VZCZCXRO3410
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0695/01 2031222
ZNR UUUUU ZZH
R 221222Z JUL 09
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 6978
INFO RUCPDOC/USDOC WASHDC
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 SINGAPORE 000695 
 
STATE PASS USTR 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN SN
 
SUBJECT:  SINGAPORE SWF TEMASEK REVERSES LEADERSHIP TRANSITION 
 
REF: SINGAPORE 131 
 
¶1.  (SBU) SUMMARY: Temasek Holdings, one of Singapore's two 
sovereign wealth funds, announced it had canceled plans for U.S. 
citizen Charles Goodyear to take over as CEO on October 1.  Ho 
Ching, the current CEO and Executive Director (and PM Lee's wife) 
will remain in charge.  The announcement abruptly ended a brief 
relationship that some analysts had hailed as a step toward greater 
transparency for the fund.  Temasek announced the decision as a 
mutual agreement based on "strategic issues," but some local 
analysts are skeptical and suspect planned personnel changes and 
Goodyear's critiquing of Temasek's investments were to blame. 
Market observers criticized the move for its lack of transparency 
and called for greater disclosure of the reasons for it.  Although 
the future of Temasek's leadership is in question, analysts do not 
expect this move to have a significant impact on its portfolio 
decisions.  The company is expected to pursue growth opportunities 
by expanding its portfolio in China, India, and Brazil, and by 
rebalancing away from some financial sector investments and toward 
energy and natural resources.  End Summary. 
 
Ho Ching to Remain CEO, Goodyear to Depart Temasek 
--------------------------------------------- ----- 
 
¶2.  (SBU) Citing "strategic issues" with CEO-designate Charles 
"Chip" Goodyear, Singapore sovereign wealth fund Temasek Holdings 
announced July 21 that it will not proceed with his appointment. 
Instead, current CEO (and wife of Prime Minister Lee Hsien Loong) Ho 
Ching, will continue to lead the company.  Ho Ching had announced in 
March that she would step down from her post on October 1, 2009 
(reftel).  Her resignation at the time was widely considered 
(despite Temasek denials) to be a result of the fund's poor 
performance in 2008 and the need to further internationalize the 
fund by bringing in foreign talent.  She was to be replaced by 
Goodyear, a U.S. citizen who would have been the first 
non-Singaporean to head the fund.  Temasek appointed Mr. Goodyear to 
the board on February 1 and named him as CEO-designate on March 1, 
concluding a four-year process to identify a successor to Ho Ching. 
Goodyear had most recently served as the CEO of Australian mining 
giant BHP Billiton from 2003-07. 
 
An Unhappy Marriage? 
-------------------- 
 
¶3.  (SBU) Notoriously tight-lipped Temasek announced without 
elaboration that "strategic differences" were to blame for the end 
of Goodyear's planned takeover as CEO.  Local analysts confirmed to 
Embassy local press reports suggesting Goodyear left Temasek after 
his proposed changes to senior management did not go down well with 
the Board.  Also, Goodyear's reputedly hard questioning of existing 
investment decisions and plans earned him some rancor among the 
Temasek investment team, few of whom are reportedly sad to see him 
depart.  Another local economist suggested to Emboff a slightly more 
sinister reason: that Madam Ho had continued to micro-manage Temasek 
despite her planned departure, interfering with Goodyear's 
transition to the top spot. 
 
¶4.  (SBU) Temasek's handling of Goodyear's departure generated 
renewed attention to the fund's lack of transparency.  Local press 
reports have begun speculation on the nature of the alleged 
strategic differences, why they were not discovered earlier, and why 
they could not be resolved during the company's long vetting 
process.  Foreign press editorials (including the Wall Street 
Journal's) were more critical in tone, emphasizing the right of 
Singaporeans to know the whole story behind Goodyear's resignation. 
Local analysts said they viewed the cancellation of the transition 
as much a step away from transparency as the original hiring had 
been a step toward more transparency and accountability.  Temasek's 
expected search process for a new CEO will be given closer scrutiny 
as the decision-making ability of Temasek's board is called into 
question. 
 
Where Goodyear May Have Taken Temasek 
------------------------------------- 
 
¶5.  (SBU) Although details are sketchy about Goodyear's plans for 
Temasek, early indications were that Temasek would see a more 
aggressive investment posture under his leaderhsip.  In a recent 
report on Temasek's future, Nomura Bank predicted Goodyear would 
take a more aggressive mergers-and-acquisitions stance, with energy 
and natural resources as the most obvious sectors where he would 
immediately have contributed relevant expertise.  The bank also 
expected Goodyear to keep a tighter rein on capital management at 
Temasek, increasingly using debt as a tool to finance investments. 
Nomura expected as well that China would be a key target for Temasek 
investments by expanding Temasek offices in Beijing and Shanghai for 
 
SINGAPORE 00000695  002 OF 002 
 
 
non-financial investments and/or investments in local private equity 
funds. 
Key Growth Areas 
---------------- 
 
¶6.  (SBU) Regardless of Temasek's leadership, the sovereign wealth 
fund is expected to push into new areas, including the energy and 
natural resources sectors that Goodyear had expertise in.  The 
fund's leadership is mindful that resources are typically seen as 
strategic assets for many countries and recognize that it will 
therefore need to tread carefully.  Chairman S. Dhanabalan laid out 
a three-pronged strategy for Temasek aimed at steering clear of 
national obstacles when investing abroad: 1) avoid buying over 
fifty-percent or taking a controlling stake in companies with 
"iconic" value to a country; 2) invest with good local partners; and 
3) opt for a minority stake in a company in a sensitive industry, or 
in an iconic firm.  Despite Goodyear's departure, resources are an 
area of investment that will likely remain important to the 
rebalancing of Temasek's portfolio, especially as it attempts to 
expand its exposure in China and Brazil. 
¶7.  (SBU) China and India are likely to be key targets for new 
Temasek investments.  The Straits Times recently reported that 
Temasek is in talks with a unit of the Bank of China to launch a 
US$1-2 billion investment fund to focus on fast-growing 
infrastructure projects across China.  Temasek officials have said 
they remain optimistic about China's long-term prospects but are 
taking a cautious stance.  In South Asia (India and Pakistan), 
Temasek's portfolio exposure has grown from one percent in 2004 to 
seven percent in 2008.  In India, Temasek is investing in companies 
that mirror growth of the domestic economy in sectors such as 
banking, telecom, and automotive, and in companies that capitalize 
on India's comparative advantage as a resource base for products and 
services.  Temasek took a step toward increasing its geographical 
exposure in India by launching a new office in Chennai in February 
¶2009. 
Temasek-Linked Companies and Divestment Commitments 
--------------------------------------------- ------ 
 
¶8.  (SBU) Temasek has a long-term strategy of divesting from 
domestic holdings it does not consider of strategic importance to 
the Government of Singapore (GOS).  It views this as necessary to 
allow these businesses to grow internationally, and it has adopted 
various methods to realize its divestment strategy, including: 1) 
IPOs and private placements; 2) exchangeable notes of ownership; or 
3) straight divestment via a trade sale.  Temasek's strategic 
holdings are those considered critical to Singapore's long-term 
interests and security and will stay in the portfolio, including DBS 
Bank, Singapore Airlines (SIA), ST Engineering, and shipping company 
Neptune Orient Lines (NOL).  Temasek is increasingly open to 
allowing its non-strategic holdings to grow beyond Singapore's 
domestic market into the region or globally.  Temasek may dilute its 
interests in companies such as telco SingTel and cable company 
Starhub to allow these companies to expand in the region. 
 
SHIELDS