Singapore Temasek pumps US$900m more into investment bank
Infusion could bring its Merrill stake to above 10%, raising regulatory issues
By Grace Ng, Finance Correspondent
TEMASEK Holdings is making another huge investment in Merrill Lynch, a day after the giant bank stunned Wall Street with yet more multi-billion-dollar writedowns.
The Singapore investment firm will inject an additional US$900 million (S$1.23 billion) into Merrill in a deal that could well increase its stake to above 10 per cent.
The proposed deal, which will need the green light from American regulators, will also raise the prospect of a political row in the US over foreign holdings in key institutions.
Some see yesterday’s dramatic deal as a smart move that allows Temasek to protect its huge stake in Merrill. Others question if it is, in the words of one analyst, ‘throwing good money after bad’.
Temasek is responding to Merrill’s third round of fund-raising since last December. The bank is selling US$8.5 billion of new shares to help dig itself out of a black hole of toxic debt.
Merrill also said it would dump US$30.6 billion in sub- prime securities at fire-sale prices and write down a further US$5.7 billion.
Under the deal, Temasek will take up US$3.4 billion of new shares. But it will also get a rebate of US$2.5 billion on the initial US$5 billion it invested in Merrill. This makes a net additional investment of US$900 million.
The rebate is partly a compensation for the huge hit Temasek has taken on its initial investment - Merrill shares are less than half the US$48 a piece Temasek paid in December.
That December deal had a feature to compensate Temasek if its stake was diluted by Merrill later issuing new shares at a lower price. This is just what is happening now.
Temasek will get about 140 million new shares. The rebate effectively slashes the cost of Temasek’s existing shares in Merrill by more than half to US$21 a share, says Reuters.
But the deal is likely to push Temasek’s stake from 8.85 per cent to well over 10 per cent - and into the path of the US authorities, who are concerned about the influence of foreign investors on iconic US institutions like Merrill.
Temasek spokesman Myrna Thomas said a portion of the deal was ’subject to regulatory approval’.
Temasek had earlier sought to keep below the 10 per cent threshold.
Mr Teng Ngiek Lian, chief executive officer of Target Asset Management in Singapore, noted that ‘it looks like Temasek got a good deal’, as it got a huge US$2.5 billion refund to cover its paper losses.
Some analysts, however, question if pumping more money into the ailing bank is judicious.
One cited another Merrill investor, Korea Investment Corporation.
The sovereign wealth fund said it might avoid further investments in US banks, having ‘learnt a lot of good lessons’ from its US$2 billion investment in Merrill.
A Hong Kong-based analyst said: ‘It’s hard to tell now if Merrill is swallowing all the bitter pills at one shot, so it will only get better after this. We can only hope so, otherwise Temasek will be throwing good money after bad.’
Merrill has had a torrid time. Its fund-raising has now reached some US$21 billion as it seeks to handle the strain of almost US$19 billion in net losses in the past year.
It has now sold almost all of its toxic investments.
Wachovia analyst Douglas Sipkin told clients that Merrill was ‘closer to a bottom’, adding that ‘there is light at the end of the tunnel’.
Source : Straits Times - 30 July 2008
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