Economic Survey 2020 | Singapore model of Temasek Holdings a good example for PSU divestment process

The Economic Survey said aggressive disinvestment, preferably strategic stake sale, should be done to improve higher profitability, promote efficiency, increase competitiveness and promote professionalism in management in central public sector undertakings (CPSEs).

The Survey said the government can learn from the experience of Singapore's Temasek Holdings Company on the structure to be followed.

“The government can transfer its stake in the listed CPSEs to a separate corporate entity. This entity would be managed by an independent board and would be mandated to divest the government stake in these CPSEs over a period of time,” the Survey said.

“This will lend professionalism and autonomy to the disinvestment programme, which, in turn, would improve the economic performance of the CPSEs,” the Survey said.

Temasek Holdings was incorporated by Government of Singapore in June 1974, as a private commercial entity, to hold and manage its investments in its government-linked companies (GLCs). It is wholly owned by the Ministry for Finance and operates under the provisions of the Singapore Companies Act. Temasek’s board comprises 13 members -- mostly non-executive and independent business leaders from the private sector.

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The company has since expanded its operations to cover key areas of business in sectors such as telecommunications, media, financial services, energy, infrastructure, engineering, pharmaceuticals and bio-sciences.
Temasek managed a net portfolio of over $230 billion as on March 31, 2019, and its compounded annualised total shareholder return since inception in 1974 is 15 percent in Singapore dollar terms.

The Survey said the focus of the strategic disinvestment should be to exit from non-strategic business. This would, in turn, unlock capital for use elsewhere, especially in public infrastructure like roads, power transmission lines, sewage systems, irrigation systems, railways and urban infrastructure.

The Survey cited an analysis in which key financial indicators of eight privatised CPSEs were compared 10 years before and after the year of strategic disinvestment/privatisation.

The analysis showed that each privatised CPSE witnessed improvement in net worth, net profit, gross revenue, net profit margin and sales growth in the post-privatisation period compared to pre-privatisation period.

There are about 264 CPSEs under 38 different ministries/departments. Quite a few of them are profitable.

“However, CPSEs have generally underperformed the market as is evident from the average return of only 4 percent of the BSE CPSE index against the Sensex's 38 percent return during 2014-19,” the Survey noted.