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. Last Updated: 07/27/2016

Cash-Flush Singapore Agency Flies In to Shop

SINGAPORE -- After spending $2 billion on Asian acquisitions in two years, Singapore's state investment agency, Temasek Holdings, is heading west to look for opportunities in Russia.

It would do well to look at mobile phone companies, analysts say.

"I would argue that mobile stocks are the consumer growth stocks and might be the best representatives of the consumer boom in Russia," said Andrei Bogdanov, co-head of research at Alfa Bank in Moscow. Alfa Group, Alfa Bank's parent company, owns stakes in Russia's second- and third-largest mobile phone companies.

Senior officials at Temasek Holdings flew to Russia this week to look at possible investments, according to a banking source in Moscow. Temasek officials would not confirm or deny the trip.

A Russia play would fit into the powerful investment agency's offshore, emerging markets expansion after it said it wanted to reduce Singapore-based assets to a third of its $55.1 billion portfolio, from about half currently.

"The authoritarian style of government there is something government-linked companies like Temasek are comfortable with," said Song Seng Wun, regional economist at brokerage GK Goh.

About 57 percent of Temasek's investment portfolio is in telecommunications, media and financial services, with about 7 percent in energy and resources, according to its 2004 annual report.

Temasek has said it wants a more balanced portfolio, so it might be interested in raising its energy investments. Russia has the second-largest oil reserves in the world outside the Middle East, and the Kremlin has recently made invitations to Chinese and Indian state oil companies to boost their presence there.

But analysts in Moscow said consumer-related companies, such as mobile phone groups, offer better growth with few of the risks associated with last year's Kremlin attack on domestic oil firm Yukos.

"They probably won't want to be involved in sectors with high government risk, such as energy. Most people look at Russia as a consumer, retail, GDP growth story," said Stephen O'Sullivan, co-head of research at UFG in Moscow.

Russian consumer stocks center on Russia's top mobile phone company, Mobile TeleSystems, or MTS, and its second-largest, VimpelCom, along with cosmetics group Kalina, dairy and juice maker Wimm-Bill-Dann and brewer Baltika.

Buying a significant stake in a mobile phone company could be pricey: U.S.-listed MTS has a market capitalization of $14.06 billion, while VimpelCom is valued at $6.86 billion.

But few Asian investors have pockets as deep as Temasek, which controls businesses including Southeast Asia's biggest telephone company, Singapore Telecommunications, and the region's biggest bank by assets, DBS Group Holdings.

Temasek, which acts like a fund manager for the Singapore state, has been making strides to diversify its portfolio geographically and investing in areas often considered risky.

It has moved into Pakistan, where it bought 25 percent of NDLC-IFIC Bank last month, and Indonesia, where it has expanded into banking.

By value, its recent investments have ranged from an estimated $12 million in the Pakistan bank to $421 million for a 5 percent stake in Telekom Malaysia.