Temasek Report 2010

The success of Temasek as a key Singapore institution since its inception is due in no small measure to the visionary and dedicated founding leaders of Singapore with their clear focus on governance and delivery.

The last 10 years in particular have seen much volatility, starting with the crash of the dotcom bubble in 2000, and ending with the pull-back from the brink of a deep global depression in 2009, punctuated in between by 9/11, SARS and the H1N1 flu pandemic scare. Undergirding these visible events is the unfolding story of Asia and the secular rebalancing of the global economy with the re-emergence of China and India.

At Temasek, we have the foundation of a strong base of Singapore blue chip companies in our portfolio, built through decades of sweat, ingenuity and dedication of generations of boards, management and staff. As they ventured abroad, they set the example for Temasek to follow suit and broaden our interests to add many new Asian blue chips to our portfolio.

As at 31 March 2010, we have 32% underlying exposure to Singapore, 46% to the rest of Asia ex-Japan, and the balance of 22% to OECD and other economies.

Delivering Value

Our portfolio by market value rebounded to S$186 billion, up from S$130 billion a year earlier. Group net profit was S$5 billion with reduced contributions from our portfolio companies.

Wealth Added or excess returns above a risk-adjusted hurdle was S$42 billion.

One-year Total Shareholder Return (TSR) by market value stood at 42%, while TSR by shareholder funds was 26%.

Medium-term five-year compounded TSR was relatively robust at 11% by market value and 14% by shareholder funds. Our 10-year TSR by market value compounded annually, from the peak of the dotcom bubble, was 6%, and 20-year TSR 16%. The corresponding 10- and 20-year TSRs by shareholder funds held steady at 12% and 14% respectively.

Since inception in 1974, our TSR was 17% by market value and a healthy 16% by shareholder funds.

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Staying Liquid

Since mid-2007, we have maintained a relatively liquid stance in anticipation of the risks and market opportunities.

Credit markets turned favourable towards the end of 2009. We took the opportunity to issue seven long-dated Temasek Bonds consecutively over five months, including our first SGD bond. In total, we raised over S$5 billion through five SGD-denominated and two USD-denominated bonds. This extended our debt maturity curve to 2039.

Together with our maiden 10-year USD bond launched in 2005, we have eight outstanding Temasek Bonds, totalling just under S$8 billion, with an average maturity of 13 years. Our triple-A rated Temasek Bonds serve as real-time public markers of our credit quality. They add new stakeholders for Temasek, and reinforce our focus on capital efficiency and long-term financial discipline.

We ended the year with a flexible net cash position.

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Investing Steadily

We maintained a steady pace, with S$10 billion of new investments and S$6 billion of divestments. These include over S$3 billion of rights issues in and recapitalisations of our portfolio companies. We also invested in China Construction Bank and Olam International during the year.

We had the opportunity to add LAN Airlines of Chile, a leading regional player, to our transport and Latin American portfolio, while an investment in Amyris Biotechnologies Inc gave us exposure to the production of renewable chemicals and transportation fuels in Brazil and the USA.

We invested in Seoul Semiconductor, a Korean light emitting diode (LED) company and its subsidiary, Seoul Optodevice, for exposure to energy-efficient products for LED displays and lighting applications.

New investments post March 2010 included GMR Energy Limited, a leading Indian power utility company, and the National Stock Exchange of India. We also invested in mining companies Platmin Limited of South Africa, Inmet Mining of Canada, and most recently Chesapeake Energy of the USA. We added exposure to the credit space through a fund in Singapore and another in the USA.

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Building Thoughtfully

In parallel with our investment activities, we continued to build our institution with tomorrow in mind.

We established SeaTown Holdings, a wholly-owned global investment company, with committed capital of over S$4 billion. SeaTown operates and makes its investment decisions independently, with reciprocal co-investment rights between Temasek and SeaTown. SeaTown is intended as a co-investment platform for sophisticated investors in the medium term.

We continue to build on our suite of risk assessment tools covering the investment life cycle. Management information systems for transactions, monitoring and decision making have been revamped, with the first phase upgrading due to be completed this year.

The very sharp market downturn of March 2009 was a robust test of our framework of long-term incentives for our staff, particularly in the distribution and sharing of negative risk-adjusted returns. We have gained some reassurance through the ups and downs of one market cycle that this is the relevant platform for us to build a long-term ownership ethos.

In seeking sustainable long-term returns, we strive as an institution to make a difference to our stakeholders. We continue to build on the foundation of hope and opportunities for our future generations, in the same way that others before us have planted trees that shade the paths for our generation.

In this spirit, we committed since 2003 to share a portion of our Wealth Added with the wider community for each year that we deliver returns above our aggregated risk-adjusted hurdle. We launched Temasek Cares in June last year with an initial endowment of S$100 million to Temasek Trust, drawn from provisions set aside in previous years. In December 2009, we gifted an additional S$70m for health care and special needs in Singapore. These complement the other non-profit philanthropic organisations sponsored by Temasek. To date, we have committed over S$1 billion to various community initiatives and causes.

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Looking Ahead

The year saw a steady but mixed return to global growth, with a strong rebound in Asia. In April, the IMF forecast a growth of over 4% for 2010.

The current European sovereign debt crisis is a reminder that the past excesses are still being worked through. Governments and economies around the world will now have to deal with the consequences of the co-ordinated efforts to pull us back from the brink of potential global depression.

Deleveraging continues. Policy risks will be higher, and the regulatory environment tougher. Protectionism may rear its head as developed markets struggle to cope with high unemployment, weak fiscal positions and mounting debt burdens. Developing markets risk asset bubbles and loose lending may haunt their banking system down the road. Credit markets remain skittish. Inflation is a risk for the medium term.

Choppy waters lie ahead, but Asia will maintain its secular long-term growth.

Our focus on Asia continues.

As we continue to strengthen and transform our portfolio, investing and divesting steadily, our investment themes remain relevant going forward:

• Transforming Economies
• Growing Middle Income Populations
• Deepening Comparative Advantages
• Emerging Champions

As an active investor and active shareholder, the decade ahead will present challenges as well as opportunities as we build for the long term.

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Adding to our Board

Early this year, we welcomed to our Board, Michael Lien and Hsieh Fu Hua, both distinguished in their respective careers. Michael has been a corporate financier for more than a decade, while Fu Hua brings with him 35 years of experience in merchant banking and capital markets.

Appreciating our Stakeholders

Members on our Temasek International Panel and Temasek Advisory Panel have been excellent resources. They have contributed to shaping our perspectives. I thank all of them, past and present, for their wise counsel and strong support over the years.

I must also thank the boards, management and staff of companies in our portfolio for steering their businesses through the global financial crisis. Several portfolio companies delivered strong results despite a tough global environment. Without their leadership, hard work and perseverance, this would not have been possible.

The same goes for the past and present Board, management and staff of Temasek. They have worked hard to ensure our growth and success. I want to thank them for their tireless support and commitment.

Finally, I wish to express my deep appreciation to our other stakeholders in Singapore and around the world: our shareholder, bondholders, business partners, advisors, friends, as well as governments, regulators, Temasek Trust and the various non-profit philanthropic organisations, and the broader public. They have contributed in their own different ways to Temasek’s progress. We look to their continued support, friendship and guidance as we seek to deliver long-term value to all our stakeholders.

S DHANABALAN

Chairman
July 2010

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