Below is an extract from DJNewswire about SWF losses…
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SWF losses
Sovereign funds are licking their wounds. When the credit-crisis
began unfolding last year, they rushed to the aid of Western banks,
buying some $50 billion of shares and mandatory convertible bonds.
Now, these look like terrible investments. The weighted average of
the shares is down by 40%, according to a breakingviews
calculation.
The worst performer would have been China’’s Citic, which agreed
to put $1 billion into Bear Stearns in October as part of a two-way
deal. Luckily for Citic, the deal was never completed. Still, the
near-Bear experience will only reinforce the doubts about Western
finance spawned by China Investment Corp.’’s $3 billion investment
in Blackstone ahead of the private-equity firm’’s initial public
offering, which has lost a third of its value.
Yet experience doesn’‘t always bring wisdom. The Government of
Singapore Investment Corp., one of the oldest and often considered
wisest of the sovereign funds, is sitting on the biggest absolute
loss: $6 billion on its $11 billion punt on Swiss bank UBS.
The high-profile losses are certainly embarrassing. Yet there is
a mitigating financial factor. With the exception of Temasek’’s $4
billion Merrill Lynch bet, all the investments took the form of
high-yielding mandatory convertibles. These guarantee sovereign
funds high dividends for a number of years, even if the shares tank
and common shareholders get no payouts—an increasingly likely
prospect at some banks.
Typically, the conversion comes after two years and the majority
of convertibles negotiated by sovereign funds with the banks yield
about 10% annually. That partially protects these investors by
effectively cutting losses in half. Indeed, if the shares fully
recover within two years, there may be no loss at all.
Either way, loss or break-even is hardly a great outcome. Citic
escaped with just a bruised reputation. As the crisis continues to
unfold other sovereign funds might not be so lucky. The debacle
should be enough to persuade sovereign funds to steer clear in any
future rounds of capital-raising.
—Antony Currie; Martin Hutchinson; Una Galani
Is this the way SG handles the public’s money…Jim Roger said
before they(SG Govt.) shd hv waited later as the subprime haven’t
run its course yet..why so kangcheong..somebody bent their
arm?.Recently Temasek also sold Tuas Power(formerly-PUB) to a china
co for $4 billion..is this a way to recover the losses or cover up
something..what’s yr views
