Citigroup Receives $7.5 Billion Capital Infusion from Abu Dhabi

The Abu Dhabi Investment Authority [ADIA] will purchase up to 4.9% of Citigroup Inc. for $7.5 billion, the bank announced Monday. "This investment reflects our confidence in Citi's potential to build shareholder value," said ADIA MD Sheikh Ahmed bin Zayed al-Nahyan in a joint statement. The infusion will help Citigroup rebuild its capital base following record mortgage losses that led to the departure of Chairman and CEO Chuck Prince. ADIA is the world's largest sovereign wealth fund with assets of $875 billion, derived from the country's oil surpluses. The fund, which will take no role in Citi's management, will buy securities that convert into 235.6 million shares starting in 2010 and yield 11% in the meantime -- almost double the bank's normal bond yield, and 4% higher than its shares' current dividend yield. Between March 15, 2010 and Sept. 15, 2011, the securities will convert to Citigroup shares within a $31.83-37.24 price range. "The structure of the deal suggests that Abu Dhabi is very bullish, effectively participating in the upside beyond $37.24, and sharing in the downside below $31.83," said George Nikas of Deutsche Bank. The purchase will make Abu Dhabi Citigroup's largest shareholder, followed by LA-based Capital Group Co. and Saudi billionaire Prince Alwaleed bin Talal.

"Clearly, Citi has a problem with capital adequacy after the subprime crisis," said Giyas Gokkent, head of research for National Bank of Abu Dhabi. "ADIA is effectively Abu Dhabi's fund for future generations, so they've seen an opportunity to get cheaply into a blue-chip stock they believe in long-term."

Some analysts suggest the purchase could signal an end to the steep plunge in the financial sector. "Citi is big, it's widely followed, and when people see confidence in it, it should mean something," said Bo Brownstein, a finance sector analyst at Cambiar Investors. Following the announcement, equity futures were up sharply in overnight trading, while two-year Treasury notes fell the most in almost a month.

Sources: Citigroup Statement on Abu Dhabi Stake [WSJ], Wall Street Journal, Bloomberg, Reuters
Commentary: Citi at Record Lows; Expecting 30% Growth This Year • Goldman Slaps Citi With a ‘Sell’ • Citigroup Is a Long Term Value Opportunity - Barron's
Stocks to watch: C. Competitors: BAC, DB, JPM. ETFs: IYG, XLF, VFH
Earnings call transcript: Citigroup Business Update Call [November 5, 2007], Citigroup Q3 2007

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Comments

[Frank Li:]

Why the celebration? The tanking dollar, chronic trade deficit and subprime mess mean that a chunk of another great American company gets sold to foreign investors at a knock-down price -- if you calculate it in foreign currency. And look at the yield they got!

2007 Nov 27 10:04 AM

[armadillo:]

Exactly Frank, piece by piece we are selling America for Oil....just before the foreigner were willing to buy our treasuries, now they want our real assest.....

2007 Nov 27 06:16 PM

[armadillo:]

"foreigners"

2007 Nov 27 06:18 PM