Analysts divided over how much it will pare its TLC and other interests

(SINGAPORE) The Temasek sale is on. Or is it? That depends on whom you talk to, as punters link share price falls - from penny stocks to China plays to Temasek-linked companies (TLCs) - to the presence of Temasek Holdings as an investor.

Since Temasek placed out 4.6 per cent of Singapore Telecommunications for $2 billion on Monday night - reducing its holding to 56.3 per cent - the market has been abuzz with talk that the investment company is ready to pare its TLC and other interests.

Temasek spokeswoman Eva Ho yesterday confirmed two recent sales - out of biomedical device maker LMA International and raw materials supplier Olam International.

'We can confirm that we have sold shares in LMA and Olam,' Ms Ho said. 'This is part of our ongoing efforts to actively manage our portfolio to maximise shareholder value.'

She gave no further details. But according to Dow Jones, Temasek sold about 6.3 per cent of LMA for $35.4 million.

Temasek, which took up shares in LMA's $248 million initial public offer in March last year, sold 36.45 million of them at 97 cents apiece, a 3 per cent discount to the closing price on Tuesday. Temasek owned 7.1 per cent of LMA before the sale.

LMA closed 1.5 cents or 1.5 per cent lower at 98.5 cents yesterday, though at one point it was down as much as 3.5 per cent at 96.5 cents. LMA sold its shares for 88 cents at IPO.

As for Olam, Temasek was a key investor, owning 6.37 per cent of the company before its IPO in February 2005.

Yesterday, Olam said that Temasek had sold its entire stake of close to 5 per cent for $118.6 million to a broad base of institutional investors.

Yesterday, Olam's share price dropped six cents or 3.7 per cent, to close at $1.56.

In a Singapore Exchange filing yesterday, another company, China Sun Biochem, said that last November, Temasek reduced its stake to 4.09 per cent from 6.68 per cent by selling 18.16 million shares. The corn starch producer's stock closed 3.5 cents or 5 per cent lower at 66 cents yesterday. According to Temasek's website, its substantial stakes in small to mid-size stocks include 5 per cent of Asiapharm, 6 per cent of YHI International and 7 per cent of KS Energy. It also holds less than 5 per cent of Hyflux.

KS Energy fell seven cents or 2.4 per cent yesterday to $2.90; Hyflux was down four cents or 1.5 per cent to $2.69; and Asiapharm was down 2.61 per cent to 74.5 cents. Bucking the trend, YHI gained half a cent or one per cent to 51 cents.

It is not clear how much Temasek would have raked in from the latest sales - but it would not have gone far towards its stated aim of reducing its Singapore asset exposure from the present 49 per cent to about one third of its $103 billion portfolio.

One analyst said: 'I can't talk to you because my bank might be involved in handling some of the sales. I think every investment banker is trying to do something.'

Some observers expect Temasek to reduce its stake in SingTel to below or about the 50 per cent level. According to David Mok of DBS Vickers, Temasek would want to hold 50 per cent of SingTel as this would continue to give it control while it looks at how to reduce the stake.

'SingTel is very heavy on their balance sheet,' Mr Mok said. 'I think they can encourage SingTel to reduce the share size and/or return capital.'

SingTel is the largest stock here by capitalisation, at $44 billion.

Other TLCs that could unlock billions of dollars for Temasek include NOL, the SembCorp Industries group, KepCorp group, Singapore Airlines, CapitaLand, DBS Group Holdings and SMRT, analysts say.

But one analyst noted that in 2004, Temasek upped its stake in NOL to 68 per cent through a mandatory takeover offer, which many observers believe was undertaken to pre-empt a possible hostile takeover bid. Others reckon Temasek may want to hang on to its 28 per cent interest in DBS Group Holdings due to several factors, including its higher yield of 4.3 per cent relative to local rivals. United Overseas Bank's yield is 4 per cent, while that of OCBC Bank is 3.7 per cent.

Morgan Stanley analyst Matthew Wilson likes DBS for raising its dividend payout.

'They will gradually expand the dividend payout, which they demonstrated in 2005 when DBS raised its by 45 per cent to 58 cents,' he said.

Another analyst said: 'I think the more obvious candidates are CapitaLand and the SembCorp and Keppel group companies.'

He said property stocks are doing well, so a sale by Temasek should not hurt the share prices of CapitaLand or Keppel Land too much. As for SembCorp group, its order books are very strong.