Temasek Tracking - Salt Bae and POFMA fuss does not detract from a massive investment write-down

 
Some time back, popular opposition member Brad Boyer posted in Facebook regarding Temasek's investment in Salt Bae restaurant's parent company which he said was saddled with debt problems. This (plus other comments), earned Boyer the notoriety of being the first person to receive a POFMA (Protection From Online Falseshoods and Management Act) on 25 Nov 2019. He rightfully had to oblige with the correction order to direct readers to the government site where explainer 101 is hosted. 

Everyone has a right to criticise any Temasek investment, but there are two prerogatives. (1) Be a sticker to facts. Unfortunately, transparency is not in the nature of investment activities. This is true generally and not exclusive to Temasek. If conclusions are drawn from paraphernalia, the author needs to highlight the basis for that conjecture. (2) Stay away from kicking someone who is already down with post fact causalities that were unknowns at the time when the investment decision was made. Wisdom from hindsight is an underhand.

FACT :  In April 2018 Temasek and UK's Merit Capital together acquired 17% of Turkish company Dogus Restaurants Entertainment & Management International BV (D.ream) for US$200m, putting a valuation of US$1.2b on the company.

From what I have read, the financials seem solid at the time. D.ream owned several restaurant brands, has many profitable operations across a few countries. The owner, Dogus Holdings, made the partial divestment to raise funds they badly needed. Nothing untoward here. Companies selling good assets to raise funds is common.

However, it is the country and currency risks that one wonders at this investment decision. President Erdogan has a 'New Turkey' neo-Ottoman narrative, one that sees a larger Turkic nation. He has used aggressive rhetoric against Greece in their Mediterranean standoff. He persecutes the Kurds. He is currently actively supporting the Arzerbaijans against Christian Armenians (one has to contextualise this with the 1909 genocide where Turkey slaughtered 1.5m Armenians). His dictatorial economic policies have brought disastrous inflation to the country that cost him politically. So he played the popularity card and converted the Hagia Sophia to a mosque in 2020. This great building was a church, then a mosque, then a musuem, and now a mosque again. 

The economy has been driven to the ground by double-digit inflation for years, and the country with heavy foreign currency debt has been facing a Turkish Lira crisis. Turkish corporations like Dogus Holdings are selling assets because they can no longer service foreign debts. In light of these problems, it seems the Temasek investment decision skewed heavily on micro financial analytics with prevailing macro risks downplayed. 

What does the Lira depreciation mean for the Temasek investment?

Since April 2018, the Lira has depreciated by 89% against SGD. The US$200m in April 2018 is about TSY816m = SGD264m. It is now worth SGD140m. What is Temasek's share we do not know. But what we know is, it has taken a massive valuation hit. 

What is the Salt Bae fuss all about? Turkish chef Nusret Gokse and Mithat Erdem are co-founders of Nusrt-Et Steakhouse. The co-founders owned 49% of Nusrt-Et with the majority 51% owned by D.ream. In 2017 Gokse shared a video on their company twitter account which showed the sensual way he prepared a steak dish and the cobra-like way he salted the dish. That tweet went viral and earned him instant internet fame and the moniker Salt Bae. Nusrt-Et gained international fame and celebrities checked out the restaurant to experience the Salt Bae theatrics. It was a huge marketing success which the company followed up by opening several international outlets. Crowds poured in for pricey but so-so dishes.  

In November 2019 the owners of the Steakhouse mulled with the idea of part divestment at a valuation of US$1b. Obviously it is to cash-in before the viral tweet craze dies out. Press reported there was strong interest from international investors and a financial adviser is assessing potential bids. There is no indication that GIC nor Temasek has shown any interest. One would certainly hope not.

Although the POFMA on Boyer was correct, it certainly does not take away the point that he was trying to make. The investment in the D.ream restaurant chain requires massive write-down in Temasek's book.

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Note: I had earlier indicated the investment is now worth about US$22m. That was incorrect of course, as visitor Phillip Ang pointed out. I have since edited the figures.