GIC to fully subscribe to new UBS shares in stock offer

GIC to fully subscribe to new UBS shares in stock offer
Michelle Tay
7 June, 2008
The Straits Times

THE Government of Singapore Investment Corporation (GIC), which has invested about US$10.6 billion (S$14.5 billion) in UBS, said yesterday that it will take up the shares it is entitled to in a new stock offer by Switzerland's largest bank.

The new investment could cost about 61 million Swiss francs (S$79.8 million), based on Bloomberg's calculation.

GIC owns 0.4 per cent of UBS' common stock, it said in an e-mailed statement.

The fund can take up the same proportion of shares that UBS said last month would be sold at 21 Swiss francs each. Investors are entitled to seven new shares for each 20 held.

UBS, the bank with the second-largest write-downs and credit losses from the US sub-prime crisis, would sell new shares at a 31 per cent discount to the share price on May 21 so as to raise about 16 billion Swiss francs in new capital, the company said last month.

The Zurich-based bank aims to repair its balance sheet after suffering about US$38.2 billion in write-downs linked to the mortgage crisis in the United States.

'It makes sense to invest because there's a huge discount off the market price. This shows their commitment to UBS and that they are in it for the long haul,' said Dr Chua Hak Bin, an investment strategist at Deutsche's private bank in Singapore.

Mr David Cohen, an economist at Action Economics in Singapore, said: 'That's the attraction of sovereign wealth funds as investors. These are the candidates that have the money at their disposal and are able to take a long-term perspective.

'It's encouraging the money is available, and it shows the sub-prime crisis is less nerve-wracking than it was a few months ago.'

The rights offer was first announced on April 1. Trading in the new shares is expected to begin next Friday, the bank has said.

Analysts have said that GIC should take up the offer to avoid a dilution of its shareholding.

In December, the fund bought convertible notes that pay an annual return of 9 per cent. These notes can be converted to stock within two years of the date of issue. Before the latest share offer, GIC would have been UBS' biggest shareholder with a 9 per cent stake if it had fully converted its notes.

'We will subscribe fully to the new shares for our holdings in the UBS common stock,' GIC said in the e-mailed statement, declining to specify the amount it would pay for the new shares.

Bloomberg's calculation was based on UBS' 2.07 billion common shares as at March 31. It is unclear if GIC's UBS notes entitle it to the ongoing rights issue.

GIC, which manages more than US$100 billion, and Temasek Holdings have made high-profile investments in beleaguered banks since the start of the credit crisis. GIC invested US$6.88 billion in Citigroup in January, while Temasek pumped US$5 billion into Merrill Lynch.

GIC chairman Lee Kuan Yew said in April that the fund might invest in more banks in Europe and the US if it gets the chance, despite a slide in Western banking stocks since the purchases by the Singapore wealth funds.

'There are other names you can buy... They should be alloting money back into the Asian market,' said a Singapore-based fund manager, who declined to be identified because he was not allowed to comment on individual stocks.

BLOOMBERG NEWS, REUTERS