GIC said it will exchange its convertible preferred notes to common stock at a price of $3.25 a share, compared with the conversion price of $26.35 under the terms of the original investment. It said its stake in Citi will rise to an estimated 11.1%. Based on a Citi market cap of $13.7 billion, this works out to a stake worth $1.52 billion, or a loss of $5.36 billion on its original investment, according to Reuters calculations.
It now means they are in the real danger zone. Equity holders are the first to absorb any losses. Or if the Treasury decides to inject more capital, they will get diluted, said an analyst at an investment bank, who declined to be indentified.
GIC is Singapore's largest wealth fund with an estimated $300 billion in assets. Its sister fund Temasek Holdings, which also invested in global banks and lost over $2 billion on Merrill Lynch, saw its portfolio drop 31% in the eight months to November.
Singapore has only said GIC outperformed global equities in 2008. The government tapped its reserves for the first time for a budget stimulus package in January to try to cushion the country from its worst ever recession.
GIC bought in January 2008 about $6.88 billion worth of perpetual, convertible notes in Citi that pay a 7% annual dividend. At that time, the notes could be converted into about 4% of Citi's expanded capital.
Preferred shares are similar to bonds in that holders received a fixed dividend instead of dividends that many vary from depending on the firm's performance.