Singapore's industrial champions are rewriting their playbook

Singapore has been pumping billions in recent years into transforming 23 industries including manufacturing, financial services and real estate. ST PHOTO: ONG WEE JIN

SINGAPORE (BLOOMBERG) - The triple shock of the pandemic, disruptive tech and climate change is pushing Singapore to rewrite one of the world’s most successful economic models.

Over the past two years, at least eight state-linked companies have announced major mergers, acquisitions, asset disposals or privatisations in the island’s biggest industrial overhaul in two decades.

Oil-rig builder Keppel Corp has been pivoting towards clean energy, while Sembcorp Industries shed its rig business altogether. Singapore Telecommunications (Singtel) is entering the world of digital banking.

“I compare this to the restructuring phase of Singapore conglomerates in the early 2000s” in the aftermath of the Sars virus and the dot-com crash, said Mr Kenneth Tang, a portfolio manager at Nikko Asset Management. “Those were very dark times for Singapore but they became a catalyst for change.”

The Singapore Government has, for decades, curated the nation’s economic future through a group of state-owned champions, shifting direction as needed to stay relevant in the global economy. But the latest rewriting of the nation’s industrial playbook may prove harder as the giant firms take on competitors that are often newer and more nimble.

The Government has been pumping billions in recent years into transforming 23 industries including manufacturing, financial services and real estate to meet the challenges of digitalisation. At the same time, Singapore has created a 2030 roadmap to become a regional hub for carbon trading and green finance.

It has also set aside about $25 billion up to end-2025 for research in areas such as health and biomedical sciences, climate change and artificial intelligence. And a series of industry-led groups have been set up to explore opportunities in areas such as robotics, e-commerce and supply-chain digitalisation, with government support.

For Keppel, Sembcorp Industries and Sembcorp Marine, the changing global economy means trying to shed or merge oil-related businesses and focus on renewable energy such as offshore wind and hydrogen. It’s a major shift for one of the world’s top oil trading and refining cities, particularly at a time when the fuel’s price has been rising. Singapore has oil-refining capacity of 1.5 million barrels per day, according to the United States’ International Trade Administration website. It’s the fifth-largest refinery and export hub in the world, the US Energy Information Administration says.

While Keppel has increased its focus on renewable energy, it’s also expanding its liquefied natural gas business. It’s in talks to merge its rig-building operations with smaller rival Sembcorp Marine, which has also moved into clean energy in recent years, while it still works on fossil-fuel projects.

“They are trying to build a new train while they are keeping the oil train running,” said National University of Singapore associate professor of accounting Mak Yuen Teen. Sembcorp Industries has been working on solar and wind energy projects across India, China and Britain but still gets a majority of revenue from selling energy from conventional sources such as coal and natural gas.

Singapore’s oil-refining industry isn’t going away, though, partly because many of oil’s by-products are still ubiquitous, used in everything from toothpaste to synthetic fibres.

Refiners “are essentially saying we still need all these things in our daily lives but how do we make it more energy-efficient to produce the by-product”, said Mr Song Seng Wun, an economist at CIMB Private Banking. Singapore’s biggest renewables exports are likely to be goods such as semiconductors and services for companies seeking energy efficiency, he said.

Keppel Corp is pivoting towards clean energy. PHOTO: KEPPEL CORP

The Government is also promoting environment-friendly services in areas such as agritech and waste management.

Meanwhile, Singapore is among the first nations to set up a platform to trade carbon offsets that’s backed by a national stock exchange. But it faces competition from CME Group, which introduced trading of carbon offsets futures last year.

One of the headline-grabbing changes that the city-state is making to transform its economy is in finance – opening up banking to digital entrants.

Telecommunications firm Singtel was among the four winners of digital banking licences in December 2020, in partnership with ride-hailing and food-delivery giant Grab Holdings. The Republic’s three conventional banks, including Temasek Holdings-backed DBS Group Holdings, are also embracing virtual services.

To be sure, some of the companies themselves acknowledge that the process of change will be gradual, with Keppel anticipating it will take two or three years to restructure its offshore and marine business.

Investors, too, are adopting a wait-and-see attitude, said Mr Benjamin Goh, head of research at Securities Investors Association Singapore. So far, the restructuring has had a mixed impact on the companies' stock performance, even though clean energy and tech have been buzzwords in recent years. It has also failed to boost the overall market. The Straits Times Index fell 3.1 per cent over the past two years versus a 34 per cent surge in a measure of global stocks. The Singapore gauge trades at about 13 times estimated earnings, versus about 18 times for its global counterpart.

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