By Ignatius Low & Alvin Foo

TEMASEK Holdings said yesterday that it no longer sees the divestment of its stakes in Temasek-linked companies (TLCs) as one of its core functions.

Divestment is now simply an option that the investment firm may adopt as it actively manages its portfolio of both local and international companies in the years ahead.

'Divestment is now one of the many approaches we have to increase value and make sustainable returns,' said Temasek chairman S. Dhanabalan in an interview on Monday.

'We can divest, merge or fold our investments into larger enterprises. There are many ways of doing it, so that is not a main focus of the 2009 charter.'

Temasek still owns sizeable stakes in many large Singapore companies. For example, it owns 27.8 per cent of DBS Group Holdings, and more than 50 per cent of SingTel and Singapore Airlines.

Divestment of these stakes was a key theme when the first Temasek Charter was released in 2002.

One reason for this was that the document came hot on the heels of the findings of the Entrepreneurship and Internationalisation Sub-Committee (EISC).

The EISC had recommended that the Government exit any business that could be found in the 'yellow pages' directory so as not to crowd out private enterprise.

'The 2002 Charter was very much from that kind of approach. People were very concerned,' said Mr Dhanabalan.

'But now it's quite different. As Hyflux CEO Olivia Lum said in a speech in Parliament, the competition is not here with the TLCs, it is out there. There is now a greater realisation of this point within the business community in Singapore.'

Still, Temasek said yesterday that it is open to divesting companies such as port operator PSA and media giant Mediacorp.

Analysts and fund managers said that its change of stance on divestment is reflective of the way it has evolved.

One of its key divestments in recent years involved three power generating companies, which was completed by March this year.

CIMB-GK regional economist Song Seng Wun said: 'It's more of an investment company now, where buying and divesting is part of its overall business. So you don't have to spell it out as it's no longer the key focus. It's a slightly different animal now than 10 years ago.'

'I think what they mean is that the rebalancing of the portfolio is largely done and henceforth we should not expect too many divestments,' said Mr Wong Kok Hoi, chief investment officer of APS Asset Management.

Another change that had occurred in the seven years between the release of the two charters, said Temasek CEO Ho Ching, is that Temasek has made some progress in strengthening its TLCs.

In 2002, Temasek pledged to deepen Singapore's economic base by 'nurturing successful and vibrant international businesses from its stable of companies'.

Today, some of that work has been done, she said. The TLCs have international boards of directors and management teams, and derive a large part of their revenues from overseas.

Asked about Temasek's influence on its TLCs, Ms Ho said that there are three areas where Temasek gives guidance.

The first is in selecting the best talent for their boards and management.

'We provide them with a slate of candidates, but they will have their own list too. And this is no different from the way we work with other non-Singaporean companies,' said Ms Ho.

'Then their own boards will take a look and we just put them in touch with the candidates if they need us to.'

Secondly, Temasek shares best practices with its TLCs.

'For example, when Singapore signed a whole spate of free trade agreements (FTAs), we held forums where we bring in speakers to explain the context and the advantages of the FTAs,' she explained.

Finally, while Temasek does not get directly involved in TLCs' discussions on strategy, it encourages them to think about strategy.

'We do study the industry or sector and share our view,' said Ms Ho.

'We typically would do an 'outside in' view; in other words we will study the company in the context of the industry, no different from how an analyst would.'

This article was first published in The Straits Times.