How Blackstone cheated GIC of USD$675 million in 4 years

[Papsmearer]

omg its worse than i thought!
http://www.youtube.com/watch?v=cALviAEPPl0
look at this and weep. temasek sucked up from merril lynch and AND LOST SHITLOAD OF CASH!
even the fuckwit americans think temasek is a fuckwit

Where was Nathan in all of this? The President and the Guardian of the national reserves? NO show, just sit in Istana, eat prata, and collect $million salary. There is no better example of lack of check and balances in the fiscal affairs of singapore than this.

 

[laksaboy]

Where was Nathan in all of this? The President and the Guardian of the national reserves? NO show, just sit in Istana, eat prata, and collect $million salary. There is no better example of lack of check and balances in the fiscal affairs of singapore than this.

Of course... heaven forbid another president starts asking uncomfortable questions about the reserves like Ong Teng Cheong.

And Tony Tan is even better than Nathan... blood-related to the Familee. Just organize some Istana open house events, shake hands of visiting foreign dignitaries, make some 马后炮 comments on Facebook... easy job, easy money. No need to rock the boat.

 

[Charlie99]

The recent news that GIC bought Blackstone Group’s 50% equity in the Broadgate Office Complex in London for 1.7 million pounds was a surprised to me. For those who do not know, Blackstone Group is a very large manager of private real estate equity fund. Their job is to get investors, buy projects, trun them round, sell or hold them, and give a nice return to their investors on the funds deposited with them. In other words, they are big wheeler and dealers in real estate all over the world.

This is not the first time that GIC has gone in on a Blackstone project. The last time, they did so was in 2006 in which they lost all their investment and more, to the tune of USD$675 million in the short span of 4 years. Blackstone somehow conned GIC into providing mezzanine financing in the purchase of the Stuyvesant Town/Peter Cooper apartment complex village in New York city. Blackstone’s plan was to essentially kick out as many of the current tenants in the 11,250 apartment complex that they could, re-rent the apartments out to new tenants at the current market. The increase in rental revenues will result in a higher valuation of the whole project and they can sell it for a large capital gain later down the road.

Well, Blackstone did not do its due diligence, and neither did GIC. It turns out that most of the apartments (73%) were under New York rent control (Rent Stabilization Ordnance), and therefore, you could not arbitrarily increase rent on the tenants. The previous owner of this project, Metlife, had already tried to raise the rent, but encountered legal issues with the rent control. Blackstone and its partners paid a ridiculous $5.4 billion for this project based on not what the current revenues are but what the future revenues will be after rents were raised. Needless to say, the tenants filed a class action lawsuit against the Blackstone and its investment group and won. This was the death knell for the whole group of investors. Their failure to raise the rent resulted in them defaulting on mortgage payments to the 1st mortgage holder as well as to the other parties financing the $5.4 billion purchase. The first mortgage lender (Wachovia Bank/Wells Fargo), only provided part of the financing. The rest came from 2 mezzanine lenders, who are subordinate to all other debtors. GIC, who had put in USD$575 million, was one of the 2 mezzanine debtors. The shocker here is that the 2 mezzanine debtors were not equal in status. GIC was a tier 2 mezzanine lender, even subordinated to the other mezzanine debtor. Obviously, foreclosure action due to default payments were carried out and the property was valued at USD$2.8 billion by the court. All lenders were paid a fraction of what they had loaned to the project. But at least the other Tier 1 mezzanine lender got back USD$45 million, while GIC received no money, being the most junior lender. In addition to the USD$575 million loss, GIC had negotiated an equity stake as part of the mezzanine financing (quite a common thing to do in the world of mezzanine financing), and as part owners of the project actually owed the first mortgage holder an additional USD$100 million!!! The end result is a total loss of USD$675 million for the 4 year period of 2006-2010.

Many questions can be asked here. Why did Blackstone think it can do something that Metlife couldn’t? How did GIC allow itself to be persuaded to go in the project as tier 2 mezzanie lenders, in effect junk bond holders? Why did GIC not sue Blackstone for misrepresentation? Why is GIC still doing business with Blackstone. By the way, Blackstone was sued by a bunch of investors recently over misrepresentation in an IPO they issued, and was ordered by a US court to pay USD$85 million.

Going back to this Broadgate deal in London. Blackstone paid just over 1 million pounds 3 years ago and now is flipping their share to GIC for 1.7 million pounds for a profit of 700 million pounds. Not bad for 3 years. I wonder why they did not offer this sweet deal to GIC 3 years ago? On a side note, the Norwegian Sovereign Wealth fund was also looking to buy the Blackstone share but did not do so. Perhaps the Norwegians know overpriced properties when they see it?

GIC likes to think that its core values of PRIME is important, but everyone can see that it is for PR purposes and they have no interest in adhering to them. GIC’s PRIME core values are as follows:

Prudence – “We exercise prudence and sound judgement and take a considered approach to managing risks……” . Obviously not the case in the Stuyvesant Town Project.

Respect – “We do not tolerate behaviour that works against the interest of our clients or of GIC.”
Well, since the citizens of Singapore are ultimately the clients of GIC, we did not see any dismissals or terminations from senior ranks in GIC over this incident, so I am concluding that such poor behaviour and performance was tolerated.

Integrity – “Everything we do is founded on integrity. We expect the highest standards of honesty from everyone in GIC, both in our work and in our personal lives. This includes abiding by the laws of the countries we invest in, and observing our code of ethics in letter and in spirit.
We must never jeopardize the trust others have in us and in our reputation for professionalism.”
If GIC does have the highest standard of honesty, they would have come out and told Singaporeans what happened. And why would they still continue to do business with a company that swindled them?
Merit – “We select business partners based on their capability. We believe in long-term relationships built upon high levels of performance and quality of service.”

This part is a joke, they are still selecting swindlers for business partners.

Merit - We recruit and develop our people solely on merit. We draw our talent from around the world

Judging by the asssorted PAP lackeys, relatives and what not on the BOD, I doubt if they were all there due to meritocracy.

Excellence – “We are relentless in our pursuit of excellence. In all that we do, we strive to be the best that we can be. This demands that we plan and anticipate well,”

Yes, their pursuit of excellence is so great that they lost USD$675 million on just this one deal.

Very sad.

Last year, when I read about the Singapore govt.'s intention to review and amend its Bankruptcy legislation, I being an insolvency practitioner and a trustee in bankruptcy licensed by the Canadian govt. offered my assistance to help them (as I first studied bankruptcy legislation in NUS back in the late 1970's). But I did not receive any response to my email.

With respect, it appears that the SG govt is willing to pay mega dollars to "retired" Caucasian individuals to work at MAS, or may be other govt agencies, but reluctant to consider individuals who were born in SG.

The case(s) which are reflected in your post, and its underlying issues, will be easily identified by an insolvency practitioner, who usually look for any "down side" in any potential "deals"

 

[Charlie99]

As we have seen, they'll just raise the population to drive up demand for their offerings. It's not only the flats and COE, lest we forget, there are also land sales to private developers at exorbitant prices, government linked companies holding monopolies for eg. Singapore's telco. If demand for their services ever falls, another million immigrants is always a viable solution.



My fellow Americans, ask not what your country can do for you, ask what you can do for your country. - John F. Kennedy

In the Singaporean context, it is,

My fellow Singaporeans, ask not what your country can do for you, ask how much have they earned so far, and consider in future, how much will they earn from you. - Limbei

The SG govt will "make" more money from its so called "sale" of 99-year lease HDB flats, every 99 years.
It is very sad, that whoever is in charge of investing the funds from the GIC of Singapore, does not appear to treat such funds as his or her own money.

 

[Charlie99]

Do you think that Barca and Bayern do not research their opoosition teams? If they assign one player to mark the opposing team's most dangerous striker and he cock up his assignment, allowing the opposing striker to score a hat trick, do they still use this same player to mark this dangerous striker on the return leg? Not likely, they will assign someone else. In GIC's case, do you still go with the same people who performed so poorly for you in the past?

There are lots of good fund managers out there. Or, you can do as the Norwegian Sovereign Wealth fund does. They go out and buy a weighted basket of shares of the 5000 biggest companies in the world. That way they don't worry about any one company or one investment being totally wiped out. Warren Buffet seems to do pretty well. Don't forget, we are asking for transparency and thought process that would make GIC park so much money in this bad investment.

With respect, perhaps, the SG govt and its agencies could learn from the Norwegians and Warren Buffet.
I have always held on to the belief that if the seller (vendor) is eager to sell, then I consider their reasons for selling, and probably walk away.
The article reflected in the first post on this thread probably indicate that the Norwegians are more prudent than the "purchaser" or "investor" (GIC??)

 

[Charlie99]

By the way, here is some food for thought.

From the Norwegian Govt. Pension Fund Global (NBIM) website:

NBIM is an integrated global organisation with more than 340 employees from 27 countries. And they manage $783 billion in assets.

From GIC website:

GIC is one of the largest investment management organizations in the world, with over 1200 people, investing well over US$100 billion in more than 40 countries.

SO, in other words, we have a Norwegian sovereign fund with perhaps 3 times the amount of funds under management than GIC, but with only 28% of the staff that GIC uses. And guess what, not one of their 340 staff lost USD$675 million in less than 2 years. If you need to find another example of how bloated and inefficient the SIngapore govt. is, just look at GIC. How many of their 1200 staff are useless jiakliaobee sons and daughters of PAP cronies and elites. If the PAP cut 20% of the manpower from all their useless GLCs and stat boards, and Ministries, we wouldn't need to import FT professionals.

Thank you for the info, which I am unaware till today.
Happy New Year.

 

[zhihau]

It does not work that way.

they can reduce the COE to 5 years or even annually! HUAT AH!!! :p:p:p

 

[Papsmearer]

Very sad.

Last year, when I read about the Singapore govt.'s intention to review and amend its Bankruptcy legislation, I being an insolvency practitioner and a trustee in bankruptcy licensed by the Canadian govt. offered my assistance to help them (as I first studied bankruptcy legislation in NUS back in the late 1970's). But I did not receive any response to my email.

With respect, it appears that the SG govt is willing to pay mega dollars to "retired" Caucasian individuals to work at MAS, or may be other govt agencies, but reluctant to consider individuals who were born in SG.

The case(s) which are reflected in your post, and its underlying issues, will be easily identified by an insolvency practitioner, who usually look for any "down side" in any potential "deals"

Well, if you look at this whole deal, it really stank to the high heavens. You will never find savvy businessmen making these sort of deals. But GIC is run by bureaucrats who did not get there by merit, so you have crap results like this. To begin with, in 2006 when the deal was first done, the bank who underwrote the first mortgage used a 1.7 DCR. However, this DCR was not based on 2006 actual revenues, but based on pro-forma 2011 revenues (after the presumptive raise in rents)!! Who the shit makes these sort of loans? If they had used the 2006 actual figures, the DCR was only 0.48. When you add in GIC's mezzanine debt, you lowered the pro-forma DCR from 1.7 to 1.2. Which would have lowered the actual DCR to almost nothing. GIC never asked the one basic question in every investment. What can go wrong, in a worse case scenario and how can I get out? Every business man I know ask this question at the first meeting.

 

[Papsmearer]

Thank you for the info, which I am unaware till today.
Happy New Year.

Happy New Year to you.

 

[MrCucumber]

Hole Jinx needs me.

 

[Papsmearer]

Very sad.

Last year, when I read about the Singapore govt.'s intention to review and amend its Bankruptcy legislation, I being an insolvency practitioner and a trustee in bankruptcy licensed by the Canadian govt. offered my assistance to help them (as I first studied bankruptcy legislation in NUS back in the late 1970's). But I did not receive any response to my email.

With respect, it appears that the SG govt is willing to pay mega dollars to "retired" Caucasian individuals to work at MAS, or may be other govt agencies, but reluctant to consider individuals who were born in SG.

The case(s) which are reflected in your post, and its underlying issues, will be easily identified by an insolvency practitioner, who usually look for any "down side" in any potential "deals"

I don't know about MAS hiring "retired" caucasians to work there. The chair of MAS is Ravi Menon, whom I know personally. Ravi is born and bred SIngaporean as was his predecessor. Ravi is smart and very hard working, and picks things up fast. The problem with Ravi is that since his Raffles Institution days, he has been a PAP die hard supporter. Imagine the most enthusiastic, one minded, PAP zealot you can find, and that would be Ravi. He is out there for the simple reason that he will obey the PAP. Just like many other supposedly independent posts in the govt., he is in the MAS as a political appointee. You can point to other central banking figures like Paul Volker, Alan Greenspan, etc. and note that in most cases, these men were independent (as they needed to be) and ran the central bank to the best interests of the country. There are many instances where these central bankers clashed with the govt. of the day. For example, the govt. might want to loosen the money supply, stimulate the economy, and create jobs before an election. But the central banker may resist this for fear of inflation. You will find no such resistance from Ravi, and that is the fatal flaw in the Singapore economy.

Regarding the "caucasian" staff at MAS. I know years ago, MAS employed a number of them as forex traders. That was back in the days when one of MAS's edicts was also to make money speculating on currency. World Bank told them to stop that shit because they were helping to destabilize the world currency market along with George Soros and all those other speculators. Not sure if they are still doing that today.

 

[Charlie99]

Well, if you look at this whole deal, it really stank to the high heavens. You will never find savvy businessmen making these sort of deals. But GIC is run by bureaucrats who did not get there by merit, so you have crap results like this. To begin with, in 2006 when the deal was first done, the bank who underwrote the first mortgage used a 1.7 DCR. However, this DCR was not based on 2006 actual revenues, but based on pro-forma 2011 revenues (after the presumptive raise in rents)!! Who the shit makes these sort of loans? If they had used the 2006 actual figures, the DCR was only 0.48. When you add in GIC's mezzanine debt, you lowered the pro-forma DCR from 1.7 to 1.2. Which would have lowered the actual DCR to almost nothing. GIC never asked the one basic question in every investment. What can go wrong, in a worse case scenario and how can I get out? Every business man I know ask this question at the first meeting.

Who does the due diligence, and how do they do it (for GIC)?

Based on that info, no one of sound mind would lend that amount (I will not even lend one million $). When they took that "low" position as a creditor/lender (subordinate mezzanine), and if they did not obtain sufficient security, they should have asked for a very high interest rate.

 

[Charlie99]

I don't know about MAS hiring "retired" caucasians to work there. The chair of MAS is Ravi Menon, whom I know personally. Ravi is born and bred SIngaporean as was his predecessor. Ravi is smart and very hard working, and picks things up fast. The problem with Ravi is that since his Raffles Institution days, he has been a PAP die hard supporter. Imagine the most enthusiastic, one minded, PAP zealot you can find, and that would be Ravi. He is out there for the simple reason that he will obey the PAP. Just like many other supposedly independent posts in the govt., he is in the MAS as a political appointee. You can point to other central banking figures like Paul Volker, Alan Greenspan, etc. and note that in most cases, these men were independent (as they needed to be) and ran the central bank to the best interests of the country. There are many instances where these central bankers clashed with the govt. of the day. For example, the govt. might want to loosen the money supply, stimulate the economy, and create jobs before an election. But the central banker may resist this for fear of inflation. You will find no such resistance from Ravi, and that is the fatal flaw in the Singapore economy.

Regarding the "caucasian" staff at MAS. I know years ago, MAS employed a number of them as forex traders. That was back in the days when one of MAS's edicts was also to make money speculating on currency. World Bank told them to stop that shit because they were helping to destabilize the world currency market along with George Soros and all those other speculators. Not sure if they are still doing that today.

Thank you.

Which year was Ravi Menon at RI? From Bras Basah Road?

I recall the SG govt or MAS hired a retired partner from KPMG Toronto (who went to work for Office of the Superintendent of Financial Institutions before moving to SG).
What a waste of money to hire that gentleman.

 

[Charlie99]

Well, if you look at this whole deal, it really stank to the high heavens. You will never find savvy businessmen making these sort of deals. But GIC is run by bureaucrats who did not get there by merit, so you have crap results like this. To begin with, in 2006 when the deal was first done, the bank who underwrote the first mortgage used a 1.7 DCR. However, this DCR was not based on 2006 actual revenues, but based on pro-forma 2011 revenues (after the presumptive raise in rents)!! Who the shit makes these sort of loans? If they had used the 2006 actual figures, the DCR was only 0.48. When you add in GIC's mezzanine debt, you lowered the pro-forma DCR from 1.7 to 1.2. Which would have lowered the actual DCR to almost nothing. GIC never asked the one basic question in every investment. What can go wrong, in a worse case scenario and how can I get out? Every business man I know ask this question at the first meeting.

A few of us used to discuss about how stupid bankers can get, because any idiot can approve a loan app, and lend money. But not many consider the downside, and how to get out with their pants on.
Too many of the bankers have "quotas" and they get bonuses for writing more loans.
I recall that during my younger days, I told the CEO of a major financial institution that one of the managers they transferred from Mortgages to the Special Loans (or collections) should not be paid any bonus because he is now collecting the bad loans he wrote (and he received a Rolex watch as a "bonus" at that time). Guess what happened? About 20 years later, that same individual became the "Head" of the Special Loans Dept of one of the Big 5 Canadian banks. It is not what you know, but who you know.

 

[Papsmearer]

Who does the due diligence, and how do they do it (for GIC)?

Based on that info, no one of sound mind would lend that amount (I will not even lend one million $). When they took that "low" position as a creditor/lender (subordinate mezzanine), and if they did not obtain sufficient security, they should have asked for a very high interest rate.

They asked for an equity sweetener which came back to bite them. I am not exactly sure what percentage of the equity they were given as part of the terms for the financing, but being an equity holder, and they owed the first mortgage holder another USD$100 million. The only way that Wells Fargo would even do the first mortgage was the presence of GIC as a mezzanine lender and part owner due to its equity position. I am sure that Wells Fargo made GIC a guarantor on the first mortgage, hence they were obligated to pay the $100 million. GIC should have asked for a high interest rate because, in effect, they were 3rd mortgage lenders on this deal. The bank was the first, the other mezzanine lender was the second, they were third.

 

[Papsmearer]

Thank you.

Which year was Ravi Menon at RI? From Bras Basah Road?

I recall the SG govt or MAS hired a retired partner from KPMG Toronto (who went to work for Office of the Superintendent of Financial Institutions before moving to SG).
What a waste of money to hire that gentleman.

I think Ravi was class of '81 or '82.

 

[Papsmearer]

A few of us used to discuss about how stupid bankers can get, because any idiot can approve a loan app, and lend money. But not many consider the downside, and how to get out with their pants on.
Too many of the bankers have "quotas" and they get bonuses for writing more loans.
I recall that during my younger days, I told the CEO of a major financial institution that one of the managers they transferred from Mortgages to the Special Loans (or collections) should not be paid any bonus because he is now collecting the bad loans he wrote (and he received a Rolex watch as a "bonus" at that time). Guess what happened? About 20 years later, that same individual became the "Head" of the Special Loans Dept of one of the Big 5 Canadian banks. It is not what you know, but who you know.

I think for commercial lending, the main issue is that most lenders have never been in business before. They have never worked for a company or done their own business or become self employed. Their career is in banking. Hence, when a deal comes before them, they do not know if its a good deal or not, and they use a strict set of lending criterias to adjudicate the loan. Its like a virgin teaching a sex ed class. Of course you crunch all the numbers, but In the end, its the human factor, your instincts on the loan, the deal, and the borrower that will make you avoid such losses.

 

[Charlie99]

They asked for an equity sweetener which came back to bite them. I am not exactly sure what percentage of the equity they were given as part of the terms for the financing, but being an equity holder, and they owed the first mortgage holder another USD$100 million. The only way that Wells Fargo would even do the first mortgage was the presence of GIC as a mezzanine lender and part owner due to its equity position. I am sure that Wells Fargo made GIC a guarantor on the first mortgage, hence they were obligated to pay the $100 million. GIC should have asked for a high interest rate because, in effect, they were 3rd mortgage lenders on this deal. The bank was the first, the other mezzanine lender was the second, they were third.

Being the subordinate mezzanine lender (ranking third) is bad enough, but I believe that all of those individuals should be fired for taking an equity position and providing that "guarantee"
Taking an equity position has its downside risks, but no one with any lending / insolvency experience will provide any guarantee (and as a principal / owner / entrepreneur - never provide any indemnity to the banker, landlord, or creditor)

 

[Charlie99]

I think Ravi was class of '81 or '82.

Thank you,
Younger than my brother and I, so Ravi was not from Bras Basah Road, but from RI at Grange Road.

 

[Charlie99]

I think for commercial lending, the main issue is that most lenders have never been in business before. They have never worked for a company or done their own business or become self employed. Their career is in banking. Hence, when a deal comes before them, they do not know if its a good deal or not, and they use a strict set of lending criterias to adjudicate the loan. Its like a virgin teaching a sex ed class. Of course you crunch all the numbers, but In the end, its the human factor, your instincts on the loan, the deal, and the borrower that will make you avoid such losses.

The character of the borrower and human factor are important.
They used to say (cash, collateral, character, integrity, etc.)