Singapore’s GIC Sold Most Olympus Shares on ‘First Suspicion’ of Scandal

Government of Singapore Investment Corp., manager of more than $100 billion of the city’s reserves, sold almost all of its 2 percent stake in Olympus Corp. (7733), the camera maker that said it hid losses with inflated fees.

GIC now only has an “insignificant holding” in Olympus under a portfolio managed by an external fund manager after the sale, the fund said in an e-mailed statement on Nov. 12, without elaborating on the financial effect of the divestment or plans for its remaining shares.

“Ever since the story broke and the unraveling of the extent of the fraud and cover-up of the company, there has always been increasing risk of the viability of the company,” said Song Seng Wun, a Singapore-based economist at CIMB Research Pte. “Rather than take the risk, GIC’s management may have decided to bite the bullet.”

GIC, which said earlier this year risks and market volatility may increase, faced 6.7 billion Swiss francs ($7.4 billion) of paper losses two months ago as the biggest investor in UBS AG after the Swiss bank announced a $2.3 billion unauthorized trading loss that led to the resignation of its chief executive officer. The state-owned investor, ranked the world’s sixth largest by Sovereign Wealth Fund Institute, also had unrealized losses on its investment in Citigroup Inc.

‘First Suspicion’

“GIC disposed of almost all of its investments on first suspicion of possible wrongdoing in Olympus,” the fund said in the statement, without elaborating on details of the share sale. “The majority of the investment was made in the midst of the global financial crisis.”

The comment came less than two months after its Sept. 20 meeting with the management of UBS in Singapore, where it “expressed disappointment and concern about the lapses” at the biggest Swiss bank, according to a GIC statement that same day.

The Singapore fund owned 2.13 percent of Olympus shares as of March, according to data compiled by Bloomberg. The value of the shares has plunged as much as 84 percent since June 21, when the camera maker’s stock reached this year’s high of 2,798 yen.

Tokyo Stock Exchange Group Inc. placed Olympus on the bourse’s so-called watchlist for review for possible delisting last week after it reversed earlier denials of wrongdoing.

Olympus has lost more than 500 billion yen ($6.5 billion) of market value since mid-October, when it ousted President Michael C. Woodford and he made public fraud accusations. The world’s biggest maker of endoscopes said last week it concealed losses by paying $687 million to advisers on 2008 acquisitions.

Reversing Denials

Olympus closed at 460 yen on Nov. 11 in Tokyo, the lowest price since February 1975. The shares rose 17 percent to 540 yen at the close today, climbing by their daily limit after Japan’s securities regulator may recommend Olympus pay a levy for making false financial statements to avoid delisting from the stock market, Reuters reported, citing an unidentified source familiar with the case.

On Nov. 8, Olympus President Shuichi Takayama reversed earlier denials of wrongdoing and said the company was looking into the role played by special-purpose funds in hiding the losses, which date to the 1990s.

At least eight Cayman Islands entities have been linked to Olympus takeovers that are suspected of playing a role in the accounting scandal. Five of those no longer exist, according to a search of the Caymans registry, which doesn’t give details on the individuals behind the companies.

Misplaced Trust

Olympus funneled more than $600 million in fees on the $2 billion Gyrus Group Plc takeover to funds to cancel unrealized losses that the company had kept off its books, the company said on Nov. 8. Former Olympus Chairman Tsuyoshi Kikukawa was involved in the cover-up, Takayama said. Executive Vice President Hisashi Mori, who was fired, and auditor Hideo Yamada also took part, he said.

Japanese and U.S. regulators are probing allegations by Woodford that more than $1.5 billion was siphoned through offshore funds.

“This is a reminder that when people commit fraud there’s not much you can do,” Song said. “This is a case of putting trust in a company’s management which was misplaced.”

GIC said in its annual report in July that it boosted investments in emerging economies to tap higher returns, and cut back in Europe and the U.S. Emerging-market stocks made up 15 percent of its holdings from 10 percent a year earlier, while those in developed economies fell to 34 percent from 41 percent. Investments in Japan accounted for 11 percent of GIC’s portfolio at the end of March, according to the report.

Temasek

Unlike GIC, Temasek Holdings Pte, Singapore’s other state investment company, divested shares in Bank of America Corp. and Barclays Plc at losses more than two years ago. GIC and Temasek spent more than $25 billion buying stakes in U.S. and European banks in the past four years as the collapse of the subprime mortgage market led to more than $2 trillion in losses and writedowns worldwide.

GIC also owns about 3.8 percent of New York-based Citigroup, the third-largest U.S. bank, after selling half of its original stake for a $1.6 billion profit two years ago. It’s the lender’s single-biggest investor, while 18 funds managed by State Street Corp. hold a combined 4.1 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Lars Klemming at lklemming@bloomberg.net

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