Citigroup Inc. announced Monday night that it had raised $7.5bn in new capital at a coupon of 11 per cent from the Abu Dhabi Investment Authority in an attempt to shore up its overstretched balance sheet.
It also underlines the challenge facing Citi as it searches for a new chief executive to replace Chuck Prince. Citigroup will sell equity units to the Abu Dhabi Investment Authority that convert into common shares, the New York-based lender said today in a press release.
"This investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business," Win Bischoff, Citigroup's acting CEO, said in the statement. It helps "strengthen our capital base," he said.
Charles O. Prince III was forced to step down as Citigroup's chief executive officer Nov. 4 after the biggest U.S. bank said losses on subprime mortgages and related securities may cut fourth-quarter net income by $5 billion to $7 billion. The lender said at the time that it planned to shore up capital. The company's shares, which have fallen about 44 percent this year, sank to $30.70 in New York Stock Exchange composite trading today, the lowest price in five years.
ADIA, the sovereign wealth fund of the government of Abu Dhabi, is buying equity units that convert into Citigroup shares at prices ranging from $31.83 to $37.24 per share, on dates ranging from March 15, 2010, to Sept. 15, 2011, the U.S. bank said. The units will pay 11 percent annual interest. Abu Dhabi, one of the United Arab Emirates, will have "no role in the management or governance of Citi, including no right to designate a member" of the company's board, according to the statement.
Gary Crittenden (Citigroup's chief financial officer) has been pursuing a number of options to strengthen the bank's balance sheet including disposals, shrinking its asset books and issuing hybrid securities. ADIA's investment highlights the increasingly active role being played by sovereign wealth funds flush with cash thanks to the high oil price In July, ADIA bought a large stake in Apollo Asset Management, the US private equity group run by Leon Black. ADIA's move recalls the investment made in Citi by Prince Alwaleed bin Talal, the Saudi billionaire, when it was struggling in 1991.
ADIA has agreed not to hold more than a 4.9% stake in Citi and will have no special rights of ownership or control and no role in the management or governance of Citi. It will have no right to any seats on Citi's board.
[146] 28.11.2007 Source: Bloomberg
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It also underlines the challenge facing Citi as it searches for a new chief executive to replace Chuck Prince. Citigroup will sell equity units to the Abu Dhabi Investment Authority that convert into common shares, the New York-based lender said today in a press release.