HIT BY S$7.3B LOSS, TEMASEK TURNS OUT THE LIGHT ON ITS FINANCIAL STATEMENTS

Santiago Principles is the generally accepted principles and practices (GAPP) that relate to the operation of sovereign wealth funds. Temasek has always boasted it maintains standards higher than Santiago. Well, it cannot say that anymore as far as financial statements are concerned. There is no audited statutory financial statements for y/e 31 Mar 2023, or at least we don’t get to see one. It is very telling this change happens in the year when it made its first loss in decades.

For y/e 31 Mar 2023, what is published and what we get to see is just the Group Summary Statement. This is an aggregated information with limited disclosure prepared by management. The auditor simply provides an opinion that the data is correctly aggregated from audited financial statements. Make no mistake, the accounts have been audited as usual since Temasek has to report to the shareholder, ie the government. Under Singapore Standard on Auditing SSA 810, a company that publishes a Group Summary Statement has to state clearly where audited statutory financial statements may be freely available. Temasek hides behind its private exempt status which does not require it to publish audited financial statements. The light just went out.

For decades, executive compensation of Temasek has been a state secret despite requirements of the Companies Act for full disclosure. Now it looks like audited statutory financial statements will also go the way of the dodo birds. It begs the question what is being concealed.

We have no idea of the performance of Temasek at company level for 2023. At group level, which includes operating subsidiaries such as Singtel, Singapore Airlines, PSA, ST Engineering, Mapletree, Singapore Power, etc, it lost S$7.3b after tax.

From group summary, the loss is just a hiccup.

The gross margin remained at 2022 level of 22%, suggesting there was no massive portfolio write down for the year as most would have worried given the tumultuous year in equities.

The P&L only shows a write down of S$22b on its Liquid & Sub-20% portfolio. This segment forms 27% of of the whole investment portfolio of S$382b. The segment is valued S$125b pre-write down and S$103b post write down. Cash, near-cash items, and listed equities comprise this segment. The S$22b loss is diminution in value from mark-to-market. The loss is 18% of this portfolio segment which is twice the loss in 2022.

20% or S$76b of Temasek’s portfolio is in listed equities where it owns more than 25% of the stock. We have no idea of any losses on mark-to-market.

53%.or S$202b of investment is in unlisted stocks. These are accounted for at cost less impairment. Valuation gains are only accounted for after IPO or on sales. Ordinarily this is the most non-transparent part of the portfolio. Even auditors would need to place a lot of faith on figures provided by management. This is where investments like FTX would be booked. So how do we know if the S$275m investment in FTX has been written off? How do we know the US$10m given to Mark Zuckerberg for the doomed (which I predicted from day1 that it will fail) fintech Libra project has also been written off? How do we know valuations are ‘on-the-ball’? We don’t.

MAS lost S$21.4b on forex losses due to appreciation of SGD. Temasek makes no mention of the impact of changing values on its book. Perhaps they did great hedging currency risks. We learn nothing from the Group Summary Statements.

Interest expenses increased by 29% to S$6.2b despite debt decreasing from S$90b to S$78.5b. Temasek is not spared from impact of rising interest rates. The rising cost of funds may perhaps put a dampener on leverage as a growth driver.

Total portfolio was S$382b, down slightly by 5%. Pretty resilient, considering the challenging global conditions.

Here’s food for thought.

A digression here on a personal experience to introduce my point. Some 25 years ago I had some relatives who started out manufacturing some products for the retail market. Wet behind the ears in business, they started a sales incentive scheme which I thought was way too generous and came with the risk of not having a cap. Sales hit the roof and soon sales girls were drawing crazy pay checques. Of course the scheme needed watering down, not without some HR discontent.

In my May 2019 blog "Temasek - The Shocking S$3.61b (est'd) Executive Bonus" I described the company’s executive scheme and tried to re-engineer what the bonus for y/e 31 Mar 2018 based on parameters described in Annual Reports. I found it was a shocking unbelievable S$.3.6b. .

For y/e 31 Mar 2019 I worked on determining what was the provision for executive bonus carried in the books. The figures were mind-boggling. If my computation is correct, it is tantamount to bank robbery. I blogged about this in Sep 2019 “Is Temasek operating a slush fund?”. I explained what a slush fund is. The figures for provision for executive bonus is so humongous that movements in this account can impact P&L seriously. It can be used to manipulate the accounts. I am not saying it has been done, but if my computation is correct, it represents a critical financial risk.

Singaporeans never picked up on such important revelations (most prefer gossipy stuff like current illicit love affairs of members of parliament) and also my blog outreach is small, my stories had no traction. The red flags I raised ought to set alarm bells ringing in every accountant’s brain to get up on their butts to prove me wrong. And I sincerely hope I am wrong.

What Temasek has is an incentive scheme without a cap. For a company that can hit double digit billions in a good year, imagine what the payout can be. Such a scheme makes it the employer to die for.

To bring this story back to the blog focus on Temasek turning the lights off financial information, the audited accounts for years 2020, 2021, and 2022 no longer carry the information that made it possible to compute the executive bonus and the provision figures the way I did for 2018 and 2019. Is that just coincidence or tightening up loopholes? Perchance someone saw the red flags I raised?

So here we are 2023, Temasek has not only done away with publishing audited statutory accounts, it has retroactively replaced past years audited financials in their website with group summary statements. There’s some revisionism going on. History has taught us it is always worrisome when a regime practices revisionism. 

The devil is in the details. With Temasek now shy on publishing audited statutory accounts, are there any devils that are concealed? One can only wonder, especially in a climate where trust has run low, very low.

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