Time to set the record straight on GIC’s Citi investment: it was pure luck.
In Jan 2008, GIC had invested US$6.88 billion in 7% convertible preferred securities with a conversion price of US$26.35, ie GIC saw value in Citi at US$26.35. But after only 14 months, Citi’s share price collapsed to below $1.
GIC was actually making its second biggest punt in history when global stock markets were in free fall: GIC thought it had picked bottom but the bottom fell out.
As its nightmare unfolded, the 7% dividend was unexpectedly halted in late 2008 and the US government had to intervene to prevent a financial crisis.
– GIC had not anticipated Citi’s dramatic collapse.
– It had assumed US$26.35* was good value but till today, it is still 75% lower. (*US$263.50 after reverse share split)
– It had not expected US government to intervene.
– It had not expected the US$26.35 exercise price to be adjusted to $3.25.
In other words, all that has been happening till today wasn’t even factored into GIC’s investment plan in 2008!
The image below better explains GIC’s tikam-tikam ‘combined strategy’ in Citi.
GIC shouldn’t anyhow take credit when the profitable Citi investment was based on nothing but pure luck.