* BUSINESS * DECEMBER 3, 2009, 12:28 P.M. ET Abu Dhabi's Citigroup Investment Turns Costly By MARSHALL ECKBLAD NEW YORKâAbu Dhabi Investment Authority is set to pay its first bill of misery to Citigroup Inc. Because of an investment deal struck two years ago, early in the financial crisis, the United Arab Emirates' sovereign fund will soon start purchasing $7.5 billion in Citigroup shares at $31.83 apiece, even though the New York bank's stock closed at $4.10. The value of Abu Dhabi's investment will ultimately be shaped by the price of Citigroup's stock come March. But it seems very likely that "one of the world's...most sophisticated equity investors," as Citi crowed of Abu Dhabi when it inked the complex deal, will soon overpay for the stock of a bank that has fallen into the arms of the U.S. government. The news is the latest setback for the United Arab Emirates. Last week, Dubai World, a government-owned company, sought a standstill on debt payments, a move that shocked world markets. The terms of the Citigroup deal looked lucrative for Abu Dhabi back in November 2007, when it raced to Citi's rescue as the New York bank crumbled under soaring investment losses tied to the depressed U.S. mortgage and housing markets. Abu Dhabi wrote a check for $7.5 billion in exchange for an 11% annual dividend. The bad news for Abu Dhabi is it only demanded such dividend payments for a little more than two yearsâuntil March 15, 2010. Afterwards, Abu Dhabi would in essence exchange its original investment in four installments for Citigroup common stock, which was then worth nearly $31. To pull off that exchange, Citigroup on Wednesday announced a coming public bond offer that will pay a much smaller yield of slightly more than 6%. The proceeds will go to Abu Dhabi, which is required to use the cash in March for its expensive purchase of Citigroup stock. Abu Dhabi, by agreeing ahead of time to exchange cash for stock at a price of $31.83, figured to make money under the assumption that Citigroup's shares would rise modestly over more than 27 months. "This investment reflects our confidence in Citi's potential to build shareholder value," Sheikh Ahmed Bin Zayed Al Nahyan, Abu Dhabi's managing director, said at the time. But now it is Citi, not Abu Dhabi, that is seeing prospects for a winning deal. If Citi's stock price holds steady through March, the beleaguered New York bank will basically be able to raise new capital by selling stock at more than seven times its market price. The deal will also boost Citi's Tier 1 common equity and tangible common equity by $1.875 billion, according to Wednesday's statement. As harsh as the deal's terms now seem for Abu Dhabi, they perhaps could have been worse. In early 2008, after Citigroup raised $12.5 billion, it reduced Abu Dhabi's conversion price to $31.83. If the current deal holds, as expected, it will mark a rare win for Citigroup, which has been mauled by the financial crisis. The bank turned to the Treasury twice for infusions of capital, which ultimately left the U.S. government owning 34% of the bank. For a time in March, its stock traded below $1 a share. http://online.wsj.com/article/SB100...543348525488.html?mod=WSJ_hpp_MIDDLTopStories
Why don't these guys just default and tell whomever sold them Citigroup at $31 and change to go f*ck themselves? Besides, its pretty obvious, at this stage, that Citi's financials were, hmmm, for lack of better words....fishy?? Fraudulent inducements in contracts are grounds to nullify contracts, and courts have upheld such many times.
"To pull off that exchange, Citigroup on Wednesday announced a coming public bond offer that will pay a much smaller yield of slightly more than 6%. The proceeds will go to Abu Dhabi, which is required to use the cash in March for its expensive purchase of Citigroup stock." why do the proceed go to abu dhabi?
ah ah, I remember the day 2 years ago. we had a meeting the day before with ADIA in Abu Dhabi and they asked, en passant, what we thought of Citi as an investment. We told them it was fishy but they were so pleased with themselves in being able to purchase a chunk of America's dream that they dismissed our uncertainty. The next day we learnt about the deal...:eek:
Cs iminent crash was obvious, I told a friend who works there to sell if it got below $52, it was trading at $55 and went up to $56 and she called me an idiot,,,,needless to say, she still has it. Why does having money make most so undisciplined and for lack of a better word, stupid???
Looks like ADIA have done exactly what I said they were gonna do, ie: give Citigroup the middle finger: http://www.bloomberg.com/apps/news?pid=20601087&sid=a.VC6LOpbs5s&pos=1 Good for them. Like hell there wasn't securities fraud involved here. Citigroup = boom, out of existence. Good riddance. I might just convert to Islam, these people are really impressing me. How many more of these sorts of events until there's a full-out meltdown?