THEIR RESPECTIVE climates may be very different, but Ireland and Singapore have much in common – two island economies with small populations, focused on technology business and biotech industries, wrestling with property issues, English-speaking, and dominated by one political party. Soon, they will have a telecoms provider in common, writes CLIFFORD COONANin Singapore

Eircom Holdings, the majority owner of Eircom, has said it has accepted a takeover offer from Singapore Technologies Telemedia, a unit of Singapore’s state-run sovereign wealth fund, Temasek.

Where Singapore and Ireland diverge significantly is the way in which the southeast Asian Tiger has run its state investments, and also in the general picture of economic health. Singapore’s economic strength has been built on a conservative approach, and there is no greater symbol of this conservatism than Temasek.

There is much to admire about Temasek, and it has been a key component in the way that Singapore has, gingerly, lifted itself out of recession, bringing hope to battered southeast Asian markets and signalling that the downturn may be bottoming out.

Anecdotal evidence says there is a phenomenal amount of cash in Singapore at the moment, and low deposit interest rates are driving people to invest. More apartments were sold between February and May than for the full year in 2008, and momentum is picking up, although fears that there may be another external shock remain.

Temasek is sometimes alleged to be less than transparent in how it carries out its dealings, and it is also famously litigious. The fund has also been criticised for investing heavily in Burma, and some analysts say it underwrites the military junta there.

The group responds to criticisms that it is funded solely by Singaporean taxes by saying that its investments are chiefly funded by returns from its many investments, including dividends and proceeds from divestments, as well as commercial borrowings and the capital markets.

In a bid to improve its image as an opaque state-run sovereign fund, Temasek last month revamped its seven-year-old constitution, saying that it was not just managing the government’s investments, but was built on “commercial principles”.

Its links to the government are legion – the approval of the president of Singapore is required for the appointment or removal of Temasek’s board members and chief executive.

What must read as good news for Eircom is that Singapore’s Ministry of Finance is the only shareholder in the €57 billion fund, which owns five of Singapore’s 10 biggest companies, including SingTel, the bank DBS and Singapore Airlines.

The fund describes itself as an investment firm creating long-term value for the Ministry of Finance, although in its 2002 charter it stated that the government – through Temasek – needed to own and control firms deemed critical to the city-state’s security, economic well-being or public policy objectives.

The future owner of Eircom was founded in 1973 and is deeply embedded in Singaporean corporate life. While smaller than the city-state’s other sovereign wealth fund, the Government of Singapore Investment Corp, it is a major regional player in Asia. It invests 31 per cent of its money in Singapore, 44 per cent in other Asian countries, 22 per cent in developed nations and 4 per cent in Latin American and other developing economies.

The global downturn means that it’s been a busy year for Temasek. Part of the reason for the group’s investment in Eircom must be down to its efforts to get out of financials.

The fund has taken some serious hits. In the first quarter it sold its 3.8 per cent stake in Bank of America at a loss that may have totalled €3 billion, and it also sold its holdings in London-based Barclays, reportedly at a loss, in December and January.

It has also suffered uncharacteristic wobbles at the top. An attempt to broaden its focus by hiring a foreign CEO for the first time fell apart when former Australian mining group BHP chief, Charles “Chip” Goodyear, departed within months of being appointed to the job earlier this year amid talk of alarm at the US-born executive’s “aggressive” approach.

Ho Ching, wife of Singapore’s prime minister Lee Hsien Loong, and the daughter-in-law of the founder of modern Singapore Lee Kuan Yew (who had described Goodyear as “the best”), is now at the helm.

Her tenure has witnessed some landmark decisions, including greater transparency (even publishing an annual report in 2004), despite Temasek’s status as a wholly owned unit of the Singaporean finance ministry exempting it from having to divulge any financial information.

Eircom could be in for quite a journey through the world’s financial markets. Last month, Ho said Temasek could package its private equity investments in infrastructure into business trusts in the next three to five years to raise funds, as well as to make such assets available to retail investors in Singapore.

The Singapore state investor already has a London-listed fund of funds called Astrea, which holds Temasek’s interest in 46 private equity funds. Astrea raised nearly $810 million (€552 million) in debt and equity during Temasek’s fiscal year ended March 2007.

Ho warned there were signs that a bubble could be developing in some asset classes in Asia, which has seen a strong rebound this year in most stock markets. “The global economy is expected to have a sluggish recovery in 2010,” she said.

Sovereign wealth funds are increasingly seen as the saviours of the world economy. They controlled about €2.2 billion worth of assets worldwide in March.

While the leadership question still haunts the Singapore state investor, the rating agency Standard Poor’s rates Temasek AAA and said in a report that Temasek’s strong cash position would help it overcome any risks. Good news for Eircom, perhaps.