Dragon lady pulls the strings in P&O battle

It has the firepower to do the deal. Temasek’s investment portfolio was worth £35.6 billion at the end of March 2005, and gains in the Asian equity markets may have added some 20% in value over the past 10 months.

But until recently the investment authority operated in local financial markets, and in a style that put little emphasis on transparency. It was not until 2004 that Temasek thought it necessary to publish its accounts for public consumption ahead of a bond issue.

Financial analysts were not surprised that Singapore opted for a change of personnel and strategy after the Asian financial crisis of the 1990s. It has since turned from being a super-discreet Singapore state body into one of the most aggressive and risk-taking investors in Asia.

To oversee the transformation, Temasek turned in 2002 to a new chief executive whose credentials are impeccable. Ho graduated in electrical engineering at Singapore University and went on to gain a master of science from Stanford, before coming home to join the island’s ministry of defence. She soon progressed to a senior management post at Singapore Technologies, a defence-related firm, rising to become president and chief executive before her departure in 2001.

During her tenure at Singapore Technologies, the firm developed its telecoms and aerospace businesses with ruthless efficiency, creating a formidable impression of Ho among bankers and investment managers in Singapore as “a classic Dragon Lady”, in the words of one who asked not to be named.

Whether a dragon or simply a high achiever, Ho enjoys a unique status in Singapore which no other executive could hope to match. She is married to the prime minister, Lee Hsien Loong, the son of the nation’s patriarch, Lee Kuan Yew, who continues to exercise a vigilant watch over its affairs from his post as “minister mentor” to his 4.3m people.

Ho married in 1985, three years after the sudden death of Lee Hsien Loong’s first wife. The couple have two children and there are also two children from Lee’s first marriage.

She has supported her husband through a gruelling battle against cancer, which he appears to have won, and some observers say she has softened his austere character. A businessman who has met the couple said: “I suppose you could say that she has brought some human warmth to him but I wouldn’t imagine that family occasions are ever light-hearted.”

Although Singapore is an authoritarian state that strictly regulates political debate, Ho’s appointment in 2002 created a torrent of private and public comment, some of it amused, some scathing. Political opponents and critical business people claimed it showed that Singapore was run more like a dynastic kingdom than a modern democratic nation.

Even the then prime minister, Goh Chok Tong, was reduced to pointing out that the talent pool in a tiny nation was so small that choice was limited.

A rare glimpse into Ho’s mentality and into how she views subordinates can be found in the transcript of a speech she gave to Temasek staff on its 30th anniversary.

It showed the mind of a scientific optimist, who predicted to her listeners that “hopefully, in another 20 years, all of us will be looking forward to a 120-year lifespan”.

Like her father-in-law, Lee Kuan Yew, now in his eighties, she sees her task as “to lay the foundations and to build for our next generation” based on the “Singapore values,” which she identifies as integrity, meritocracy and pragmatic realism.

Temasek has already reduced its holdings in Singapore to below 50% of its portfolio. Ho intends to achieve a three-way split, with a third in Singapore, a third in Asia outside Japan and a third in developed economies, including Japan.

Its home base provides an enviable bedrock of investments in such assets as PSA, Singapore Airlines and DBS Bank.

Its biggest call has been in China. Temasek has taken stakes in several financial institutions but the main commitment, unveiled last summer, is a 10% stake in Bank of China for $3.1 billion (£1.7 billion), with a further pledge of a $500m subscription to its forthcoming flotation.

Temasek said the investment “underlines our confidence in the long-term growth of China’s economy”, adding that “we share the bank’s belief in its tremendous potential”.

If Singapore does pursue P&O, it will be attempting to acquire a company with a history as long as its own. P&O’s roots go back to a shipping firm founded in the aftermath of the battle of Waterloo in 1815.

Just one year later Sir Stamford Raffles, an official of the East India Company, established a trading base in Singapore. The parallels extend further — P&O’s position as Britain’s premier shipping group was cemented when it was incorporated by royal charter in 1840. Singapore won recognition as an independent state when it was made a British crown colony in 1867.

Raffles’s vision of Singapore as an Asian trading hub has been handsomely realised. Its rapid growth as a trans-shipment centre has made PSA, its home-grown ports company, one of the biggest in the world.

After a steady programme of overseas expansion, with operations now in 11 countries, it is the world’s largest ports group after its Asian rival Hutchison Whampoa. Danish group AP Moller is in third place and P&O fourth. DPW is back at number seven. The Dubai company’s container throughput, at 11.5m units a year, is roughly a third of what PSA International handles.

But if Dubai managed to buy P&O, the competitive position would change sharply. Not only would it become the second-biggest player at a stroke, but it would have bagged top-notch ports in India and other parts of Asia, where the fastest traffic growth is expected.

“If PSA lets DPW walk away with P&O, it is saying goodbye to a once-in-a-lifetime chance. It’s not like buying shops or factories — these are assets that are not going to be replicated in a hurry, if ever. There is no second choice after P&O,” said one shipping-industry analyst.

PSA’s approach last week contained three conditions — that it be allowed to complete satisfactory due diligence, that its board give final approval, that P&O’s directors withdraw their recommendation of the Dubai offer and, finally, that P&O’s pension trustees give its offer the green light.

City opinion is divided on whether the Singaporeans will proceed. While most think it would be unlikely they would have come so far only to withdraw, one shipping-industry executive said there was a possibility they could still stand down. “The preconditions to the approach do give them a figleaf if they finally decide they are not interested,” he said.

PSA does not have long to put its case to its paymaster Ho. P&O had called an extraordinary meeting to approve the Dubai offer for next Friday. The meeting will convene, but will be immediately adjourned, and is slated to resume in “approximately two weeks”.

PSA will have to put its cards on the table in good time for that meeting, with some suggesting that this could mean a firm offer — or a withdrawal — within a fortnight.

Dubai's DPW

DPW, Dubai Ports World, is the new kid on the block in an international business traditionally dominated by three players — Hutchison, PSA and P&O. It was set up last September when Dubai amalgamated two of its ports businesses, the Dubai Ports Authority and DPI Terminals. Like PSA, DPW has a strong domestic operation, based around the Jebel Ali free-trade zone.

Singapore's PSA

PSA, the world’s second-biggest ports group, was created in 1997 when the Singapore government restructured its shipping interests. It has steadily expanded overseas and now has 19 ports in 11 countries. Its biggest move overseas came in 2002, when it bought a stake in the Belgian premier terminal operator Hesse-Noord Natie.