VZCZCXRO0817
RR RUEHDT RUEHPB
DE RUEHGP #2257/01 3620745
ZNR UUUUU ZZH
R 280745Z DEC 07
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 4653
INFO RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHAD/AMEMBASSY ABU DHABI 0090
RUEHAS/AMEMBASSY ALGIERS 0018
RUEHBJ/AMEMBASSY BEIJING 2713
RUEHSW/AMEMBASSY BERN 0229
RUEHBY/AMEMBASSY CANBERRA 2092
RUEHDO/AMEMBASSY DOHA 0067
RUEHKU/AMEMBASSY KUWAIT 0097
RUEHLO/AMEMBASSY LONDON 0505
RUEHMO/AMEMBASSY MOSCOW 0345
RUEHNE/AMEMBASSY NEW DELHI 1934
RUEHKO/AMEMBASSY TOKYO 5819
RUEHDE/AMCONSUL DUBAI 0085
RUEHHK/AMCONSUL HONG KONG 6311
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 SINGAPORE 002257 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MTS/PMPS 
STATE PASS USTR FOR DAUSTR BELL 
STATE PASS TREASURY SSEARLS, RKAPROTH 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ECON ECIN ETRD SN
SUBJECT: UBS BAILOUT: GIC TRIES ITS HAND AT TRANSPARENCY 
 
REF: BERN 01128 
 
SINGAPORE 00002257  001.2 OF 002 
 
 
 ¶1.  (SBU) Summary:  The $11.2 billion investment in Union 
Bank of Switzerland (UBS) by Singapore's Government 
Investment Corporation (GIC) generated cries (reftel) of 
"Black Monday" in Switzerland, but in Singapore the 
investment is widely seen as positive not only for the 
financial sector but also for efforts to make GIC itself 
more transparent and open.  GIC, in an unprecedented press 
conference to announce the investment, said that it intends 
to play a key role in formulating a set of guiding principles 
for sovereign wealth funds (SWFs).  GIC's management laid out 
specific areas where it is prepared to be more transparent, 
including disclosing the fund's investment objectives, general 
strategy, internal and external governance structure and risk 
management systems.  While this is an improvement for the 
historically opaque investment fund, some critics will not be 
satisfied without more transparency on GIC's financial 
information.  End summary. 
 
GIC -- Largest Shareholder in UBS 
--------------------------------- 
 
¶2. (U) Cries of "Black Monday" in Switzerland (reftel) 
followed UBS's December 10 announcement of plans to write off 
an additional $10 billion in losses on collateralized debt 
obligation (CDO)-related investments and UBS's revelation that 
GIC and an unnamed Middle Eastern investor are investing 11 
billion Swiss francs (US$13.9 billion) in the bank's 
convertible bonds. These bonds will pay an annualized interest 
rate of 9 percent until they are converted into shares.  Once 
converted, GIC will own approximately 9 percent of UBS shares, 
making GIC the largest shareholder in Europe's biggest bank by 
assets. 
 
¶3. (U) The investment marks a departure from GIC's traditional 
policy of portfolio diversification that relies on taking 
relatively small stakes in public equities.  In contrast, GIC's 
sizeable investment in UBS parallels similar high-profile 
investments in 2007 by SWFs in global financial institutions, 
including: 
 
-- Singapore's Temasek Holdings and Davis Select Advisors' 
December 24 investment in Merrill Lynch shares worth $6.2 
billion. 
 
-- Abu Dhabi Investment Authority's November 27 investment in 
Citigroup convertible bonds worth $7.5 billion. 
 
-- China Investment Corporation's December 19 investment in 
Morgan Stanley shares worth $5.0 billion. 
 
Improving Transparency and Openness at GIC 
------------------------------------------ 
 
¶4. (U) In Singapore, GIC's investment in UBS is widely seen 
as positive, not only for the financial sector but also for 
efforts to make GIC itself more transparent and open.  GIC 
held an unprecedented press conference to explain its 
multi-billion dollar investment. GIC Deputy Chairman (and 
Singapore's former deputy prime minister) Tony Tan said 
that "the fact that we are calling the press conference today 
is an indication that we would like to share this transaction 
with you, a chance to put forth any queries you might have." 
Tan said GIC made the investment for purely commercial 
reasons and that it did not intend to gain control, influence 
management, or seek representation on the UBS board of 
directors. 
 
¶5. (U) Tan said that GIC would play a leading role in 
addressing global concerns about SWFs, which are growing in 
 
SINGAPORE 00002257  002.2 OF 002 
 
 
size (see table 1).  He said "Singapore will participate 
actively in efforts to formulate a set of principles and best 
practices for SWFs.  GIC believes that it can contribute in a 
positive way to the framework for greater disclosure." 
 
Table 1:  Estimated Size of Largest Sovereign Wealth Funds 
============================================= ============= 
Name                          Date Established  ($ billion) 
============================================= ============= 
Abu Dhabi Investment Authority (ADIA)   1976      875 
Norway's Government Pension Fund        1990      329 
Kuwait Investment Authority             1960      213 
Singapore's GIC                         1981      330 
Russian Stabilization Fund              2004      141 
Singapore's Temasek                     1974      108 
China's Central Huijin Investment Co    2003       68 
Qatar Investment Authority              2005       50 
Australia Future Fund                   2006       49 
Algeria Revenue Regulation Fund         2000       43 
============================================= ============== 
Source:  The Edge (December 17, 2007) 
 
¶6. (U) Tan said SWFs have to help alleviate through greater 
transparency U.S. and European concerns about the funds' 
growing influence.  He said that "there is a case for 
further disclosure on the part of SWFs, in the interest of 
transparency.  Such disclosure can include clarity on the 
relationship between SWFs and their respective governments, 
their investment objectives and general strategies, and their 
internal governance and risk management practices."  Tan said 
that "any guidelines for SWFs should encourage them to operate 
according to commercial principles with (a) long-term view and 
which are free from political motivations."  At the same time, 
he warned, "recipient countries should not adopt policies that 
inhibit cross-border investments or discriminate against SWFs." 
 
Comment: Will GIC's Transparency Strategy Work? 
--------------------------------------------- -- 
 
¶7. (SBU) Analysts see GIC's openness about the UBS investment 
and its alignment with the calls for SWF best practices as a 
response to the growing chorus of concerns from the United 
States and Europe about the increasing clout of SWFs. GIC's 
moves toward transparency are a step forward for the usually 
secretive SWF.  However, GIC has been very specific about what 
 
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it is prepared to disclose and steadfast in its opposition to 
disclosing either its total size or its financial statements. 
 Very few officials at the Ministry of Finance, GIC's sole 
shareholder, know the total value of the GIC's assets and 
the Minister of Finance maintains the position that disclosing 
such information would lead to inappropriate pressures to spend 
the funds.  It remains to be seen whether laying out the fund's 
motivation, structure, governance, and risk management will 
provide enough evidence of purely commercial intentions to 
allay critics' concerns.  End 
Comment. 
 
Visit Embassy Singapore's Classified website: 
http://www.state.sgov.gov/p/eap/singapore/ind ex.cfm 
HERBOLD