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Cai Jin

Investment opportunities may be just on our doorstep

In seeking out far-flung markets, don't ignore the many possibilities in Asia that beckon

When asked recently where he would put his money for the best returns, American billionaire Charlie Munger gave a simple answer: China.

Not that he has a soft spot for China, but he believes investing there rather than in the United States would produce a better return because "the fruit is hanging lower there and some of the companies are more entrenched".

The real surprise though is that Mr Munger, by any measure a very shrewd investor, made his remarks about investing in this part of the world after being asked where in the US the newly minted Asian rich should keep their money.

Mr Munger, well-known as the alter ego to investment guru Warren Buffett in managing giant US investment firm Berkshire Hathaway, told the questioner: "I think it's always a mistake to look for a pie in the sky when you've got a piece of pie right in your lap."

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As I track the woes inflicted on Singapore Post's share price after it slashed its final dividend to 0.5 cent a share from the previous year's 2.5 cents, following a $208.6 million impairment charge for TradeGlobal, the US e-commerce firm it acquired in 2015, I cannot help wondering if Mr Munger's advice applies to companies as well.

SingPost bought TradeGlobal for $234 million in October 2015, with then-chief executive Wolfgang Baier gushing about how the acquisition would deliver exposure to the huge US market and turn the local postal giant into a global e-commerce player.

Crowds at Tiananmen Square in Beijing. China's Belt and Road Initiative to invest billions in infrastructure development around the region could throw up a wealth of opportunities for Singapore firms, especially those able to pair up with Chinese par
Crowds at Tiananmen Square in Beijing. China's Belt and Road Initiative to invest billions in infrastructure development around the region could throw up a wealth of opportunities for Singapore firms, especially those able to pair up with Chinese partners to jointly drive projects. PHOTO: AGENCE FRANCE-PRESSE

But his confidence in the move has failed to pan out. SingPost disclosed last month that TradeGlobal incurred a significant loss of $25.8 million for its latest financial year instead of the $9.4 million profit projected. Since then, SingPost has seen its shares fall about 11 per cent in price, and it has lost $341 million of its market value.

Crowds at Tiananmen Square in Beijing. China's Belt and Road Initiative to invest billions in infrastructure development around the region could throw up a wealth of opportunities for Singapore firms, especially those able to pair up with Chinese par
AMERICAN BILLIONAIRE CHARLIE MUNGER

OVERLOOKING THE OBVIOUS

I think it's always a mistake to look for a pie in the sky when you've got a piece of pie right in your lap.

AMERICAN BILLIONAIRE CHARLIE MUNGER

In hindsight, SingPost isn't the first local company to have overestimated its ability to successfully navigate the notoriously fickle US market - and it probably won't be the last.

Those of us with elephantine memories can recall the woes that befell beverage manufacturer Yeo Hiap Seng, then run by the founding Yeo family, when it partnered with Temasek Holdings to buy US canned-food maker Chun King in 1989 for US$52 million.

The deal was then touted as the largest overseas foray by a Singapore-listed firm, and one that signalled Yeo Hiap Seng's ambitions to grow into a global food and beverage manufacturer.

But US consumers' tastebuds changed, considerably dampening demand for canned food. This caused Chun King to bleed money and become a big drag on Yeo Hiap Seng's bottom line.

That eventually led to squabbles within the Yeo clan, which paved the way for the company to become a takeover target and fall into the hands of outsiders.

History was repeated in 2005 when life-style group Osim partnered with Temasek and a private equity fund to buy US retailer Brookstone for US$456 million in an ambitious attempt to crack the American market. That deal caused Osim's balance sheet to bleed when the rotting mortgage market triggered the worst financial crisis in the US since the Great Depression, forcing the company to write off its Brookstone investment in 2009. Brookstone subsequently filed for bankruptcy in 2014.

Now, we have SingPost's unfortunate experience with TradeGlobal to further bolster our suspicions that Singapore firms might be looking in the wrong corner to make their fortunes when they place their bets on far-flung markets such as the US.

Instead, bearing out what Mr Munger observed about having the pie right in our lap, one of the most successful overseas acquisitions by a Singapore-listed company in recent times must have been Jardine Cycle & Carriage's purchase of car distributor Astra International in Indonesia.

In 2000, C&C, as it was then known, led a consortium to outbid a US private equity firm, paying US$506 million for the 40 per cent stake in Astra that had been put up for sale by the Indonesian government in the aftermath of the Asian financial crisis.

Jardine C&C's giant wager has paid off handsomely, enabling it to grow from strength to strength.

It currently owns 50.1 per cent of Astra, and its latest year-end results show that Astra alone contributed about US$500 million (S$690 million) to the group's underlying profit. This means that what Astra earns in a year for Jardine C&C is almost equivalent to what the original consortium paid for the stake in the first place.

No doubt, some will gripe that great investments such as Astra are hard to find, coming as it did after a major financial crisis when valuations of well-run regional companies were depressed to rock-bottom levels.

However, another once-in-a-lifetime opportunity might have presented itself with the ambitious One Road, One Belt plan initiated by China to invest billions of dollars in infrastructure development to expand trade links between Asia, Africa and Europe.

In this respect, DBS chief executive Piyush Gupta's recent post about how Singapore companies can benefit from the Chinese initiative is illuminating.

In comments akin to Mr Munger's, Mr Gupta noted that large savings pools from economies such as China and Japan "have tended to go to the West, often to the US, instead of being intermediated in the region itself".

This is despite the fact that huge sums of money - a figure of US$1.7 trillion a year until 2030 has been touted by the Asian Development Bank - need to be spent each year to build infrastructure that will meet the growing demand for basic necessities such as power, water and transportation.

Mr Gupta suggested that one way for Singapore firms to capitalise on opportunities thrown up by the plan, now renamed the Belt and Road Initiative, to catalyse infrastructural spending would be to partner with Chinese companies.

He wrote: "In a range of different industries, there are world-class Singapore companies that can prove to be extremely useful partners in being able to drive joint activities with Chinese collaborators around the region."

Examples include projects in the port, construction and offshore marine sectors.

Mr Gupta also flags the possibility of Singapore playing the role of the honest broker. The reason is that, with some markets and countries, the ability of Chinese investments to proceed independently is often challenged by the geopolitics that sometimes come along with economic and commercial considerations.

Mr Gupta said: "Being able to partner with Singapore and being able to use Singapore as a conduit for their investments often make those investments and projects a lot more palatable."

There is one further advantage firms here can leverage on - the availability of capital to finance their projects with, given Singapore's position as a key financial hub.

As Mr Gupta aptly observed, as much as 60 per cent of the project finance in South-east Asia is arranged by Singapore-based banks.

Moreover, Singapore companies will not be starting from ground zero exactly. A few of them already have big mainland Chinese shareholders. SingPost, for instance, counts e-commerce giant Alibaba as its second-largest investor.

It is time for these companies to prime whatever connections they have to ride the Belt and Road Initiative. Who knows, they might even strike it rich doing so.

A version of this article appeared in the print edition of The Straits Times on June 05, 2017, with the headline 'Investment opportunities may be just on our doorstep'. Print Edition | Subscribe