March 5, 2010 / 1:12 AM / 9 years ago

UPDATE 1-GIC converts UBS notes, faces $5 bln paper loss

* UBS shares below 16 Swiss francs vs 47.7 franc conv price

* With 6.6 pct stake, GIC is biggest shareholder in UBS

* GIC among early sovereign funds to buy into Western banks (Adds detail on notes, background)

By Kevin Lim

SINGAPORE, March 5 (Reuters) - Singapore’s biggest sovereign wealth fund, GIC, said it converted its UBS UBSN.VX notes into ordinary shares, suffering a paper loss of about $5 billion.

The Government of Singapore Investment Corp [GIC.UL] had invested 11 billion Swiss francs ($10.22 billion) in mandatory convertible notes in UBS to support the Swiss bank during the financial crisis.

GIC did not provide more details, but a filing it made to the U.S. Securities and Exchange Commission early last month showed the original conversion price would be 47.7 Swiss francs, two-thirds more than UBS’s last share price of 15.86 francs.

GIC had earned about 2 billion francs from a 9 percent coupon over the last two years, which partially compensated for the sharp erosion in UBS’ share price.

“GIC confirms the conversion,” a spokeswoman for the Singapore wealth fund said in response to Reuters’ queries.

The filing had said GIC would exchange the mandatory convertible notes for 230.7 million ordinary UBS shares on March 5. GIC would have a stake of 6.6 percent in UBS after conversion, making it the Swiss bank’s biggest shareholder.

GIC, 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 as 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 in March-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 into stock.

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. (Editing by Ian Geoghegan)

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