GIC’s UBS losses could amount to 3.9% of GDP

Finance Minister Tharman Shanmugaratnam said in his Budget speech yesterday that Singapore's "large" estimated basic deficit of 8.5 billion Singapore dollars (about $6 billion) for financial year 2009 amounted to 3.3 per cent of the gross domestic product.

The Government of Singapore Investment Corporation's paper losses on the Swiss bank, UBS, could amount to more than that.

The Straits Times reported earlier this month that, converting notes into UBS shares, GIC could lose 7.85 billion Swiss francs (about 10.26 billion Singapore dollars).

That would amount to 3.9 per cent of the GDP.

Singapore's 2009 GDP was about 257.64 billion Singapore dollars at current market prices, according to the 2009 Singapore Economic Survey by the Ministry of Transport and Industry.(See chart.)

The finance minister said:

Because our economy contracted by less than
expected last year, our budget position has also turned out better than
projected. The basic deficit (Operating Revenues minus Expenditures for
FY2009) is now estimated at 8.5 billion Singapore dollars compared to the 14.9 billion
Singapore dollars that was expected.

GIC and UBS

The Straits Times report on February 12 said:

Government of Singapore Investment Corp (GIC) will convert its 11 billion Swiss francs (S$14.5 billion) worth of UBS notes at a price that may show a 70 per cent paper loss in its investment in the Swiss bank.

GIC will exchange the mandatory convertible notes that it bought two years ago for 230.7 million ordinary shares in UBS on March 5, according to a regulatory filing with the United States Securities and Exchange Commission.

This would mean the conversion price would be at 47.7 Swiss francs a share.

At Wednesday's closing price of 13.67 Swiss francs for UBS shares, these shares would be worth just 3.15 billion Swiss francs, or around 7.85 billion Swiss francs less than its original investment of 11 billion Swiss francs.