Another Government Investment Goes Belly Up!

~ By: Kumaran Pillai ~

Ireland’s former state telecom operator eircom applied for court protection to allow it to restructure its 3.75 billion euro (US$5 billion) debt mountain. A move eircoms officials said was “necessary and unavoidable” (here).

The proposal allows the lenders to take control from the major shareholder Singapore Technologies Telemedia (STT), a subsidiary of Temasek Holdings. This is expected to cut the debt load by 40 to 50 percent.

Temasek Holdings bought 65% shareholdings of eircom for 140 million Euros in 2009. The other 35% was owned by their employee share trust.

In 2006, Temasek Holdings bought 49.6% stake in Shin Corporation, a leading Thai telecommunications company, through two nominees of Temasek Holdings (Cedar Holdings and Aspen Holdings). The investment was subsequently embroiled in controversy (here). There have been numerous reports of such failed investments in the past.

In a proposal by the Economic Strategies Committee in February 2010, the Government was encouraged to invest up to $1.5 billion in Singapore-based enterprises to help them grow and even take a stake in them (here). The proposal was, however, met with scepticism by our local bureaucrats.

Huang Yasheng, the Beijing-born Massachusetts Institute of Technology (MIT) professor said that, ‘state-linked enterprise models are a sure-fire way to stifle the economy in the long run. The private sector is the best way to grow the economy. It has the most productive, most innovative and entrepreneurial culture. The state-owned enterprise system doesn’t give you that.’

The fear is that despite all the foreign investment losses and evidence that state-owned enterprises don’t work, our administrators will continue with its current failed policy framework.