SINGAPORE, May 7 (UPI) -- Government-linked companies have been a corner stone of the Singapore economy and have played a critical role in its economic development over the past 30 years. They also have attracted their fair share of controversy, especially as they aim to make a mark on the international stage.
Though there no recent data are available, in 1998 the GLCs contributed about 13 percent to the country's gross domestic product.
Now, Temasek Holdings, the investment arm of the Ministry of Finance that owns and manages the GLCs, is working out a charter with the ministry that will spell out Temasek's mission, role and responsibilities.
"Temasek intends to publish this charter soon to make it clear how the government sees the role of the Temasek companies in the Singapore economy," Deputy Prime Minister Lee Hsien Loong told Parliament last Friday in his budget speech.
Eva Ho, a spokeswoman for Temasek, said Tuesday she did not have yet a release date for the charter.
GLCs date back from the 1960s, when the government adopted an activist approach to help speed up the process of economic restructuring. The companies were established to spearhead development in specific sectors of the economy, such as shipbuilding, air transport and development banking. The government defines a GLC as a company at least 20 percent effectively owned directly by the government or with an intermediate holding.
Some of the best known GLCs include Singapore Airlines, Singapore Telecommunications, Chartered Semiconductor Manufacturing and DBS Group Holdings.
Public debate has raged on, however, whether GLCs are too dominant in the local economy and whether some should be privatized.
Last year, the government set up the Economic Review Committee to come up with new ideas to restructure the economy over the medium-term in light of the new economic challenge. The ERC subcommittee, Promoting Entrepreneurship and the Growth and Internationalization of Singapore-based Companies, has been reviewing the role of the GLCs and has given the government its views.
Among others, the subcommittee has recommended GLCs should be run as commercial entities and should lead small- and medium-sized enterprises into the regional and global market.
The view of the government is that GLCs should operate as commercial entities, with no interference from the government.
"The government will not favor GLCs with special privileges or hidden subsidies, nor will it burden them with uneconomic 'national service' responsibilities. The GLCs are expected to compete on a level playing field and frequently in a global environment," Lee said.
Norman Villamin, a strategist at Morgan Stanley, wrote in recent research, "We believe Temasek's coming statement on the GLCs' role will be more critical to the credibility of the secular shift strategy."
"The announcement on Temasek's corporate mission looking forward needs to focus on return enhancement rather than asset accumulation," he added.
Analysts generally believe GLCs still face the challenges of establishing a global cost competitiveness vis-a-vis global industry peers, while establishing long-term capital redeployment and capital return strategies to ensure return sustainability.
A number of GLCs have been pursuing global strategies, looking for new markets to grow and diversify, but the fact that the Singapore government is a major shareholder has been cited as a stumbling block to overseas expansion.
The most publicized case was the failed bid by Singapore Telecom for Cable & Wireless in Hong Kong, but SingTel's attempt to enter the Malaysian market through acquisition, has also met strong opposition. Singapore Airlines's bid to acquire a stake in an Australian airline failed and when it took a stake in Virgin Atlantic, some argue the company was paying too much for the sake of international ambition.
"If growing a GLC into a major player requires the government to dilute its stake through new share issues, mergers or acquisitions, the government is prepared to do so," Lee said in his speech.
This likely would include port operator PSA Corp. as Prime Minister Goh Chok Tong recently indicated studies have been started into ways in which foreign shipping companies using the port could become shareholders. The company has faced increased competition from a rival port in Malaysia and seeking way to retain its edge.
Singapore Power also is slated for partial privatization, although the process has been delayed since the beginning of the year.
The issue of GLCs divestments has been on the table for some time, and over the past few years, the government repeatedly has indicated it would consider divesting in sectors that are not considered strategic.
Lee reiterated that where the activities are strategic and crucial to Singapore, such as aviation and the electricity grid, the government intends to retain its majority or significant stakes.
"For those strategic activities that are still wholly owned, the government hopes to list them in future, if it makes sense to do so in order to help them grow and increase shareholder value," he added.
Sanjay Mathur, a UBS analyst, believes the government involvement in the economy via a large-scale selldown of stakes in government-linked companies is critical in terms of fostering entrepreneurialism and raising productivity levels.
This is a key consideration for the government as the fostering of entrepreneurs is one of the official policy mantras currently being annunciated.