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Corporate Singapore: Building on the past, banking on the future

The Edge Singapore
The Edge Singapore • 6 min read
Corporate Singapore: Building on the past, banking on the future
SINGAPORE (Jan 28): Since its establishment as a trading post under the British East India Company, Singapore has flourished as a trade and financial services hub. In the 19th and early 20th centuries, the settlement developed as an entrepot between the E
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SINGAPORE (Jan 28): Since its establishment as a trading post under the British East India Company, Singapore has flourished as a trade and financial services hub. In the 19th and early 20th centuries, the settlement developed as an entrepot between the East and West, and traders from Europe and merchants from China and Malaya came and set up shop. Many of these enterprises became household names and stalwarts of Singapore industry. A large number became public companies, tapping the capital markets for growth.

Indeed, some rank among Singapore’s largest public companies today. The benchmark Straits Times Index is dominated by these firms. They include the Jardine Matheson group of companies, which started as an opium and tea trader in southern China; the three local banks, which have their genesis in the early lenders to merchants and labourers; and Singapore Telecommunications, whose operations can be traced back to the first telephone lines set up in 1879.

Among the earliest companies here was Alexander Guthrie’s trading business. Established in 1821, it grew to become one of the biggest trading houses in the region, and listed on the then Stock Exchange of Singapore in 1974. In 2013, and by then a property and engineering group known as Guthrie GTS, it was privatised by Indonesian tycoons Anthoni Salim and Putra Masagung, who was the company’s chairman, for nearly $950 million.

In 1883, Scotsmen John Fraser and David Neave set up a soft drinks production company called the Singapore and Straits Aerated Water Co. In 1898, it became a public company known as Fraser and Neave. Together with Dutch company Heineken in 1931, it formed a beer joint venture that became Asia Pacific Breweries. In 1990, F&N ventured into the property business through Centrepoint Properties; in 2013, the property, publishing and drinks group was acquired by Thai tycoon Charoen Sirivadhanabhakdi. F&N is now 59.25%-owned by TCC Assets and 28.48%-owned by Thai Beverage, which is listed on the Singapore Exchange.

The stories of F&N and Guthrie illustrate how businesses expanded and adapted to changing times. After decades of runaway growth in tandem with Singapore’s development, present-day enterprises are now facing obstacles in the form of technological disruption and stiffening competition.

Singtel, for instance, effectively had a monopoly in the local telecommunication services industry until fairly recently, when the sector was liberalised. Its sole licence to provide mobile services ended in 1997; its hold on fixed lines, the extremely lucrative international direct dialling calls, ended in 2007.

Now, as a fourth mobile licence is being handed out, Singtel has amassed a significant portfolio of overseas investments and associates. For 2QFY2019 ended Sept 30, its revenues from mobile, fixed line, internet and cable services in Singapore amounted to $757 million, or just 18% of total operating revenue.

Its overseas affiliates also have to contend, however, with competition. Pre-tax earnings at its associates for the period were down 50% y-o-y. Consequently, Singtel’s earnings before interest, taxes, depreciation and amortisation and share of associate earnings for 2QFY2019 were down 24% y-o-y to $1.5 billion. Against that backdrop, the company is diving into digital content and gaming, leveraging its mobile customer base of 700 million across its markets. In October, Singtel and its partners signed an agreement to grow the ecosystem for digital gamers, with the aim of keeping them as customers.

Transformation of banks

The banks have also evolved, from operations to support the merchants’ businesses to services that help them manage the wealth generated from those businesses. The three large local banks we see today are products of a series of mergers.

For instance, Oversea-Chinese Banking Corp was the amalgamation of three smaller banks that were set up by Chinese businessmen at the turn of the century, in large part as an extension of their trading business. The banks were Chinese Commercial Bank, founded in 1912; Ho Hong Bank, founded in 1917; and Oversea-Chinese Bank, set up in 1919. The latter two were established to compete in the lucrative foreign exchange trade, which was then dominated by the international European banks. Today, OCBC is banking on its wealth management business, including in the Greater Bay Area of China, to drive its growth in the coming years.

OCBC’s close rival, United Overseas Bank, was built by three generations of Wees — starting from 1935 via a series of well-timed acquisitions, including that of Lee Wah Bank in 1973, and the transformational friendly takeover of Overseas Union Bank in 2001.

In comparison, DBS Group Holdings, currently the largest publicly listed company in Singapore by market capitalisation, was formed more recently. It was established in 1968 to help finance local small and medium-sized enterprises, which in turn played the supporting role of suppliers and sub-contractors to MNCs that Singa-pore was starting to attract.

In 1998, DBS acquired the Post Office Savings Bank, which was established by the British colonial government in 1877 to provide banking services to the lower-income members of the population. The $1.6 billion acquisition vaulted DBS into the position of the country’s largest local bank, giving it the base to grow its loan book, collect deposits, enjoy a lower cost of lending and, more critically, the muscle to expand overseas. Today, the bank uses new technologies extensively to lower costs and increase profitably and efficiency.

Facing challenges

Another constituent of the STI, Keppel Corp, has stayed largely true to its marine roots. From simple ship repairs to building deep-sea drilling rigs, Keppel has not strayed far from the water — until recently. As oil prices languish in a slump, Keppel has stepped up its investments in property, urban development, power, logistics and, increasingly, data centres — the key infrastructure of the digital economy.

Transformations are never easy, but it is more difficult for some companies than others. For example, Singapore Press Holdings, with its newspaper monopoly, had a profitable business that attracted a loyal following from shareholders, who were in turn rewarded with robust dividends. But with the print media business today a shadow of its former self, SPH has diversified. It has made significant investments into recurring income assets such as aged care and child care facilities, students’ accommodation and, most significantly, property management and development.

Indeed, a common factor among local investors and the majority of large companies is their interest in property. Of the 30 component stocks, seven are either developers or real estate investment trusts. Others, including Keppel and SPH, have very significant property business units as well.

The banks also had active property businesses, until regulations established after the Asian financial crisis compelled them to divest “non-core” businesses — particularly, property — to focus on banking.

Property should continue to be a mainstay of Singapore’s economy, even with curbs on real estate prices. Alongside the real estate sector, financial services should thrive as the banks find a way to consolidate their advantage in financial technology. Finally, consumption plays such as Dairy Farm International and ThaiBev should be poised to ride Asia’s continued growth. The caveat is, of course, that the companies remain nimble and adapt to times that are changing faster than ever before.

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