Temasek

Temasek

Temasek: Temasek Holdings, an investment firm owned by the government of Singapore, has agreed to buy 4 percent of Goldman Sachs Group Inc's Hong Kong-listed shares in Industrial & Commercial Bank of China Ltd (ICBC) for $2.5 billion, according to a report by the Wall Street Journal Monday, citing an e-mail from Temasek. Once the transaction is complete, the Singapore-based company will control 5.3 percent of ICBC's H-shares, or 1.3 percent of ICBC's total shares, according to a statement issued by Temasek Monday.

Increasing its stake in ICBC will not only help Temasek meet its investment goals, but also push China's State-owned lenders to improve their efficiency as the central government moves to break up their monopoly in the banking sector, experts told the Global Times.

News of Temasek's purchase comes soon after China's "big four" State-owned banks reported huge surges in their earnings last year. Late last month, ICBC announced that its net profits skyrocketed 25.6 percent year-on-year during 2011, leading its State-owned peers in terms of profit growth.


ICBC is an excellent investment target for a State-owned fund company, such as Temasek, which will naturally look for secure investments with high profits, Yi Xianrong, director of the Financial Institute at the Chinese Academy of Social Sciences, told the Global Times.

In recent years, China's State-owned banking sector has consistently received support from the central government during periods of financial distress, which has significantly contributed to the stability of the country's major lenders, Yi explained.

Temasek also owns stakes in China Construction Bank and Bank of China.

By upping its investment in ICBC, Temasek will likely put more pressure on the State-owned lender to improve its efficiency and management abilities, which may lead other major banks in China to follow suit in a bid to attract foreign capital, Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times.

"State-owned banks in China enjoy huge profits, but this is due to their monopoly in the banking sector, not because of their high-quality management skills," Zhou added.

Chinese companies should also be cautious about receiving investments from state-owned funds based in foreign countries, in order to minimize the risks posed by massive cash withdrawals, said Liu Shengjun, deputy director from the China Europe International Business School's (CEIBS) Lujiazui International Finance Research Center.

Temasek