Tuesday, October 20, 2009

Temasek Bonds

Ok, I am not an economics expert but I do not feel comfortable about the following article:

Temasek to issue US$1.5b 10-year notes due in 2019 with 4.3% coupon
(By Irene Chan, Channel NewsAsia | Posted: 20 October 2009 1307 hrs)

My first understanding of Bonds are those of public bonds. That is, Bonds are typically issued to raise money for public projects that require a high start-up cost. Or start a war. This article prompted me to find out that there are actually private bonds (makes sense). These tend to be used to finance a project for the same reasons, high start-up cost.

So, what bugs me about this Temasek offering (other that I am a raving anti-PAP government lunatic)?

Net proceeds from the offering will be provided to Temasek and its subsidiary companies to fund their ordinary course of business.

Temasek is an investment firm. We have already been told that its business is none of our business. So, as far as I can discern, it is taking this money raised to invest. Why does this feel wrong to me? It feels like a ponzi scheme ... "invest your money with me, so I can invest some more".

To be fair, given Temasek's record, it *should* be able to get returns on the money above the 4.3% it is offering to people buying this bond offer, so as a practical matter it seems sound. I guess I'm just more fiscally conservative ... I expect the raising of money from bonds to contribute to some clearly defined project, so investors in those bonds know exactly what they are getting themselves into. Right now, anyone buying these bonds will only know Temasek will invest it somewhere else ...


Fievel said...

Chee Wai,

Temasek obtains the bulk of its investment monies from CPF's purchase of their bonds as well. However, we do not get the same returns as these newly issued bond holders. We get 2.5%. That's my understanding. Which is why until now, Temasek had never had to "borrow" money to invest. I do not understand the intricate details as well but I sure as hell do not like the sound of them issuing bonds either. BUT, truely it is none of my business.

Anonymous said...

If you are fiscally conservative, just put your money in a Roth IRA and buy TIPS.

Fievel said...

Yeah if I were living in USA I'd go for TIPS as well...

Chee Wai Lee said...

Thanks guys, but in practice, I'm really fiscally over-conservative.

While I've "invested" (more like "played") small sums in the Singapore stock market for a little bit, I personally dislike having to think about actual investment. There are only 4 factors that drive personal fiscal planning on my part: what's my income, what's my expenditure, where I can park my savings safely, and what buffer levels I feel I need in my savings.

As such, I tend to throw factors involving inflation (reasonably so at low inflation levels) out the window, concentrating instead on income and savings rates to offset inflationary effects on my savings buffers. At my most "sophisticated", I park some of that savings into simple non-liquid assets that yield slightly higher interest, if I feel I will not need the liquidity.

I'll admit Healthcare issues in the USA makes me worried given the design of my fiscal "policy" (if the "big one" hits and somehow I lose insurance, I'm hosed). Given how big the "big one" usually is, I don't think any specialized investment on my part will matter in the final analysis anyways, I'll simply be bankrupted by the system regardless.

Chee Wai Lee said...


Did they publish information about where Temasek gets its money from? As I understand it, no one really knows exactly where our CPF money goes and in what proportions. That's really one of things that irk me most about the transparency and accountability aspects of the Ministry of Finance. I mean ... if Tharman doesn't want to tell us what Temasek are investing in, fine! ... but tell us where our money is being parked or even if our money is involved!