Government blow for Singapore bank

TEMASEK, the

Singapore Airlines, the region's most valuable airline, DBS, South-East Asia's largest bank, and Singapore Telecommunications are some of the listed groups partially held by Temasek. Its entire stable accounts for about a quarter of the local market's capitalisation.

Investing in these State-linked firms requires an understanding of what Temasek is seeking to achieve with their development. In recent years, this has been a straightforward push to establish them as international players.

But Dutch investment house ING is now warning that the situation could be far more complicated in the case of DBS. And this may in turn have major implications for the financial group's stock price.

ING says that Temasek, which holds 30.6% of DBS, may now want to sell its holding or allow the company to merge with another group, naming London-listed Standard Chartered as the most suitable contender.

DBS shares traded 20 cents, or 1.4%, higher on Wednesday at S$14.40, in line with a regional upswing. But if the ING team is right, the long-term trend could be more volatile. The case from ING rests on two puzzling recent moves by Temasek.

Cutting out DBS, it first bought Indonesia's fifth-largest lender, Danamon, in a consortium with Deutsche Bank. And now Temasek is bidding for another Indonesian lender, BII. Again, DBS is not part of the party.

ING points out these moves will soon put Temasek in competition with DBS and adds, significantly, that the group 'is no longer a key part of Temasek's regional banking strategy'.

If correct, this represents a seismic shift in government policy, and investors should take it on board.

ING suggested Temasek was now going it alone, as DBS's public shareholders were not keen on backing further regional expansion after costly buys in Hong Kong and Thailand.

Other Singapore shares were energised by the now-familiar economic recovery story.

Oversea Chinese Banking Corp gained 10 cents, or 0.9%, to S$11.90, United Overseas Bank edged up 20 cents, or 1.4%, to S$13.10, and chipmaker Chartered Semiconductor rose six cents, or 3.7%, to S$3.70. The Straits Times index firmed 17.59 to 1739.69, a 1% advance.

Japanese shares took a pasting as the yen surged and investor anxiety about exporters' profitability was cranked up another notch. The Nikkei 225 dived 278.13 points, or 2.6%, to 10,542.20.

Nissan slumped 67 yen, or 5.2%, to 1226, Toyota dropped 90 yen to 3430, a 2.6% slide, and Honda traded at 4390, down 300 yen, or 6.4%. But Sumitomo Mitsui Financial gained on expectations it is to raise its net profit forecast for the first half by 90%. Its shares rose 8000 yen to 555,000, up 1.5%.

Rating agency Standard & Poor's brought some cheer to the minnow markets, upgrading the long-term foreign currency sovereign credit standings for Indonesia, Thailand and Malaysia.

The latter's Kuala Lumpur Composite index rose 11.81 points, or 1.6%, to 760.36, Thailand's SET index put on

8.89 points to 553.87, a 1.7% gain, and the Jakarta Composite index rose to 620.645, better by 5.335 points, or 0.9%.