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Rating Action:

Moody's affirms Temasek's Aaa rating

Global Credit Research - 18 Apr 2013

NOTE: On April 19 2013, the Press release was revised. The first paragraph was amended and now reads as follows: "Moody's Investors Service has today affirmed the Aaa long-term issuer rating of Temasek Holdings (Private) Limited ("Temasek") and debts guaranteed by it. This includes debts issued by Temasek Financial (I) Limited, and its (P)Aaa rated USD10 billion Guaranteed Medium-Term Note Program. The P-1 short-term rating of Temasek Financial (II) Private Limited is also affirmed."

The ninth paragraph under the RATINGS RATIONALE section was amended and now reads as follows:

"Moody's notes that Temasek typically acquires SGD15-20 billion of investments and disposes of SGD10-15 billion of investments in any one year. Over the past year, news media have reported various disposals and acquisitions by Temasek, the largest being the purchase of shares in ICBC in April 2012 for SGD 2.8 billion. Temasek will indirectly benefit from the sale of properties by a wholly-owned subsidiary into the Mapletree Greater China Commercial Trust (Baa1 stable) in March 2013. In March 2013, Temasek announced the acquisition of a 5% holding in Repsol S.A. (Baa3 stable) for SGD1.7 billion. Overall, the broader shifts of investment i) from financial institutions towards energy and resource-based companies and ii) into non-Singapore assets, continue."

Revised release follows:

Singapore, April 18, 2013 -- Moody's Investors Service has today affirmed the Aaa long-term issuer rating of Temasek Holdings (Private) Limited ("Temasek") and debts guaranteed by it. This includes debts issued by Temasek Financial (I) Limited, and its (P)Aaa rated USD10 billion Guaranteed Medium-Term Note Program. The P-1 short-term rating of Temasek Financial (II) Private Limited is also affirmed.

The outlook for the ratings is stable

RATINGS RATIONALE

Temasek's rating is underpinned by its low indebtedness relative to the size of its portfolio and the net cash position it continues to maintain. Its debt maturity profile remains well-laddered with a weighted average debt maturity of over 13 years on its SGD13.2 billion of bonds in issue. As a government-related issuer (GRI), Temasek's ratings also benefit from its 100% ownership by the Government of Singapore (Aaa, stable), although currently its baseline credit assessment -- the measure of its stand-alone credit quality -- is also aaa.

On a consolidated basis, Temasek's adjusted gross debt as at 31 March 2012 was SGD 74.9 billion as it includes the borrowings of its majority owned entities such as NOL (unrated), SingTel (Aa3, stable) and Bank Danamon (Baa3, stable). If viewed as a consolidated enterprise, Temasek would be relatively weaker than its Aaa rated peers such as Exxon Mobil, Microsoft, Johnson & Johnson and Automatic Data Processing (ADP).

However, Temasek is an investment company, and does not guarantee the financial obligations of its portfolio companies. Hence Moody's is only assessing the Parent and its investment holding companies and special purpose funding vehicles when assigning the ratings. Temasek is not viewed as a conglomerate despite its large stakes in several businesses but when taking a bottom up view of the portfolio Moody's notes that the bulk of its investee companies, where rated, enjoy "A" or "Baa" ratings but with notable exceptions such as Level 3 Communications Inc. (B3, stable) and Chesapeake Energy Corporation (Ba2,negative).

"Temasek does not guarantee the debts of any of its investee companies. Nevertheless, Moody's believes that the companies do benefit from association with Temasek in terms of both access to, and cost of funds", says Alan Greene, a Moody's VP/Senior Credit Officer. "From time to time, Temasek will support its equity investment in these companies through devices such as underwritten rights offers, which Moody's believes are undertaken on the basis that the incremental investment will add value to its position in the longer-term", Greene adds.

At the same time, Temasek's own debts are not guaranteed by the Republic of Singapore. Nevertheless it is wholly-owned by the Minister for Finance and it is designated a Fifth Schedule company under the Constitution. Temasek is not directed by the government but through its sheer exposure to Singapore -- Moody's estimates that some 65% of its portfolio by value is either Singapore-listed or incorporated - we believe that the interests of both are naturally aligned.

In terms of contributions to the country's budget, the aggregate Net Investment Returns Contribution (NIRC) from Temasek, Government of Singapore Investment Corporation (GIC) and Monetary Authority of Singapore (MAS) represents less than 15% of regular government expenditure (budget for FY2013), and in any event is generally applied to special educational and social projects. As a result, the shareholder is able to be supportive and with a propensity to reinvest its dividends.

Temasek also benefits from being the natural home for corporatisation of government-owned assets as well as the preferred manager for national initiatives such as the security of LNG supply to customers in Singapore and joint property ventures with Malaysia's sovereign wealth fund, Khazanah Nasional Berhad (A3, stable).

In the year to 31 March 2013, Moody's notes that there have been fewer special or one-off dividends declared by its largest dividend generating holdings, and Moody's is expecting Temasek to have achieved recurring investment income of around SGD4 billion. This is lower than the amount received in FY12 but Temasek's cash flow coverage metrics remain strong.

Moody's notes that Temasek typically acquires SGD15-20 billion of investments and disposes of SGD10-15 billion of investments in any one year. Over the past year, news media have reported various disposals and acquisitions by Temasek, the largest being the purchase of shares in ICBC in April 2012 for SGD 2.8 billion. Temasek will indirectly benefit from the sale of properties by a wholly-owned subsidiary into the Mapletree Greater China Commercial Trust (Baa1 stable) in March 2013. In March 2013, Temasek announced the acquisition of a 5% holding in Repsol S.A. (Baa3 stable) for SGD1.7 billion. Overall, the broader shifts of investment i) from financial institutions towards energy and resource-based companies and ii) into non-Singapore assets, continue.

The concentration risk of Temasek's portfolio remains a concern compared to many investment firms which hold a high number of small stakes. As of 31st March 2012, the top three holdings accounted for about 30% of its total portfolio. Other investment managers tend to keep individual holdings below disclosable levels but as an investment company, Temasek's preference is for larger shareholdings in its investee companies as a way to achieve more longer-term value and influence.

"The downside of Temasek's sizeable stakes is the market liquidity risk this poses. However, the concentration risk is mitigated by the blue chip quality of its largest investments," says Greene, who is Moody's Lead Analyst for Temasek.

"While the liquidity risks of its portfolio could rise markedly in down-trending markets, we believe Temasek continues to have the fundamental holding power and cash flow flexibility to support its rating," adds Greene.

Temasek's financial profile easily meets the requirements for an Aaa rating based on its liquidity and portfolio leverage metrics, as the company held net cash as of 31st March 2012. Similarly its interest cover ratio, which was over 6x in FY 2012, is also appropriate for an Aaa rating.

Temasek reported a portfolio value of SGD198 billion as of 31st March 2012. In terms of capital growth, the FT-STI grew by 10% and the FTSE Global 500 by 17% and we would expect Temasek's underlying portfolio value to increase by a similar proportion. However, the level of net investment activity and net payments to the shareholder, and thus the audited portfolio value has not yet been reported by Temasek.

The outlook is stable reflecting Moody's belief that Temasek's credit metrics will remain strong and that management will retain its prudent and conservative approach.

The rating is Aaa and cannot be upgraded.

Temasek has a standalone aaa rating. Should its underlying credit fundamentals deteriorate and the fundamental rating be downgraded, Moody's Joint Default Analysis methodology would become relevant to the rating analysis.

Downward rating pressure on the standalone credit rating could emerge if (1) Temasek were to make aggressive investments, resulting in a material deterioration in the credit quality of its investment portfolio; (2) the amount and quality of its cash and near-cash resources were to deteriorate significantly; or (3) there were indications of moral hazard behavior -- such as providing funding support for non-performing investee companies or channeling financial resources to its government shareholder -- that could have an adverse impact on Temasek's financial position.

The possibility of a rating downgrade is remote as long as the Government of Singapore remains the sole shareholder and the Republic of Singapore retains its Aaa, stable rating. Temasek's Aaa rating benefits from soft ongoing shareholder support such as the dividend reinvestment arrangements and from being the Government's investment company.

Should the underlying credit fundamentals deteriorate and the fundamental rating be downgraded, we would expect Temasek's Aaa rating to be maintained in light of its government linkages. Based on Moody's view of very high support and dependence, the Aaa rating would only come under pressure if the rating of the Republic of Singapore was downgraded.

The principal methodology used in this rating was the Global Investment Holding Companies Industry Methodology published in October 2007. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Temasek is an investment holding company based in Singapore and is 100% owned by the Government of Singapore.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alan Greene
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Moody's affirms Temasek's Aaa rating
No Related Data.
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