* GIC to convert notes into 230.7 mln UBS shares on March 5
* Assumed conversion price of notes is 47.7 Swiss francs
* UBS shares at 13.7 francs, up 0.44 pct in early trading
* GIC to earn about 2 bln Swiss francs as interest on
(Adds analysts' quotes, background)
By Saeed Azhar
SINGAPORE, Feb 11 Singapore sovereign wealth
fund GIC will convert 11 billion Swiss francs ($10.33 billion)
worth of UBS UBSN.VX notes into shares next month at a price
that may erode the value of its stake in the Swiss bank by 70
The Government of Singapore Investment Corp (GIC), which
manages over $200 billion in assets, was one of the first
sovereign funds to pump billions into Western banks, which were
rocked by the financial crisis and suffered deep losses.
The potential loss is likely to draw fire from
Singaporeans, who have been highly critical of sister wealth
fund Temasek [TEM.UL] after it lost heavily betting on Western
banks such as Bank of America-Merrill Lynch (BAC.N) and
GIC [GIC.UL], which invested in UBS two years ago, will
exchange the mandatory convertible notes for 230.7 million
ordinary shares of UBS on March 5, according to a filing with
the U.S. Securities and Exchange Commission.
Based on Reuters calculations, the assumed conversion price
will be 47.7 Swiss francs a share versus UBS's last closing
price of 13.67 Swiss francs.
GIC declined to comment.
The wealth fund, though, will be earning 2 billion Swiss
francs on its UBS investment through a 9 percent fixed coupon,
which could partially compensate for the stake erosion.
In any case, GIC, which manages the Singapore central
bank's reserves and aims to beat inflation over the long-term,
is unlikely to change in the wake of the potential loss.
"I sense their philosophy is you win some and you lose
some. Clearly they didn't win this one," said David Cohen, an
economist at consultancy Action Economics.
"They weren't the only ones that lost money from the
financial crisis. They will try to maintain a diversified
portfolio," Cohen added.
GIC's strategy could be different from that of Temasek,
which has been more cautious since the bank investments and has
done very few blockbuster deals. It has largely bought small
stakes in Chinese firms, IPOs or has supported its portfolio
GIC Chairman Lee Kuan Yew, Singapore's prime minister from
1959 to 1990, said last year the fund bought "too early" into
global banks such as Citigroup (C.N) and UBS, which were both
hammered by the financial meltdown. [ID:nLKY]
Under the original agreement between GIC and UBS, the
minimum conversion price was 51.48 Swiss francs and the maximum
60.23 Swiss francs, but GIC officials had said there was a
reset due to anti-dilution clauses.
The filing showed that GIC would have a stake of 6.6
percent in UBS after the notes are converted into shares.
The fund said in September its investment in UBS was still
showing a loss.
Melvyn Teo, director of the BNP Paribas Hedge Fund Centre
at Singapore Management University, said it would be
interesting to see if GIC holds on to all its UBS shares after
the conversion, given the many problems still facing the Swiss
"The question is, can UBS bounce back? It has lost market
share to Credit Suisse and other Swiss banks and there are also
some questions hovering over the Swiss private banking
industry," he said.
News of GIC's losses on UBS comes just a month after the
fund said it booked losses on its $675 million investment in
Stuyvesant Town/Peter Cooper Village complex, an apartment
complex in Manhattan, New York. [ID:nSGE60A0EF]
GIC, which is led by Deputy Chairman Tony Tan, is becoming
active again in global markets after its portfolio shrank by
more than a fifth in its last financial year that ended in
March, when it was hit by the financial crisis that drove down
the value of its financial holdings.
A market recovery helped it recoup half its portfolio
losses between March and end-September last year, and GIC
recently profited from a well timed sale of part of its
Citigroup (C.N) stake after it converted its preferred shares
GIC's recent investments have been diverse, ranging from
the hotel industry and China property developer Longfor
(0960.HK) to a videogaming firm, but are in line with a recent
statement that it is not pursuing geographical targets.
($1=1.065 Swiss Franc)
(Additional reporting by Kevin Lim in SINGAPORE, Shivani Singh
in BANGALORE and Martin De Sa'Pinto in ZURICH; Editing by