Temasek tells S&P: S'pore is not debt-ridden Greece

Investment firm says proposed new rating framework is 'confusing', in strongly worded critique
By Yasmine Yahya, Assistant Money Editor, The Straits Times, 7 Feb 2015

A PLAN by ratings agency Standard & Poor's to overhaul the way it rates investment holding companies has drawn a strongly worded response from Temasek Holdings.

The Singapore investment firm noted that the "confusing" proposal lumps Singapore together with countries such as Jamaica and even Greece, which is battling a debt crisis.

Last November, S&P had asked for feedback on its proposed new framework, aimed at improving the way it rates the creditworthiness of investment firms such as Temasek, holding equity stakes in companies across at least three sectors.

Ratings from the likes of S&P are relied on by investors to assess how likely a company, institution or country would be able to repay its debts.

These ratings are applied, for example, to bonds issued by firms and governments so that investors know how safe or risky they are. Singapore's "AAA" rating means its government bonds are deemed to be extremely safe.

Temasek has issued bonds targeted at professional investors. It has previously said that it is also looking at offering retail bonds.

In an e-mailed statement to The Straits Times yesterday, Temasek spokesman Stephen Forshaw said a company should be rated based on its underlying credit quality, according to business and financial factors.

"The business aspects of an investment holding company should include the resilience and credit quality of its portfolio, as well as the management and governance structure," he said.

The financial aspects should include factors such as cash flow, overall funding and capital structure, and the ability to meet payment obligations as and when they fall due, he added.

However, S&P's proposed framework "departs from these principles and gives rise to serious concerns", Temasek said in its 29-page feedback to the ratings agency.

IG market analyst Ryan Huang said the new framework, if implemented, is unlikely to have any real impact on Temasek, given that "people know Temasek and Singapore and their track records".

"But Singapore prides itself as a financial hub, and you never know how the investment community might react, so Temasek is probably being cautious and speaking out to protect its image and status quo," he said.

Under S&P's plan, for example, one of the ways it would assess investment firms is by looking at their main base of operations. S&P divided economies around the world into four categories based on the volatility of their stock markets over the past 30 years.

As a result, financial centres such as Singapore and Hong Kong have been placed in the same risk basket as economies such as Jamaica, Trinidad & Tobago and Greece, whose government has about a month's worth of cash left. Somewhat puzzlingly, the Asia-Pacific and South-east Asia were placed in a higher category, denoting less risk. "This mixing of regions and countries is confusing," Temasek said.

Furthermore, "long-term volatility is not an appropriate indicator of the actual liquidity of stocks in a country, and of the actual liquidity of a portfolio", Temasek argued.

S&P should instead look at the number of days needed to sell off assets listed on the respective stock exchanges.

S&P also has a list of 38 industry sectors, such as regulated utilities, pharmaceuticals and homebuilders, which it has divided into four categories based on their credit risk. Under the proposed new framework, all investment holding companies would automatically be placed under the "moderately high risk" category.

Temasek noted: "The proposed framework is suggesting that investment holding companies are, as a whole, more risky than regulated utilities or pharmaceuticals, and as risky as metals and mining, or oil and gas companies, regardless of the individual investment holding company's credit profile."

Altogether, Temasek outlined six main points on which it disagreed with the proposed framework. Another concern it raised was that "there is no upside for investment holding companies with superior credit quality arising from having strong financial discipline".

In an e-mailed statement to The Straits Times, an S&P spokesman said: "We do not comment on individual market feedback or any potential rating changes until we finalise our criteria."