On 24 April, it was reported that GIC had invested US$198 million (S$263 million based on 1.33 exchange rate) in Nirlon Ltd, an Indian company.
From the chart above, GIC appears to have substantially overpaid for Nirlon.
1 GIC has paid for a business which was worth only a quarter of the price less than a year ago. Its purchase price of Rs 222 valued Nirlon at US$316 million when the market had earlier valued it at below US$80 million.
2 Nirlon has paid dividend only once ie Rs 0.75 which translates into a 0.3 dividend yield. (GIC has so many extremely-low yield investments that it has to resort to taking high risks to pay CPF investors.)
3 Its earnings per share of Rs 3.51 does not justify the purchase price of Rs222 per share.
4 There has been no fundamental change in Nirlon’s business to justify its share price at Rs 222.
5 A 63% ownership means Nirlon must continue to make record profits or GIC could be forced to exit the investment at a huge loss.
Although Nirlon’s results for the nine months ending Dec 2014 were impressive, they are insufficient to justify the the huge premium paid by GIC. This is reflected by the 27% drop in Nirlon’s share price subsequent to GIC’s purchase.
GIC’s S$1/4 billion bet on Indian real estate could go either way because global asset prices have already been inflated by irresponsible central banks. Historically-low interest rates will not stay low forever.
Our Indian investments are also exposed to huge exchange rate risks and where the Indian currency is concerned, it is unpredictable. Over a decade from 2005 to 2015, it lost about 90%. Over a 20 year and 30 year period, it lost 123% and 742% respectively.
Although there are other stable businesses, GIC prefers to make big bets on inflated foreign real estate. Will GIC’s expertise contribute to an increase in Nirlon’s bottom line or will the investment join a list of GIC’s wipeout? I guess only time will tell.
As a CPF member with vested interest, one can only hope for the best.