Singapore to pump in almost US$10b into Swiss bank UBS
By Rachel Kelly, Channel NewsAsia | Posted: 10 December 2007 2112 hrs

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SINGAPORE : The Government of Singapore Investment Corp (GIC) is injecting 11 million Swiss francs, or nearly US$10 billion, into the troubled Swiss banking giant UBS.

This will give GIC an almost 9 percent stake in UBS.

The deal comes as UBS announced that it was making further multi-billion dollar writedowns for its US sub-prime exposure.

Problems in the US sub-prime mortgage sector is presenting opportunities for investors eyeing the financial sector.

While UBS is taking a big hit from its sub-prime exposure, GIC says it is nonetheless confident in the long term growth potential of the Swiss lender's business, particularly its global world wealth management businesses.

GIC's deputy chairman and executive director, Dr Tony Tan, says: "Well at present GIC has relatively small investment in UBS which accounts for less than 1 percent of the bank's equity. Including the share which will be a result of this conversion and including our present shareholding...the total share holding could amount to possibly around 9 percent of UBS equity."

The deal will make GIC the largest shareholder in UBS.

It comes just weeks after the Abu Dhabi Investment Authority bought a 4.9 percent stake in Citigroup for US$7.5 billion.

There have been concerns in recent months about sovereign wealth funds (SWFs) such as GIC or Abu Dhabi Investment Authority buying into foreign companies.

But GIC argues that these funds have a role to play.

Dr Tan says: "All players in the global financial market should be treated equally - SWF should not be discriminated against. SWF could be seen as contributing to financial stability because of their focus on wealth and diversifying portfolios, long term returns and virtually no leverage."

There are however calls for SWFs to be more transparent about their investments, and to operate according to commercial principles rather than political motivations.

GIC also stressed that its relationship with UBS is strictly financial and that it was not interested in gaining management control.

Dr Tan says: "Well we are a long term investor. Obviously putting in so much money in UBS we have to take an active interest in the company - you know its 11 billion Swiss francs - that's almost 10 billion US dollars. It is not a small sum of money and it would be irresponsible of GIC to put the money there and do nothing about it. But we do not seek to take control or a management say in running the affairs in UBS."

Other than GIC, UBS has secured a capital injection of about US$1.7 billion from an unnamed Middle East investor. - CNA/ch