Burned by Banks, Temasek Digs for Resources

SINGAPORE/HONG KONG (Reuters) – Singapore’s Temasek, like other Asian and Middle Eastern sovereign wealth funds, is digging for deals in mining and oil, as it licks its wounds from financial sector investments that have soured in a global crisis.

The state investor is eyeing “aggressively sized” resource assets and could do a deal in the $5 billion range, a source familiar with the situation told Reuters, declining to be identified due to the sensitive nature of such deals.

Energy and resources make up just 5 percent of Temasek’s portfolio, worth S$127 billion ($84 billion) at end-November. The portfolio, bulging with banks such as Standard Chartered (STAN.L) and Bank of America (BAC.N), slid 31 percent between March and November.Investments in Merrill Lynch and other financials — which account for 40 percent of its assets — are rapidly losing value.

Temasek’s shift towards resources will be helped by the experience of Chip Goodyear, former chief of miner BHP Billiton (BHP.AX)(BLT.L), who succeeds Ho Ching, wife of Singapore’s prime minister, as CEO in October.

His appointment is a clear move that Temasek is angling for more resources deals, analysts and investment bankers say.

“The shift by Asian sovereign wealth funds to commodity related investments makes perfect sense from a diversification, as well as strategic geopolitical standpoint,” said Kirby Daley, senior strategist, Newedge Group in Hong Kong. “I wouldn’t be surprised if we see much more of this activity going forward.”

China’s $200 billion wealth fund CIC is also looking to invest in energy and commodities. 

ACTIVE M&A

Temasek may be looking at Canadian miner Teck Cominco Ltd (TCKb.TO), which is scrambling to sell assets in a bid to raise cash to pay off a $5.8 billion bridge loan, the source familiar with the situation said.

Temasek is more likely to buy minority stakes in assets, another investment banker said, than acquire whole companies.

At a recent mining conference in Singapore, Temasek’s managing director for investments, Nagi Hamiyeh, chaired a session with Rio Tinto’s (RIO.AX) (RIO.L) CFO Guy Elliott, and effectively interviewed him on the firm’s business plans.

“The story of the cycle in resources is still intact, we are further believers of the China story and the urbanisation of China, India and other countries,” Hamiyeh told the conference.

Temasek is looking at resources in an opportunistic way, Hamiyeh later told Reuters, seeing active M&A in the sector.

He split the sector between ‘thrivers’ — the bigger miners with high quality assets and cashflow — and ‘strivers’ — mostly single asset, pre-production, industry newcomers.

“We believe there will be a new round of significant consolidation led by some of these thrivers with their large cash funds and access to capital,” he told the conference.

“The thrivers will go after the high quality strivers and acquire them at very fair valuations. … We believe there are way too many players in the industry,” Hamiyeh said.

A sharp drop in the price of many commodities — the broad Reuters-Jefferies CRB .CRB commodity index has more than halved from last year’s peak — and stressed corporate balance sheets have triggered fire sales for some resources assets.

Swedish copper and zinc miner Boliden (BOL.ST), Kazakh copper producer Kazakhmys (KAZ.L) and India-focused miner Vedanta Resources (VED.L) all appear under pressure to reduce debt and raise equity, according to Goldman Sachs.

Even stronger miners are open to sovereign wealth funds. Brazil’s Vale (VALE5.SA), the world’s biggest iron ore miner, said it wants sovereign wealth funds to invest more in its business after hesitant steps so far.

But a person familiar with Temasek’s thinking said the Singapore investor will tread carefully as many countries regard their natural resources as strategic assets.

Some politicians and investors in Australia have opposed a proposed $19.5 billion investment in Rio Tinto by Chinese state-controlled Chinalco.

“The challenge will remain with resource rich countries in terms of how to balance out resource protectionism versus badly needed foreign capital,” Hamiyeh said.

By Saeed Azhar and Joseph Chaney
(Additional reporting by Tony Munroe in HONG KONG, Daisy Ku in LONDON and Kash Cheong in SINGAPORE; Editing by Neil Chatterjee and Ian Geoghegan)