Singapore’s main sovereign wealth fund is set to incur a multi-billion Swiss franc paper loss on its investment in troubled Swiss bank UBS, the Financial Times says.
The newspaper has estimated that the Government of Singapore Investment Corp (GIC) stands to lose around SFr5.5 billion ($5.1 billion) on a SFr10.97 billion investment in the bank.
GIC bailed UBS out in 2008 with a mandatory convertible bond paying a nine per cent coupon, or interest payment, over two years. GIC confirmed that it had incurred a 70 per cent loss when it converted the investment into UBS shares as the deal expired on Thursday.
The FT said the shares were now worth only about a third of the conversion price of SFr47.70, “leaving GIC facing an unrealised loss on the deal of about SFr7.5 billion, minus interest payments it has already received of about SFr2 billion”.
UBS confirmed that the conversion of the GIC investment into shares had taken place, but would not comment further on the matter.
UBS shareholders had backed a capital injection from Singapore and an unnamed Middle East investor in February 2008. At the time, the deals raised questions about awarding foreign sovereign wealth funds generous terms at the expense of existing shareholders.
Last year UBS received a bail-out from the government and it has also been dogged by allegations that it helped clients evade taxes in the United States. However, the bank reported a fourth-quarter profit for 2009, despite having finished the year on a loss.