Singapore wealth fund Temasek Holdings expects to boost stake in Merrill Lynch to 13-14 per cent after receiving US government approval and also warned of further contagion from the global credit crisis.
The US government approval statement gave the first indication of the size of the total stake Temasek will hold in Merrill after the bank's most recent fundraising in July.
Merrill's management team has strengthened since Temasek bought its initial stake in the bank in December, Senior Managing Director Manish Kejriwal told the Wall Street Journal.
Temasek paid $4.4 billion (Dh16.1bn) for nine per cent of Merrill in December and received another $2.5 billion in new shares in July as part of a reset payment secured in the original agreement.
Foreign investors that take stakes larger than 10 per cent in US investment banks must seek regulatory approval.
Temasek also agreed to buy another $900 million in new Merrill shares as part of July's transaction.
The sovereign wealth fund yesterday warned of further affects from the global crisis after it doubled its full-year profit by selling billions of dollars of assets.
"The fallout of the credit crisis will continue to dampen the global economy over the next 24 months, with sharply escalated oil and food prices beginning to test inflation expectations," Chairman S Dhanabalan said in the firm's annual report.
But Temasek sees opportunities in financials and said it would not cap its investments in that sector, which grew to 40 per cent of its portfolio in the year to end-March from 38 per cent previously. "The financial service industry is one we believe in," Manish Kejriwal, Temasek's Senior Managing Director for Investment, International and India, told reporters at its annual briefing on Tuesday. "It's a proxy to the economic growth."
"We recently concentrated on US and UK primarily because we see value," he added, referring to Temasek's purchase of a nine per cent stake in Merrill Lynch and a two per cent stake in Barclays last year. It also raised its stake in Standard Chartered to 19 per cent from 13 per cent.
However, Anshukant Taneja, an analyst who covers Temasek for ratings agency Standard & Poor's, warned the firm's large exposure to financials increased its vulnerability to unpredictable asset cycles and contagion.
"The investment environment is expected to remain challenging, with expectations of continued pressure on liquidity and possibly subdued trends in the equity markets," said Taneja, who rates Temasek 'AAA', the highest credit rating, partly because of its government ownership. "This may impact Temasek's ability to divest its stake in various entities and manage its portfolio." Temasek, whose Chief Executive Ho Ching is the wife of Prime Minister Lee Hsien Loong, has aggressively expanded outside its Asian home market in recent years to boost returns.
Temasek's net profit doubled to S$18.2bn (Dh49.9bn) in the year to end-March, with its portfolio value increasing about 13 per cent to S$185bn, helped by a S$10 bn injection from the government. Temasek said it made S$32bn of new investments in its 2007-08 financial year, double the S$16bn it spent in the previous year.
Asset sales more than tripled to S$17bn from S$5bn a year ago as Temasek sold a power plant in Singapore and cut its stakes in firms such as Bank of China, Singapore Telecommunications and Singapore Airlines
Singapore assets accounted for a third of its portfolio at end-March, down from 38 per cent the previous year. Asia ex-Japan accounted for 41 per cent, up from 40 per cent.