Financial Discipline

We manage our leverage, liquidity, and balance sheet prudently for resilience and flexibility, even in times of extreme stress. We ensure that our primary sources of cash flows can cover our non-discretionary expenses, such as operating expenses, interest to bondholders, and debt repayments.

Operating Expense Management

Our Board sets an overall limit for annual operating expenses. In addition, Temasek works with independent third party consultants to develop the composite benchmark cost methodology to benchmark our operating expenses. The composite benchmark cost is an estimate of the cost required to manage a portfolio like Temasek’s. It is determined using operating expense data of comparable peers for the various investment strategies Temasek employs. The composite benchmark cost and methodology are reviewed and updated periodically.

Operating expenses form part of Temasek’s annual budget, which is approved by the Temasek Board. Additionally, as a Fifth Schedule entity, Temasek’s annual budget is submitted to the President following approval by the Temasek Board, with a certification that there will be no draw on past reserves. For each year's budget, the President may veto the budget if he/she is of the opinion that the budget is likely to draw on past reserves.

Capital and Liquidity Management

Our recurring income includes divestment proceeds, dividends from portfolio companies and distributions from funds. Recurring income is key for Temasek to develop a resilient and high quality portfolio that can deliver sustainable returns over the long term.

Our liquidity is supported primarily by our recurring income, supplemented by proceeds from debt issuances via our Temasek Bonds and Euro-commercial Paper and bank borrowings. Debt is issued within an overall limit set by our Board, taking into account our shareholder funds, cash flow and credit profile. We maintain a well distributed debt maturity profile, avoiding a large debt tower in any one year, to manage refinancing risk.

Liability Management

Temasek does not issue any financial guarantees for the obligations of our portfolio companies.

Foreign Exchange Management

Our projected risk-adjusted return for each investment proposal needs to take into account foreign exchange (FX) risk. Where we consider appropriate, we hedge our FX exposure using the relevant FX instruments.