September 22, 2009 / 9:22 AM / 9 years ago

UPDATE 2-Singapore wealth fund halves Citi stake, makes $1.6 bln

* GIC held over 9 pct of Citigroup prior to stake sale

* Now has below 5 pct; will stay on as “portfolio investor”

* GIC says realised $1.6 bln profit from sale

* Citigroup shares up in premarket trade (Adds details, background)

By Kevin Lim and Saeed Azhar

SINGAPORE, Sept 22 (Reuters) - Singapore wealth fund GIC has halved its stake in Citigroup (C.N), cashing in on a market rally for a profit of $1.6 billion, but signalling investor concerns over the outlook for global banks.

The sale follows other divestments by sovereign funds from Western banks they helped rescue at the start of the financial crisis to use the money closer to home in emerging markets and in other growth sectors such as resources.

In June, Abu Dhabi exited Barclays Plc (BARC.L) with a gain of about 1.5 billion pounds ($2.45 billion), though Temasek [TEM.UL], another Singapore wealth fund, lost an estimated $4 billion from an early exit from Bank of America (BAC.N) and Barclays at the start of the year.

“Timing-wise GIC benefited from the rally,” said Song Seng Wun, a Singapore-based economist at Malaysian investment bank CIMB.

“The sale also reflects underlying concerns that although global institutions may have seen their darkest days, there could still be uncertainty ahead as OECD countries in particular could see patchy growth as a result of the recession,” he said.

The Government of Singapore Investment Corp (GIC), which manages an estimated $200 billion-plus in assets, said it cut its holding in Citigroup to below 5 percent, a level more consistent with its goal of being a portfolio investor.

The fund, which also holds 11 billion Swiss francs ($10.7 billion) worth of convertible shares in UBS UBSN.VX, said it remained confident about the U.S. bank’s prospects.

Shares of Citigroup rose 2.5 percent to $4.54 in premarket trading on Tuesday after news of the GIC share sale.

GIC’s move to take profits comes despite repeated statements that the fund is a long-term investor, and coincides with unconfirmed reports that the U.S. government plans to sell part of its 34 percent stake in Citigroup. [ID:nN1686181]

More than $45 billion of taxpayers’ money has been pumped into Citigroup, more than any other major U.S. bank, after it suffered big losses from bad assets linked to consumer debt.

Citigroup’s stock price has more than quadrupled since early March and it is slowly regaining favour among institutional investors, a development that could help the U.S. government offload its stake.

Peter Elston, strategist at Aberdeen Asset Management in Singapore, said it was by no means certain the U.S. Treasury would start divesting its Citigroup stake anytime soon just because the Singapore fund had started the ball rolling.

“GIC’s selling does not give you any indication of what the U.S. government might do ... The U.S. government has the responsibility for stability of the U.S. financial system.”

GIC Chief Investment Officer Ng Kok Song said in an email the fund had realised a profit of $1.6 billion from the Citi sale.

The Singapore investor had a profit including unrealised gains of about $3.2 billion based on Citigroup’s closing price of $4.43 on Sept. 21, he said.

“GIC will continue its investment in Citigroup as we are confident of its long-term prospects,” GIC said.

GIC had on Sept. 11 exchanged its $6.88 billion holding of Citigroup convertible preferred stock into ordinary shares at $3.25 each as part of a rescue package organised by the U.S. Treasury.

The Singapore fund held over 9 percent of Citigroup prior to the sale of shares via the open market.

GIC is expected to reveal the annual performance of its portfolio in the next few weeks.

For a Graphic on its portfolio last year, click here (Editing by Neil Chatterjee and Ian Geoghegan)

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