Singapore to rewrite one of the world’s best performing business models

The triple shock of the pandemic, disruptive technology and climate change is pushing Singapore to rewrite one of the world’s most successful business models.

Over the past two years, at least eight state-linked companies have announced major mergers, acquisitions, asset divestitures or privatizations as part of the island’s biggest industrial overhaul in two decades. Oil rig builder Keppel Corp. turned to clean energy, while Sembcorp Industries Ltd. has completely abandoned its platform business. Singapore Telecommunications Ltd. enters the world of digital banking.

“I compare this to the restructuring phase of Singapore’s conglomerates in the early 2000s” following the SARS virus and the dot-com crash, said Kenneth Tang, portfolio manager at Nikko Asset Management Co. “This were very dark times for Singapore, but they have become a catalyst for change.

The Singapore government has for decades organized the nation’s economic future through a group of state-owned champions, changing direction as necessary to remain relevant in the global economy. But the latest rewrite of the nation’s industrial playbook can prove to be more difficult as giant companies face competitors who are often newer and more nimble.

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

It has also set aside around S $ 25 billion ($ 18.4 billion) until 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 digitization, with government support.

For Keppel, Sembcorp Industries and Sembcorp Marine Ltd., the changing global economy means trying to cut or merge oil-related companies and focus on renewables such as offshore wind and hydrogen.

This is a major change for one of the world’s major petroleum trading and refining cities, especially at a time when the price of fuel is on the rise. Singapore has an oil refining capacity of 1.5 million barrels per day, according to the United States International Trade Administration website. It is the fifth largest refinery and export hub in the world, according to the US Energy Information Administration.

While Keppel focuses more on renewable energies, it is also expanding its liquefied natural gas business. It is in talks to merge its platform construction operations with its smaller rival Sembcorp Marine. Sembcorp Marine has also turned to clean energy in recent years, while still working on fossil fuel projects.

“They are trying to build a new train while keeping the oil train going,” said Mak Yuen Teen, associate professor of accounting at the National University of Singapore.

Sembcorp Industries has worked on solar and wind power projects in India, China and the UK, but still derives the majority of its revenue from the sale of energy from conventional sources such as coal and gas. natural.

Singapore’s oil refining industry is not going to go away, however, in part because many petroleum by-products are still ubiquitous, used in everything from toothpaste to synthetic fibers.

The refiners “basically say that we still need all of these things in our daily life, but how can we make the production of the by-product more energy efficient,” said Song Seng Wun, economist at CIMB Private Banking. Singapore’s biggest renewable energy exports are likely to be goods such as semiconductors and services for companies seeking energy efficiency, he said.

The government is also promoting environmentally friendly services in areas such as agritech and waste management.

Meanwhile, Singapore is one of the first countries to set up a carbon offsets trading platform backed by a national stock exchange. But it faces competition from CME Group Inc., which introduced the exchange of carbon offsets futures contracts last year.

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

Telecommunications company Singtel was among the four winners of digital banking licenses in December 2020, in partnership with transportation and food delivery giant Grab Holdings Inc. The country’s three conventional banks, including Temasek Holdings Pte., DBS Group Holdings Ltd., are also embracing virtual services.

The companies “are all going in the right direction, but let’s see if they can make the money and how they face different competitive environments,” said Hugh Young, senior fund manager of abrdn Plc. “For Singtel, in the banking sector, the Revoluts” will be the main competitors, he said, referring to the growing fintech company co-founded by former trader Nikolay Storonsky in 2015.

To be sure, some of the companies themselves recognize that the process of change will be gradual, with Keppel predicting that it will take two or three years to restructure its offshore and maritime businesses.

Investors, too, are adopting a wait-and-see attitude, said Benjamin Goh, head of research at the Securities Investors Association Singapore. So far, restructuring has had a mixed impact on corporate market performance, although clean energy and technology have been buzzwords in recent years. It also failed to stimulate the entire market.

The Straits Times Index has fallen 3.1% in the past two years compared to a 34% increase in a measure of global equities. Singapore’s gauge is trading at around 13 times estimated earnings, compared to around 18 times its global counterpart.

“The strategic changes we are seeing since digitization, reducing emissions and moving to sustainable business models would require long leads,” said Thilan Wickramasinghe, analyst at Maybank Kim Eng Securities Pte.

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