LONDON, May 16 (IFR) - Singapore sovereign wealth fund GIC Private Limited is facing a loss
in excess of US$4bn on its emergency investment in Swiss bank UBS Group nine years ago,
according to IFR calculations.
GIC cut its stake in UBS on Monday evening, selling 93m shares at SFr16.10 each to bring in
SFr1.5bn. The sale was conducted by UBS as sole bookrunner and wrapped up in two and a half
The bank accidentally announced the sale ahead of the market close when it had been due to
launch. UBS's ECM bankers were already talking to investors through a wall-crossing exercise so
the deal was not too disrupted.
The share price did drop on the news so the discount was 3% to Monday's close and 4.6% to
the undisturbed share price, but pricing was still above the bottom of the SFr16 to market
guidance at launch.
The deal was covered in 20 minutes and allocations reflected strong support from some
investors, with the top 10 orders receiving half the shares. There were around 140 lines in the
The Singapore state vehicle invested SFr11bn in UBS through mandatory convertibles in
December 2007, which converted into shares two years later to make it the bank's biggest
shareholder. GIC said Monday's sale realised a loss, but did not say how big the loss was.
IFR calculates it has lost over SFr4bn (US$4bn) on the investment, based on conservative
estimates of income from share sales, interest payments on the original instruments, dividends
and the value of its remaining 2.7% stake.
GIC did not immediately reply to requests for comment on the size of its loss.
It said on Monday it was disappointed its investment resulted in a loss, but said an
emergency investment in Citigroup at around the same time had earned a positive return, and the
combined return "has been positive in mark-to-market terms". It invested US$6.9bn in Citigroup
in January 2008.
"GIC made the UBS sale despite the loss because conditions have changed fundamentally since
GIC invested ... as have UBS's strategy and business," GIC chief executive Lim Chow Kiat said.
"It makes sense now for GIC to reduce its ownership of UBS and redeploy these resources
elsewhere," he added.
GIC's investment in UBS has always been complex and it gives limited details on its
GIC and an unnamed Middle East investor invested SFr13bn in UBS in December 2007. At that
time UBS shares were trading at about SFr50, as the scale of capital and trading problems were
only just emerging.
The investment was in mandatory convertible notes (MCNs) that were converted into 273m UBS
shares in March 2010. They were converted at SFr47.68 per share, well above UBS's share at the
time to reflect the higher share price at the time of the original investment.
The conversion left GIC with 245.5m shares in the bank for a 6.4% stake. It reduced its
holding to 196m prior to Monday's sale, which would have raised SFr1.1bn only if it was sold at
the maximum share price during the intervening period.
Its remaining 2.7% UBS stake, or about 103m shares, is worth SFr1.7bn at the current share
As a result, the sale of shares and remaining holding totals about SFr4.3bn for GIC.
GIC received an additional SFr2bn in interest payments in the two years it held the MCNs.
The notes paid 9% annual interest, but had a maximum life of two years.
It has also received SFr2.45 per share in dividend payments between 2011 and 2016, amounting
to up to SFr602m.
As a result, its total return has been SFr5.2bn to date, with it still holding SFr1.7bn of
shares. That equates to a current loss of SFr4.1bn from its investment, according to IFR
GIC manages more than US$100bn globally and UBS was its second most valuable investment,
according to Thomson Reuters data. It was set up in 1981 to secure the financial future of
Singapore by managing its foreign reserves in a range of long-term assets. Temasek, another
Singapore state investor, has also made big bets on some banks, including Standard Chartered.
GIC's loss shows the importance of timing of investments during the financial crisis.
Sovereign funds from Singapore, Abu Dhabi, Qatar, Kuwait and China all invested in western
Many investors who went in early, such as GIC in UBS, have lost money. Others who were later
have made money - often as they got better terms.
Qatar's sovereign wealth fund made more than US$2bn on a controversial bet on Britain's
Barclays in 2008, for example. Most of its proceeds came from warrants the bank included as part
of the deal, plus MCNs that paid out 14% a year.
(Reporting by Steve Slater and Owen Wild)