Two town councils invested S$12m in Lehman-related structured products
By Dominique Loh, Channel NewsAsia | Posted: 17 November 2008 1646 hrs

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SINGAPORE: The financial health of two Singapore town councils remains in the black despite their investments in failed Lehman-linked structured products. Holland-Bukit Panjang and Pasir Ris-Punggol Town Councils invested a combined S$12 million using their sinking funds.

Going forward, the co-ordinating chairman of PAP town councils, Dr Teo Ho Pin, said future investments will remain diversified but will be on the conservative side.

Just like thousands of Singaporean investors who have lost money on failed Lehman-linked structured products, the Holland-Bukit Panjang Town Council may lose its S$8 million investment.

The town council invested 6.7 per cent of its sinking funds available for investment in Lehman Brothers' Minibond Notes, DBS High Notes 5 and Merrill Lynch's Jubilee Series 3 Notes.

It had invested another S$3 million in Pinnacle Notes Series 6, but this investment was unaffected.

For Pasir Ris-Punggol, its S$4 million investments in the Minibond Series 2 and 3 amounted to 2.6 per cent of its funds.

Based on the 14 PAP town councils' latest financial statements submitted to the National Development Ministry, these investments amounted to 0.6 per cent of their total funds of S$2 billion.

Like many others, the town councils are anxiously waiting to see if the Lehman Minibond notes will be making dividend payments next month.

Dr Teo Ho Pin, chairman, Holland-Bukit Panjang Town Council, said: "If there is a credit event that occurs next month for the Lehman Brothers' Minibond, then that will be a default and... there'll be a loss on that investment."

Town councils can invest up to 35 per cent of their sinking funds in financial instruments like equities, corporate bonds and funds.

Holland-Bukit Panjang Town Council said while its investment income will be reduced as a result of the failed investment, its financial status remains in the black and improvement works will not be affected.

During a six-year period starting from 2002, the return on its investments totalled about S$24 million. As of March 31 this year, it also has a total kitty of S$118 million.

Over the last six years, the Holland-Bukit Panjang Town Council made a healthy investment return of more than four per cent every year. This is well above the average fixed deposit return of 0.9 per cent. With the investment income, the town council has been able to deal with the impact of inflation.

Dr Teo continued: "Our assurance to our residents is that the sinking fund is still intact. We have adopted a very prudent approach in terms of investing our funds.

"We have to continue to adopt a diversified investment strategy so we are able to achieve healthy returns for our town council funds, cyclical maintenance purposes and we have to balance between investment risk and returns."

Six other PAP-run town councils also have exposure to Lehman Brothers through their fund managers' investment portfolio.

These investments total some S$4 million and account for less than one per cent of each town council's funds available for investments.

The National Development Ministry said it has no plans to amend the investment guidelines it has put in place as town councils are in the best position to decide how to manage the funds.

Senior Minister of State for National Development Grace Fu told Parliament on Monday it was not practical nor desirable for the ministry to be overly prescriptive in enforcing the guidelines, which seek to achieve an optimal balance between reasonable returns and financial prudence.

Hougang and Potong Pasir Town Councils, the two that are managed by opposition MPs, have earlier said they do not have any investments related to Lehman Brothers products and their sinking funds are not affected by the failed financial instruments. - CNA/vm