Singapore’s Temasek Holdings and Saudi Arabia’s Public Investment Fund (PIF) are expected to maintain their credit strength advantage among rated sovereign wealth funds, Moody’s Investors Service said.
Moody’s highlighted that both funds display stronger intrinsic credit quality, supported by superior credit metrics, excellent liquidity, and diversified investment portfolios.
Temasek’s portfolio transparency and geographic diversity provide visibility over market values and reduce exposure to localized economic downturns.
The report stated that Temasek and PIF have the strongest credit metrics among their peers, characterized by very low market value-based leverage and high interest coverage ratios.
Temasek holds a net cash position, bolstered by a high-quality investment portfolio delivering strong, recurring dividend income.
PIF’s credit standing is reinforced by excellent liquidity and low debt levels, with capital sourced from asset transfers, retained earnings growth, debt borrowings, and government contributions.
In contrast, Malaysian sovereign wealth fund Khazanah Nasional Berhad and several Chinese state-owned investment companies—including Shenzhen Investment Holdings Co., Ltd. (SIHC), Shandong Guohui Investment Holding Group Co., Ltd., State Development & Investment Corp., Ltd. (SDIC), and Beijing State-owned Capital Operation and Management Co., Ltd. (BSCOMC)—exhibit weaker liquidity among the eight rated entities.
These companies have insufficient internal cash sources to meet needs over the next 12-18 months, primarily due to large short-term debt rolled over annually. However, their strong funding access, including support from state-owned banks and capital markets, mitigates liquidity risk.
Moody’s noted Khazanah’s stable earnings from key investee companies with strong market positions in Malaysia. Since 2004, Khazanah has grown its net asset value at a compound annual growth rate of around 5%, maintaining prudent financial policies and a public leverage target.
The agency expects Khazanah’s market-value-based leverage to remain between 30% and 35% over the next few years.
Chinese state-owned investment holding companies face public policy mandates affecting their operations and financial risk profiles. SIHC, for example, is tasked by the Shenzhen government to develop high-tech industrial parks and provide public welfare services, exposing it to execution risk due to ad hoc investments requiring capital contributions to government-led funds.
Moody’s pointed out that SDIC and Shandong Guohui have concentrated dividend sources, leading to volatility in their dividend receipts. Both recorded lower interest coverage ratios in 2023 due to reduced dividends from key portfolio companies.
Among the rated entities, Khazanah and PIF have over 50% of their investments in publicly listed companies, enhancing their capital-raising abilities.
Temasek boasts the most geographically diversified portfolio, with domestic assets accounting for around 27% of its total as of March 2024. In contrast, Chinese state-owned investment companies predominantly hold domestic investments.
Moody’s rates 11 government-owned investment holding companies globally, primarily in Asia and the Middle East, collectively controlling around $2 trillion in assets as of 2023.