Government of Singapore Investment Corp., the biggest investor in Citigroup Inc. and UBS AG, plans to hold on to its stakes in the banks for “many years” and will only consider selling if there are attractive offers.
“We look to continue to hold on to our stakes in UBS and Citigroup for many years to come,” Tony Tan, deputy chairman of the Singapore sovereign wealth fund, said in a Jan. 29 interview at Davos, Switzerland, where he attended the World Economic Forum meeting. ‘But one never says never; if someone offers an extremely high price, of course we’ll look at the possibility.”
GIC bought stakes in New York-based Citigroup and UBS, Switzerland’s biggest bank, in 2008 as the collapse in the U.S. subprime-mortgage market in 2007 froze credit markets and led to almost US$2 trillion ($2.6 trillion) in losses and writedowns at financial institutions worldwide. Temasek Holdings Pte, Singapore’s state- owned investment firm, sold its holdings in Bank of America Corp. and Barclays Plc at losses following the financial crisis.
GIC said in September “the worst is over” for the banks, prompting a longer-term view for its investment in the these assets. Citigroup and UBS have returned to profitability, they have strong capital ratios and will do well amid the changing regulatory environment, according to the sovereign fund, which manages more than $100 billion of Singapore’s reserves.
Paulson & Co., the US$35.9 billion hedge fund run by John Paulson, told clients this month that it made more than US$1 billion on its Citigroup investment in the past 18 months. Citigroup, which surged 43% in 2010, was the fund’s most profitable bank holding last year, Paulson said in a letter.
UBS shares rebound
Shares of UBS, which suffered the largest loss in Swiss corporate history in 2008 after bets on US mortgage-backed securities backfired, has more than doubled since March 9, 2009, when it reached an 18-year low amid the financial crisis.
GIC is the biggest shareholder of Citigroup and UBS, according to data compiled by Bloomberg.
The US will remain GIC’s biggest area for investments for years, even as emerging markets grow faster, said Tan, 70.
“There is a major transfer of wealth from the developed countries to the developing countries in Asia,” Tan said. “But it does not mean that for us in GIC, as an international investor, that we do not see opportunities, certainly in the US but even in Europe, because prices have gone so low.”
GIC, ranked the world’s seventh-largest state investment company by Sovereign Wealth Fund Institute, said last year it will continue to increase its investments in higher-growth emerging economies, especially in Asia, as expansion in developed nations slows. The fund manages US$247.5 billion, based on the institute’s estimates.
US Investments
GIC’s holdings in the US fell to 36% of its portfolio in the year ended March 31 from 38 percent the previous year, according to its September annual report.
“The US still represents the single largest area of investment for GIC, even today, and I don’t see that changing for many years to come,” said Tan, who is a former deputy prime minister of Singapore.
GIC also bought some of the European debt issued to finance Ireland’s bailout, Tan said, and the fund will consider buying more European rescue debt in future sales.
“We believe the bond is relatively safe given how it’s structured and it gives us reasonable yield,” Tan said.
The pledge by Japan and China to buy European debt has encouraged Asian funds to follow suit. The Japanese government bought more than 20% of the 5 billion euros ($8.79 billion) of bonds sold by the European Financial Stability Facility on Jan. 25. Asian investors bought about 38%, according to two people familiar with the transaction.
Most Pressing Issue
“The sovereign debt crisis in Europe is probably the single-most pressing economic issue that faces the world today,” Tan said. “We hope that European countries will be able to resolve the major structural problems; they’ve taken decisive steps but there are challenges ahead.”
GIC, established in 1981, said annual returns in the past 20 years averaged 7.1% in US dollar terms, compared with 5.7% in the previous fiscal year. The rate of return in excess of global inflation rose to 3.8% from 2.6%. The sovereign fund didn’t give the value of its assets or how much they rose or fell.
The fund will consider selling more assets through initial public offerings, Tan said. GIC “does own a number of assets which could be good candidates for listing if the circumstances are right and there’s a need,” he said.
Ready for Listing
GIC sold shares of Global Logistic Properties in October to raise $3.9 billion, the first listing by a firm majority-owned by the sovereign wealth fund. The stock surged 11% in its trading debut.
“At the moment we don’t have any immediate plans to list them, but these assets are ready and will be well-received by the market should we choose to list,” Tan said. He declined to say what assets might be sold.
GIC, which has been expanding its investments in Indonesia, is interested in putting its money into infrastructure projects in Southeast Asia’s largest economy, including a road from the city to the international airport, Tan said.
“We see good potential there,” he said.
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