GIC cuts UBS stake after ‘disappointing’ loss

GIC cuts UBS stake after ‘disappointing’ loss
GIC's stake will be under 3 per cent when the sale is completed, UBS said. Photo: Reuters
Published: 2:31 AM, May 16, 2017
Updated: 12:02 AM, May 17, 2017

SINGAPORE — Nearly a decade after making the largest single investment in its history, Singapore sovereign wealth fund GIC on Tuesday (May 16) divested part of its stake in Swiss bank UBS at a loss. It did not disclose the amount lost, although back-of-the-envelope calculations put it in the region of S$2.5 billion.

GIC stressed, however, that its two major investments in banks made during the 2008-2009 Global Financial Crisis have yielded a positive return in total. 

“UBS was one of two major investments GIC made in the early stages of the Global Financial Crisis, the other being an investment in Citigroup. These investments took advantage of GIC’s ability to invest long term, and offered a rare chance to take major stakes in the international banking sector … The combined return on the UBS and Citigroup investments has been positive in mark-to-market terms,” the sovereign fund said in a statement on Tuesday.

GIC reduced its ownership in UBS from 5.1 per cent to 2.7 per cent, saying it was disappointed that the investment resulted in a loss. It did not reveal the price at which the shares were sold but various reports cited banking sources as saying that the 93 million shares were divested at 16.10 Swiss francs (S$22.73) each, a discount from Monday’s close at 16.61 francs, and well below the 47.7 franc price at which GIC converted its UBS notes into shares.

GIC chief executive Lim Chow Kiat said: “GIC made the UBS sale despite the loss because conditions have changed fundamentally since GIC invested in UBS in February 2008, as have UBS’ strategy and business. It makes sense now for GIC to reduce its ownership of UBS and to redeploy these resources elsewhere.”

“While GIC does its best to ensure that each individual investment performs, it must accept a degree of risk in order to pursue promising opportunities and optimise overall portfolio returns,” he added. 
GIC measures its performance on an overall portfolio basis based on long-term rather than annual returns, he said.

On the latest move, Dr Ravi Jain, senior lecturer of finance at NUS Business School, noted that GIC is “fairly diversified and likely to stay that way”. “But the opportunities in some emerging sectors may be more attractive to them at this time, so they could have decided to lower their portfolio’s weight in banking,” he said. 

Late in 2007, GIC agreed to invest 11 billion Swiss francs into mandatory convertible notes issued by UBS, which was seeking a fresh injection of funds after it was badly hit in the US sub-prime mortgage fiasco. The deal was completed in February the following year, making GIC the biggest shareholder of Europe’s biggest bank and marking the single largest investment in the sovereign fund’s history. GIC converted its holdings of UBS notes into shares in 2010.

Based on the conversion price and taking into account the interest payments on the notes and dividend payments on the shares, the sovereign fund suffered a loss of roughly 1.8 billion francs, or about S$2.5 billion, on the latest share sale. GIC is still sitting on unrealised losses on the rest of its UBS shares, on which it has committed not to sell for at least 90 days. 

Mr Song Seng Wun, an economist at CIMB Private Bank, said: “It will be criticised obviously ... with people trying to work out how much they lost on this one particular investment, but we should look at this in totality. Not every investment will make money. What we want to see is on average, we still make more money from other investments.” ADDITIONAL REPORTING BY ANGELA TENG