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A spokeswoman at Temasek says the US antitrust approval involves investments ôalready committedö by the Singapore investment firm, referring to a $3.4 billion commitment it made in July. The approval is not for any fresh capital infusion that has not been announced previously, she explains.
The spokeswoman says, however, that there are other regulatory approvals needed to finalise TemasekÆs additional $3.4 billion investment in Merrill Lynch.
As is standard with these kinds of investments, there are various US and non-US approvals that are required and that process is still going on, a source familiar with the situation says. Merrill Lynch is handling the pending regulatory approvals for the deal to push through.
Temasek, which invested $4.4 billion in Merrill Lynch in December and an additional $600 million in February, is already the US bankÆs largest shareholder with a stake of ôslightly less than 10%ö. Temasek has a pending commitment to invest an additional $3.4 billion in Merrill Lynch, which would raise its stake in the bank to around 13%-14%, which was what triggered the need for regulatory approvals.
In July, Merrill Lynch announced a series of actions to significantly reduce the companyÆs risk exposures and further strengthen its capital position. That included Temasek buying $3.4 billion worth of new shares, although on a net basis, it will only be paying $900 million.
When Temasek initially invested $4.4 billion in Merrill Lynch in December, it negotiated a reset payment clause which stated that if Merrill Lynch sold stock within the next year at a price below $48 per share, Merrill Lynch would compensate Temasek for the difference between the lower issue price and $48 per share. On August 26, Merrill LynchÆs shares closed at $24.10 on the New York Stock Exchange.
Because of that clause, Merrill Lynch has allotted $2.5 billion in compensation for Temasek and booked that as an expense. Temasek has agreed to reinvest the $2.5 billion in Merrill Lynch shares.
At a press conference in Singapore on Tuesday when Temasek announced its latest fiscal year results, Manish Kejriwal û the firmÆs senior managing director for investment, international and India û said the reset payment clause allowed the firm to get the average net cost of purchasing Merrill Lynch shares ôdown substantiallyö.
Temasek executives have indicated that the firm would be willing to increase investments in financials, as they would in other sectors, if the price and fundamentals are right.
ôMore recently, we've concentrated a little more in the US and UK, primarily because we see value,ö says Kejriwal. ôUnlike many others, Temasek is a long-term investor, and while we cannot time these things perfectly, we can take long-term perspectives, and be a long-term stable shareholder in those organisations that we believe have a strong franchise, strong fundamental value and a strong leadership team.ö
Kerjiwal says Temasek has no cap on investments in financials, but is ôvery happy with where we are right nowö.
As of March 2008, 40% of TemasekÆs S$185 billion ($132 billion) portfolio was in financials, slightly higher than 38% in the previous fiscal year.
Michael Dee, TemasekÆs senior managing director for international investments, says the Singapore firmÆs investments in Merrill Lynch, Barclays and Standard Chartered were made on the basis of the fundamental health of the banks. He believes the banks will prove to be good investments in the long-run, considering the price Temasek paid for the shares. Dee, a former Morgan Stanley banker, joined Temasek in the international role in line with the firmÆs bid to expand overseas investments.
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