Yesterday GIC announced that they will be converting USD6.88B worth of their perpetual, convertible notes in Citi group into common shares @ $3.25 per share. I was looking at the closing price of citi this morning and was shocked that Citi is only worth $1.50 today! In the short span of less than a day since the announcement, GIC has loss 54% of the investment money in Citi. Conservative Strategy?
It was only a few months ago, when people were questioning the investment strategies that GIC was using, that they say they are going to hold long term and will profit because of the high coupons payout of 7%per year ($480million) so holding it for 20 years will give them a 40% profit based on the coupons alone. However, contrary to what they have said, by converting the preference shares into common shares, GIC risks losing everything because the common share is not principal protected, and on top of that losses the the guaranteed 7% coupon payout per year ... Now, what happen to the conservative strategies they were talking about just a few months back?
$6.88B - 4 days to decide?
To show you how "quick" this decision was made, you can take a look here. On 23rd February, GIC told the world that they will not convert their preference shares. But on 27th February, they announced they are going to do it!
Sometimes I wonder, why are we paying these so call "top" economists to make such hasty decisions for us, when any common guy from the streets can tell whether is it a sound decision. Of course we can tell risking 100% the initial capital and throwing away 7%pa guaranteed coupons is "wise".
Look here guys, we are not looking at risking thousands or millions of dollar, we talking in terms of billions. Using 4 days to decide what they want to do with billions ... just terrific!
