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GIC sells 2.4% UBS stake at a loss

Wednesday, May 17, 2017 - 05:50

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GIC has sold just under half of its stake in Swiss bank UBS Group at a loss, the Singapore sovereign wealth fund announced on Tuesday.

Singapore

GIC has sold just under half of its stake in Swiss bank UBS Group at a loss, the Singapore sovereign wealth fund announced on Tuesday.

GIC reduced its stake to 2.7 per cent from 5.1 per cent through an accelerated bookbuild offering, selling about 93 million shares of UBS worth about 1.6 billion Swiss francs, or about S$2.3 billion, as at Monday's close.

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

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GIC took stakes in UBS and Citigroup early in the financial crisis as part of a tactical move into a beleaguered financial sector.

GIC did not disclose the exact amount that it lost on UBS. It had originally invested 11 billion Swiss francs in UBS convertible notes, but suffered a paper loss of about 7 billion Swiss francs in March 2010 when it converted the notes into equity. Since then, UBS's share price has risen about 3 per cent. However, with many variables not publicly disclosed, a straightforward calculation of the loss is not possible.

GIC in 2008 also invested about US$6.9 billion in Citi convertible preferred securities, which were later converted into common stock. GIC later halved its Citi stake, realising a profit of about US$1.6 billion.

While the UBS investment has not panned out - GIC said it was "disappointed" in the loss - the Citi investment has generated enough returns for the strategy to have positive overall returns on marked-to-market terms so far, GIC said.

"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," GIC said. "The sector was then under considerable stress, and there were opportunities as well as risks in making such major investments."

The UBS investment was troublesome early on. In 2010, GIC already faced a paper loss of about 7 billion Swiss francs when it converted its UBS bonds into stock. In 2011, the bank reported losing about US$2 billion from unauthorised trades from a rogue trader, earning a rebuke from GIC, which was then UBS's largest shareholder.

UBS's strategy has also shifted in the time that GIC has been on board, with the Swiss bank now focused more on wealth management than traditional investment banking.

In recent years, GIC, a long-term investor that manages Singapore's reserves, has had to navigate prospects of higher volatility and subdued global growth. In its latest annual report, GIC said that it aims to maintain a portfolio diversified across multiple dimensions, and that it will continue to explore new asset classes and portfolio construction approaches.

Despite Tuesday's sale, GIC has not shied away from financial investments, although some of its recent moves, such as a US$1.9 billion investment in Spain's Allfunds Bank in April, have hinted at a preference for businesses with a technological bent.

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