GIC pumps S$9.8b into Citigroup

GIC pumps S$9.8b into Citigroup
By May Wong, Channel NewsAsia | Posted: 15 January 2008 1951 hrs

SINGAPORE: The Government of Singapore Investment Corporation (GIC) will soon have a bigger stake in US-based Citigroup.

GIC will pump in US$6.88 billion (S$9.8 billion) into one of the world’s largest banks. This is part of Citigroup’s bid to raise US$12.5 billion of capital to boost its financial position.

GIC is the hand behind the management and enhancement of Singapore’s reserves.

That is exactly what the company is doing with its latest purchase into Citigroup. The two companies took just eight days to seal the deal.

GIC’s investment is done through a financial instrument called convertible preferred securities. This will effectively give GIC some form of protection.

For example, if Citigroup’s stock price falls, GIC does not have to convert its securities into shares and will continue to earn dividends of 7 percent.

But such a prudent investment, with lower risks, will also mean that GIC will see relatively lower returns.

In a news release, GIC’s deputy chairman and executive director, Tony Tan, said the company looks for returns on a long-term basis. He believes GIC’s latest Citigroup investment will meet that objective.

Dr Tan said: “GIC is a financial investor seeking commercial returns on a long-term basis … We believe that the investment in Citigroup will meet our long-term investment objective in terms of risk and return.”

GIC now holds 0.3% of shares in Citigroup. The new deal will bring GIC’s stake in the bank to 4% if converted to shares.

The investment will make GIC, as a single entity, one of the top five investors in Citigroup. However, GIC says it will not sit on Citigroup’s board.

GIC’s latest investment comes hot on the heels of a major deal last month, when it pumped nearly S$14 billion into the Swiss banking giant UBS. – CNA/ir