Town councils’ exposure: $16m

Town councils’ exposure: $16m

Another $3m invested in Pinnacle Notes Series 6 could be at risk

By Goh Chin Lian, Senior Political Correspondent

EIGHT town councils (TC) run by the People’s Action Party have about $16 million invested in troubled structured products.
The lion’s share of $12 million is from two TCs: Holland-Bukit Panjang ($8 million) and Pasir Ris-Punggol ($4 million).

The products include Minibonds linked to bankrupt US investment bank Lehman Brothers and the now worthless Merrill Lynch Jubilee Series 3 LinkEarner Notes.

Dr Teo Ho Pin, chairman of the Holland-Bukit Panjang TC as well as coordinating chairman for the 14 PAP town councils, disclosed this yesterday.

Earlier in Parliament, Senior Minister of State (National Development) Grace Fu identified the two TCs when she was asked whether a stricter cap on risky investments was needed.

In his statement, Dr Teo defended the TCs’ investment strategy, saying the funds are diversified across deposits, securities and other financial products.

He gave figures on the investment returns in the last six years, before the fiasco this September involving Lehman-linked products.

The returns averaged over 3 per cent a year. This is more than the average interest of 0.9 per cent earned on fixed deposits and is above the average 2.9 per cent on 10-year Singapore Government Securities bonds, he added.

Dr Teo also pointed out that TCs needed to build up their sinking fund for long-term improvement works, like replacing lifts every 28 years.

‘In investing funds for long-term needs, our key objective is to generate a healthy return that more than offsets the rate of inflation, thus helping to increase the overall value of the sinking funds.

‘This way, we have managed to keep service and conservancy charges affordable amidst inflation over the years.’

The 14 TCs ‘do not have significant investments’ in the troubled products, he said. The $16 million is 0.8 per cent of all their funds available for investment.

In Holland-Bukit Panjang, $8 million is invested in Minibonds and Jubilee notes. This works out to 6.7 per cent of its investible funds.

It has another $3 million in the potentially-troubling Pinnacle Notes Series 6 arranged by Morgan Stanley.

Pasir Ris-Punggol’s $4 million is 2.6 per cent while in the remaining six TCs, the amount for each is below 1 per cent.

In Parliament yesterday, Nominated MP Eunice Olsen asked the Government to further limit the proportion of investments TCs can make in risky non-government securities and bonds.

The proportion of their sinking fund that can be invested in these financial products was limited to 35 per cent in December last year.

Ms Fu, in her reply, said there are no plans to change it.

Each town council, run by MPs, must decide the optimal balance between reasonable returns and financial prudence, she added.

Apart from long-term or cyclical spending, the sinking fund is used to pay for lift upgrading so that residents pay a smaller portion of the bill, said Ms Fu. One lift costs about $200,000 to $250,000 to replace.

The sinking fund is distinct from the operating fundfor short-term expenses.

Ms Fu also said TCs’ investments must be made on the advice of a qualified person, like a licensed investment adviser.

About a dozen financial experts advised Pasir Ris-Punggol before it invested $4 million in the Lehman Minibond Series 2 and 3 late last year.

Its chairman, Dr Ahmad Magad, said: ‘Both were rated A by prominent rating houses. Who would expect an institution that survived two world wars to go under?’

One estimate is that nearly half of the investment could be lost, he said, adding that he also invested $50,000 of his own money in the Minibonds.

Housewife Sharon Tay, 34, feels the TCs should have revealed their exposure earlier. The Bukit Panjang resident wonders if future improvements in her HDB estate will be postponed as a result.

Dr Teo said the TC services, works and plans will not be affected.

Apart from the PAP town councils, two others are run by opposition MPs.

Mr Chiam See Tong (Potong Pasir) said his TC’s money is in safe investments such as fixed deposits and Land Transport Authority bonds.

Mr Low Thia Khiang (Hougang) said his TC did not have any investments in Lehman-linked products or the Jubilee Series 3 Notes. In the last three years, his investment returns averaged 6 per cent a year, he added.

Those affected
HOLLAND-BT PANJANG TOWN COUNCIL

Investments: $5 million in Jubilee Series 3 LinkEarner Notes and $3 million in Lehman Brothers Minibond Series 3 Notes. Another $3 million is in Pinnacle Notes Series 6.

Sinking fund: Has grown from $62.6 million in 2002 to $118.8 million, as at March 31 this year. Of the $56 million increase, $24 million is from investment income. Average annual investment return is 4.1 per cent.

PASIR RIS-PUNGGOL TOWN COUNCIL

Investments: $4 million in Minibond Series 2 and 3.

Sinking fund: $150 million. Average annual investment income over the last five years is $4.36 million, and return is 3.4 per cent.

OTHER TOWN COUNCILS also have exposure to Lehman Brothers. Their appointed fund managers invested $4 million in Lehman Brothers through their investment portfolios:

Ang Mo Kio-Yio Chu Kang: $1.5 million

Hong Kah: About $1 million

Tampines: $250,000

Aljunied: $120,000

Marine Parade and Tanjong Pagar town councils did not reply to queries at press time, but their exposure is estimated to be about $1 million in total.

Source : Business Times - 18 Nov 2008

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