Singapore's wealth fund GIC loses $5.1 billion in UBS investment

The Government of Singapore Investment Corporation (GIC), Singapore's sovereign wealth fund has incurred a paper loss of $5.1 billion on its investment in Swiss bank UBS AG after it converted the bank's notes into ordinary shares on Friday.

In a filing made to the US Securities and Exchange Commission early last month, GIC the world's fourth-largest sovereign fund that manages more than $100 billion of Singapore's foreign exchange reserves, said that it would exchange on 5 March the mandatory convertible notes for 230.7 million ordinary UBS shares, making it the single largest shareholder in the Basel and Zürich-based UBS.

By converting UBS notes into ordinary shares that gives it a 6.6-per cent stake, GIC lost on paper about 45 per cent of its original $11 billion investment on current share prices in Switzerland's biggest bank.

Western banks, reeling under the crushing blow of the global financial crisis were forced to raise funds lest they met the fate of Lehman Brothers that went bankrupt. GIC and a few Middle East sovereign wealth funds had invested in them or subscribed to their fund raising plans. (See: UBS to write down $10 billion, raise $11.5 billion in stake sale)

In 2007, when UBS offered generous terms to investors, GIC took a 9-per cent stake in UBS through convertible notes, which paid 9 per cent interest per annum and had a two-year maturity period.

As the maturity period was expiring on Friday, GIC had no choice but to convert its notes in UBS into shares, thereby incurring a loss about 45 per cent on its original $11 billion investment.