Disappointed With UBS Loss, Singapore's GIC Fund Slashes Stake

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UBS' largest shareholder, Singapore's sovereign wealth fund, said it is trimming its stake in the Swiss bank to less than 3 percent.

A statement overnight from the GIC itself detailed the influential state fund's move: Singapore suffered a loss after whittling down its stake in UBS down to 2.7 percent from 5.1 percent previously, it emerged.

UBS' investment bank handled the GIC's share sale, without taking a fee.

"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", Lim Chow Kiat, chief executive of GIC, said in a statement issued yesterday.

The fund said, however, that its investment in U.S. bank Citigroup Inc, also made at the height of the global financial crisis, was in the black and that combined returns for UBS and Citi were positive in "mark-to-market terms".

By the time GIC completed the conversion of its 11 billion Swiss francs ($11 billion) of notes, the stock had lost about two-thirds of its value, though the unrealized loss was partly offset by interest payments. In 2010, the Singapore wealth fund became the bank's largest investor after the securities were converted into stock.

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The fund said it had averaged an 4 percent return per annual from 1996 to 2016, including the financial crisis of 2008/09 and its stakes in UBS and in Citigroup.

Selling 93 million shares at 16.10 would raise 1.5 billion francs (US$1.51bil).

In all, GIC is estimated to have lost at least US$7 billion in UBS shares, assuming the remaining 2.7 per cent of UBS shares were also to be sold at current prices. GIC still owns a small stake in Citigroup. The other, an investment in Citigroup, has been profitable.

As a result, its total return has been 5.2 billion Swiss francs to date, with it still holding 1.7 billion Swiss francs of shares. 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. The convertibles had been converted into shares in 2009 to make it the bank's biggest shareholder. Yet these are hardly rich pickings, especially for sovereign wealth funds, whose goal is enrich their countries.

In the past year, GIC has embarked on a series of leadership changes and elevated many investment managers to key roles. Most of its proceeds came from warrants the bank included as part of the deal, plus MCNs that paid out 14 per cent a year.

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