Singapore's GIC bets big on Chinese debt

Singapore's GIC bets big on Chinese debt
Mr Lee Kuan Yew delivered keynote address at Government of Singapore Investment Corporation (GIC) 25th anniversary dinner.

Singapore sovereign wealth fund GIC is making waves in the Asian debt markets with a series of unusually big investments in bonds from China.

According to market sources, in recent weeks, GIC has bought US$700m of unrated 4.7 per cent bonds due 2019 from computer maker Lenovo, a US$400m 2019 private placement from property developer Vanke, and a HK$2bn (US$258m) 3.2 per cent 2020 note from internet group Tencent Holdings.

Adding to the sudden increase in activity, the fund is said to have been behind the anchor order for the US$350m reopening of China Resources Land, as well as a big buyer in several other transactions.

The investments in unrated bonds and private placements mark a newly aggressive approach from GIC. It also contrasts with the liquidity-driven investment philosophy of other sovereign wealth funds, which typically prefer to invest taxpayers' money in high-rated and well-traded securities.

"A US$700m order for an unrated bond is a big thing for a sovereign wealth fund," said one banker.

Observers believe the shift in investment strategy marks a rebalancing of GIC's portfolio towards fixed-income assets and North Asia.

"GIC has been rebalancing into emerging markets in the last five years, particularly into China," said Enrico Soddu, an analyst at London-based Institutional Investor's Sovereign Wealth Center (SWC).

Based on SWC data, GIC's investments in North Asia grew to 13 per cent of its portfolio last year from 8 per cent in 2008. During the same period, it reduced its European exposure to 11 per cent from 27 per cent.

The latest deals, however, suggest GIC is allocating a greater portion of its portfolio to fixed income. GIC had 21 per cent of its assets in fixed income at the end of 2013, up from an unusually low 17 per cent in 2012, the SWC data showed. GIC does not publish a detailed breakdown of its investments.

"Before, GIC was just another bidder for public bond deals and was not a big player," said a source familiar with the matter. "Now, it is increasingly taking the anchor investor role."

Another source agreed, saying: "Lately, GIC has a shopping list of fixed-income names, with focus on China and tech paper."

The unusual approach, however, raises questions about GIC's concentration of exposure to Chinese fixed income.

"Given the diversification mandate, it's not typical for GIC to take concentrated positions on the equity side. Presumably, the same philosophy would apply to its fixed-income investments," said Joseph Cherian, practice professor of finance and director for the Centre of Asset Management Research and Investment at the National University of Singapore's Business School.

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