take over ABN Amro, the biggest Dutch bank.

Regardless of the outcome of the takeover fight, Temasek would end up with valuable exposure to a global financial group. If the ABN Amro bid fails, Temasek would hold 2.1 per cent of Barclays, which made &pound4 billion in pre-tax profit in the first half of 2007. If the bid succeeds, Temasek could end up with a board seat and a 2.9 per cent stake in the combined ABN Amro-Barclays entity, which will be the fifth largest banking group in the world and the second biggest in Europe, and with a sizeable Asian franchise too.

This positive scenario, of course, should be tempered by the risks associated with mergers and acquisitions – big mergers often fail, crippled by the problems of integration and the cost of restructuring. It will take many months, or years, before a verdict can be delivered on any merger between Barclays and ABN Amro. And should Barclays fail to win the takeover battle in the first place, any adverse share price reaction would erode Temasek’s investment.

Beyond the deal, the Barclays investment also highlights an emerging challenge facing Temasek. Along with the Singapore investment company, China Development Bank – also state-owned like Temasek – is also investing in Barclays. And significantly, it is paying more – up to &pound6.5 billion – for a bigger stake in Barclays and the potential merged entity.

The involvement of China Development Bank reiterates China’s intention to seek higher returns for its US$1.3 trillion of currency reserves. And China is not alone in wanting to invest surplus funds. From Malaysia to South Korea to India to the Middle East, state investment agencies are stating their intent to buy global assets. Temasek may have a headstart, but it will face increasing competition for assets from cash-flush rivals.

It may, in fact, mean that Temasek may have to re-examine its existing investment policy of dividing its portfolio equally between Singapore, Asia and the developed markets. When it comes to global assets, a lot more will have to be paid to make an investment of any significance. If Temasek wants to play with the big boys, it may have to focus proportionally more of its resources on most prized assets, regardless where they are found.

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