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GIC’s investment to UBS nine years ago might cost GIC a loss of US$4b

According to IFR calculations, Singapore's investment fund, GIC Private Ltd, is facing a loss in excess of 4 billion francs (US$4 billion, S$5.6 billion) on its emergency investment in Swiss bank UBS Group nine years ago.

On Monday evening (15 May), GIC cut its stake in UBS, selling 93 million shares at 16.10 Swiss francs, each to bring in 1.5 billion francs. The sale, conducted by UBS as sole bookrunner, concluded in two and a half hours.

Before the market close,UBS's ECM bankers were already in talks with investors through a wall-crossing exercise in order for the deal to not be disrupted, but UBS had accidentally announced its sale when it has been due to launch.

Although GIC acknowledged that Monday's sale had been a loss, they did not mention how big the loss was. On Monday, GIC had commented that 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", Reuters reported.

In January 2008, GIC had invested US$6.9 billion in Citigroup.

GIC's chief executive officer, Lim Chow Kiat said, "GIC made the UBS sale despite the loss because conditions have changed fundamentally since GIC invested ... as have UBS's strategy and business". Lim also said that it makes sense for GIC now to reduce its ownership of UBS and redeploy "these resources elsewhere".

After the news of its loss, share price dropped, making the discount 3 percent to Monday's close and 4.6 percent to the undisturbed share price. However, at launch, the pricing was comfortably above the bottom of the 16-franc to market guidance.

According to Reuters, 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 book.

Referring to Lim's comment, GIC, together with an anonymous Middle East investor had invested 13 billion francs in UBS in December 2007. At the same time, GIC had invested 11 billion francs in UBS through mandatory convertibles. The convertibles had been converted into shares in 2009 to make it the bank's biggest shareholder. As for the 13 billion francs invested in UBS, in March 2010, the investment was in mandatory convertible notes (MCNs), converted at 47.68 francs per share, into 273 million UBS shares. The conversion, at that time, was well above UBS's share to reflect the higher share price of the original investment.

Reuters said that the conversion left GIC with 245.5 million shares in the bank for a 6.4 per cent stake. It reduced its holding to 196 million prior to Monday's sale, which would have raised 1.1 billion francs only if it was sold at the maximum share price during the intervening period. Additionally, its remaining 2.7 per cent UBS stake, or about 103 million shares, is worth 1.7 billion francs at the current share price.

The result is the sale of shares and the remaining holding totalling to about 4.3 billion francs for GIC.

Reuters reported that GIC received an additional 2 billion francs in interest payments in the two years it held the MCNs. The notes paid 9 per cent annual interest, but had a maximum life of two years. It has also received 2.45 franc per share in dividend payments between 2011 and 2016, amounting to up to 602 million francs.

According to FIR calculations, the total return has been reported to be 5.2 billion francs to date, with GIC still holding 1.7 billion of shares, equating to a current loss of 4.1 billion francs from its investment.

As a result, its total return has been 5.2 billion francs to date, with it still holding 1.7 billion of shares. That equates to a current loss of 4.1 billion francs from its investment, according to IFR calculations.