GIC have a 80% probability of losing in Li Ning investment

By Anonymous

The Government of Singapore Investment Corporation, GIC, was reported in 19 January 2012 that they have purchased some SGD$36.5 million of 5 year convertible bonds from Li Ning, a listed sports brand company on the Hongkong stock exchange.


Did GIC lose money?
The big question lying on Singaporeans’ interest is whether if the sovereign wealth fund company made a loss from the recent dive in Li Ning’s shares. The real answer? Nobody except the GIC knows. Because if it all depends on whether, or when and how much did GIC convert the convertible bonds. Assuming if they have converted the bonds at Li Ning’s peak share price of $10, GIC’s estimated losses would be around $20 million. But if they have somehow converted them in the “profit window” of about 2 months period of Jul-Aug and Sep-Oct, they should be sitting on a paper profit of about $4 million. In statistical terms, GIC have a 80%(spreading 8 invested months from January to October today) probability of making a loss and a remaining 20% probability of breaking even or earning an unproportionate profit that of the risk undertaken.


But depending on your personal values, the real issue here is transparency and accountability, and that is if it matters to you if at all. Lets just leave that topic for another day, because this writer here is more interested in a sustainable system than a blind religious faith in a system that self-proclaims it won’t go corrupt over time.


The GIC is a private company owned by the Government of Singapore and its role is to manage the Government’s assets. Given that the national compulsory saving statutory board CPF is a government asset, its funds or your CPF money is directly managed by GIC. Hence, if GIC goes belly up, CPF can’t pay you, but you will still be legislated by law under the CPF that you deposit a third of your employed salary every month. What about profits? We all know the CPF pays only what it promises at the adjustable interest rate with adjustable withdrawal limit and adjustable minimum sum to the fancy of the PAP government, and since the GIC boasted a 3.9% annualized returns since some 20 years ago, the question is why isn’t the profits distributed back to Singaporeans?


To keep it simple, Singaporeans bear all the risk if GIC/CPF/Government loses money while the profits derived from risk(there is no profit without undertaken risk) goes into the pockets of the GIC/Government. Such a system reflects the PAP Government’s elitist stance that whatever good work have been achieved over the years in Singapore by Singapore are done in good faith of themselves and not the people. The disconnect between the people and the government is similar that of a monarchy, where the ruling elite and dynasty government claims all good work done by their name and the people are meant to be lower castes unfit of governance.


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