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Dr Garry Rodan
Throughout January and February, Singapore’s media were abuzz about a looming merger between SingTel, one of the city-state’s leading government-linked companies (GLCs), and the Hong Kong-based Cable & Wireless HKT. The combining of the two telecoms giants would have created a S$100 billion regional company and the sixth-largest international call carrier in the world. Before this could happen, SingTel’s offer was rejected in favour of one by Internet giant Pacific Century CyberWorks, owned by leading Hong Kong entrepreneur Richard Li. What looked like being a prestigious new acquisition for Singapore Inc. quickly turned to official embarrassment and dismay. The episode also brings into question the Singapore Inc. model itself and speculation that globalisation is beginning to expose the shortcomings of this hitherto successful formula.
The SingTel disappointment comes on the heels of other unsuccessful attempts by GLCs to buy into major international companies, including Singapore Airlines’ bid for News Corp’s stake in the Australian-based airline Ansett. Singapore’s cash-rich GLCs have been eagerly on the hunt for purchases, but are finding the competition for spoils more intense than in the past. A state-led industrial park in China’s Suzhou is also carrying a projected S$151 million loss. Ironically, the rationale behind that joint venture was to superimpose domestic Singapore Inc. style bureaucracy and efficiency to enhance the park’s viability. Instead, the project fell victim to a combination of competitive market forces and the inability of GLCs to operate within an alien set of bureaucratic structures.
The proposed merger of SingTel and Cable & Wireless HKT was a rational response to increasing deregulation both in Singapore and Hong Kong. But, as with the deregulation of the banking sector, Singapore’s authorities are trying to reconcile the opening up of the telecommunications industry with domestic control. In the banking sector, this involves giving extensive powers to newly-created Nominating Committees by the Monetary Authority of Singapore. It also involves the requirement that local banks' boards of management have a majority of Singapore citizens and permanent residents.
By contrast, in telecommunications, opening up the sector has seen the entry of foreign competitors with links to GLCs. In both cases, then, we are witnessing regulated competition, where the state is still able to directly and indirectly exert significant influence over the market. But once abroad, the same options don’t exist and forming alliances demands accommodation to different corporate cultures and public pressures. In particular, forming strategic alliances in key sectors like airlines and telecoms is difficult if the GLCs insist on maintaining customary management control.
Singapore’s limited capital markets have long compelled cashed-up GLCs to invest abroad simply to generate further profits. Increasingly, though, the world’s leading international corporations are securing strategic mergers to consolidate and extend their interests, notably via emerging industries associated with electronic technologies.
WATCHPOINT: Global developments pose a challenge for Singapore’s GLCs, which need to do more than obtain higher returns abroad to ensure they become major global players.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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