Importance of understanding Level of Ownership – Subsidiary, Associate and Joint Venture

Following up from my previous thoughts on why we, as investors, should care about Shareholding statistics of your vested company (which is upstream), it is important also to know the level of ownership your vested company has in other companies (which is downstream).

The main objective to investment in other companies is to derive positive dollar revenue. If the downstream (ownership of) companies are not doing well, this would otherwise affect the overall revenue generated by the parent company — which would be highlighted in the annual report.

In the process of doing so, you probably have to understand the difference between Subsidiaries, Associates/Affiliates and Joint Ventures.


Subsidiary is an entity controlled by another entity. Control is attained by owning a majority stake; shareholding percentage or voting rights > 50%. A wholly-owned subsidiary is one which is 100% owned by the parent entity. If the business fails, in the case of a wholly owned subsidiary, the parent entity absorbs all losses.

By control, the parent company governs the operational and financial aspects or decisions of its investee (subsidiary) through the:

  • “controlling interest” or power over the investee;
  • exposure or rights to variable returns from the investor’s involvement with the investee;
  • ability to exert its power over the investee to affect the amount of the investor’s returns

DBS Group (D05) Subsidiaries

Companies such as DBS Group made their foreign direct investments (FDI) foray in host countries by means of opening bank subsidiaries. This is done partially to prevent any negative stigma or opinion associated with foreign ownership.

UOB Group (U11) Subsidiaries

Companies such as UOB Group is able to extend the range of their products and services (beyond what would be expected usually from its brand) into property investment and travel services by creating new subsidaries.

Associates / Affiliates

Associate is an entity over which the investor has significant influence. Associate is used synonymously with Affiliate. Significant influence is owning a minority stake; shareholding percentage or voting rights > 20% but less than 50%.

By significant influence, the parent company has the power to participate and weigh in the operational and financial aspects or decisions of the investee (associate) but not the control.  

DBS Group (D05) Associates

DBS Group extends beyond the primarily generation of revenue in the financial services to real estate services and fund management services etc. NETs, collectively owned by DBS Bank, OCBC Bank and United Overseas Bank, is a Singaporean electronic payment service provider founded to establish Singapore’s debit network and adoption of electronic payments.

UOB Group (U11) Associates

UOB Group, unlike DBS Group, has only a minority stake in its stockbroking arm. UOB-Kay Hian therefore has a higher degree of autonomy to DBS Vickers Securities in making corporate decisions.

Joint Ventures

Joint venture is an arrangement whereby two or more parties involved pool resources and have joint rights to the net assets of the arrangement. A joint venture could have equal partnership or with one partner having a larger share. In a joint venture, the risk is spread out between more than one parties. Losses are divided if the business fails; making it less risky as more resources such as capital and personnel are provided.

We can see how this works out for FEHT and MIT below.

Far East Hospitality Trust (Q5T) joint venture with Far East Organization Centre

Mapletree Industrial Trust (ME8U) joint venture with Mapletree Investments

Why does it matter as an investor?

“I am only interested in whether the company makes money, and not how it makes money.”

“Dividend yield and capital gains are my only focus.”

I shared my experience earlier when I did my portfolio refocus towards retail and hospitality sector.

Cathay Pacific’s principal shareholder (45% ownership) is Swire Pacific. I had existing investment in Cathay Pacific at one point. By investing in Swire Pacific (Parent), I had indirectly raised my exposure to Cathay Pacific (Associate) as well. Thus, when Cathay Pacific became financially impaired by COVID-19, Swire Pacific stock prices tanked as well.

One of the things you should be doing is to diversify and limit your exposure to any particular company or counter. You might unnecessarily take on more risk than you are prepared for.


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