Comments, opinions and an occasional ramble
GIC’s injection into UBS just vapourised
I just saw a piece of interesting news.
Reuters just carried a story that UBS has reported a first quarter loss of 12 billion Swiss francs and are seeking fresh capital injections through a rights issue.
Almost four months ago, GIC made news for injecting 11 billion Swiss francs into UBS, giving GIC a stake of almost 9 percent in UBS.
Looks like many Singaporeans are not going to be pleased, to say the very least.
| Print article | This entry was posted by Aaron Ng on 01/04/2008 at 2:25 pm, and is filed under Others. Follow any responses to this post through RSS 2.0. You can leave a response or trackback from your own site. |
about 5 years ago
not to worry. Ho Ching and pact has unlimited fire power. It will dry up at the next elections!
about 5 years ago
As it stands right now, the only thing attractive about the SFr11 billion invesment in UBS is the 9% coupon rate… unfortunately it only lasts 2 years.
The investment essentially requires that GIC converts its stake into UBS shares after that time somewhere in the SFr51.48-62.82/share range. Essentially, in about 1.5 years from today, GIC will be required to buy into UBS stock at that price. The unfortunate part is that UBS is trading at SFr31/share today.
UBS today just announced another round of equity capital raising… this time another SFr15 billion vs the SFr13 billion raised from GIC and a mideast investor just 6 months ago.
Typically when a company decides to raise new equity, the stock generally falls on the back of existing investors getting diluted or owning less of the company going forward. UBS stock actually rose on the back of today’s news. While that’s somewhat good news for the stock per se, it also says a lot about how potentially dire UBS’s capital adequecy was. This only 6 months after GIC’s initially investment. It thus begs the question about whether GIC knew what it was doing and whether it properly analyzed the risks of the investment.
If the investment were to be converted today into UBS shares at the conversion terms, the investment would be be down SFr 4.3billion. The 9% coupon which will garner SFr2billion in aggregate in the next 2 years should offset that. For simplicity, time value of money and optionality ignored here but there’s not doubting that the investment is quite under water currently.
And now, Osepel, the UBS Chairman who spearheaded the last capital raise will be stepping down. This after the former CEO, CFO and head of investment banking have been forced out. Seems like a house in a mess.
We can’t be overly critical of GIC because they play an important role and there is a dearth of large opportunities sovereign wealth funds can particiapte in. What is of major concern is the apparent speed at which the GIC investment in UBS was concluded (which apparently was done within a few weeks) and how quickly it has spiralled out of the money, which suggest a lack of adequate comprehension of the risks that are even beyond UBS’s immediate control. It’s one thing to move quickly on a small investment, it’s another to move with such expediency with one of the largest investments ever by GIC.
Perhaps UBS’s share price will trade up materially in the next 2-3 years such that the investment is actually successful. Perhaps not.
about 5 years ago
Perhaps top management at GIC should actually be fired for incompetence. But what am I thinking. In Singapore, they don’t *actually* practice meritocracy. They reward incompetence as long as you are of the elite ruling class. Good luck!
about 5 years ago
Read this:
http://www.ft.com/cms/s/0/3142ef96-0018-11dd-825a-000077b07658.html?nclick_check=1
about 5 years ago
It is apparent that while the top capitalist (USA) are running for cover, the apparent idiots have come out to play. Our govt has found it necessary to take our hard earned money to prop up the financial world, while our poorest and lower middle class are left to fend for themselves with rising inflation. Yes, even rice price at NTUC are rising….
Uniquely Singapore. We have gotten into UBS – will we throw in more good money? Let us see.
about 5 years ago
There’s a saying that says charity begins at home. The reverse is equally true for Singapore.
They would rather throw away our hard earned good money to help prop up failing foreign banks.
On the other hand at the expense of we peasants, they rather squeeze us dry by increasing GST and smoke us to say that it is for helping the poor; implement means testing for the peasant masses, squabble for a long time over a S$30~$40 increase for those under our public assistance schemes; etc. But at the same time, they just helped themselves to obscene salary increases.
What kind of shit Gahmen is this ?
about 5 years ago
Hi Aaron,
Don’t worry so much lah. Now the Constitution has been amended to allow them to dip their hands into the National Reserves without having to get the “Elected” President to approve it. Not enough money to spend? Just take out from the National Reserve to spread around mah.
When you have a freak election and you get a rogue govt,
they will slowly squander away the National Reserve which we have
painfully accumulated over 4 decades.
When you have a 666-mandated election and you have a honest to goodness govt, they will squander away the National Reserve so skillfully and speedily that even you won’t be able to know.
So, which one have you elected?
Rockie.
about 5 years ago
As a Singaporean, I’m surprised you’re still alarmed by honest mistakes such as this investment in UBS. What is a few billion here another few billion there for a rich govt such as ours. Most Singaporeans don’t even bother with that piece of news.
I recently heard SM Goh saying the govt will be so kind in these times of inflation to hold back increase in fees and govt charges….and these increases are “fully justified”. Electricity tariffs have been rising, medical subsidies have been slashed, ….etc. You get the idea?…You see those billions are not really the people’s money – the people will not get much more than a small ang pow during election time. They won’t see it when they are critically ill or when their family falls into hard tiimes.
This large pools of billions create number high paying jobs for our elites who manage it. The more reserves to be managed, this more people they can hire and at higher salaries. Nobody loses any sleep or bonus when a few billions are lost here or there. Ordinary Singaporeans can always be conditioned to pay more – work harder and longer ….
about 5 years ago
This is incredible: ” the Constitution has been amended to allow them to dip their hands into the National Reserves without having to get the “Elected” President to approve it.”
This means the government of the day can be reckless and feckless with OUR money!
about 4 years ago
Fortunately for GIC it is not mandatory to convert the bonds. So technically they get a 9% yield. Sounds good? Unfortunately there is a problem though. What GIC bought is not exactly a vanilla bond but a convertible, which is a bond with an embedded call option. This would mean GIC has to pay for both the bond and the option. Normally when a firm sells such a bond the option is priced at a premium to its real price. In other words if GIC had immediately stripped the option and sold it off on the open market it would have incurred a loss. Furthermore the people working at UBS are far more well versed in the game compared to the fools who run GIC who probably dont even know that a convertible actually had an embedded option or the significance of that. That is probably why they managed to secure a 9% yield in the first place, with the option premium offsetting some of the apparently huge yield. GIC then boast about its impressive yield while keeping the option premium hush hush. Don’t believe everything the government says. It is mostly bullshit. This is so sad.