NEW YORK (AP) — Citigroup said late Monday that the Abu Dhabi Investment Authority will invest $7.5 billion in the nation's largest bank, offering needed capital to offset big losses from mortgages and other investments.
The cash from the sovereign investment fund of the Gulf Arab state, which has been a beneficiary of this year's surge in oil prices, will be convertible into no more than 4.9 percent of Citigroup Inc.'s equity. Citigroup characterized the investment as passive and said the fund will not be able to name any board members to the bank.
The Investment Authority would become one of Citi's largest shareholders.
The Abu Dhabi investment, which was expected to close within the next several days, will be considered Tier 1 capital for regulatory purposes, helping Citi reach its goal of returning to its target capital ratios in the first half of 2008, the bank said.
Citigroup's shares have lost about 45 percent of their value since the beginning of this year, wiping away $124 billion in market capitalization, as the drumbeat of bad news about its investment losses has mounted.
“We see in Citi a highly respected company with a premier brand and with tremendous opportunities for growth,” said the Investment Authority's managing director, Sheikh Ahmed Bin Zayed Al Nahayan. “This investment reflects our confidence in Citi's potential to build shareholder value.”
Charles Prince stepped down as Citigroup's chairman and chief executive on Nov. 4, the same day Citi announced that it will likely write down the value of its portfolio by $8 billion to $11 billion in the fourth quarter.
In the third quarter, the bank's exposure to assets tied to subprime mortgages led to a loss of about $6.5 billion.
The Investment Authority will receive equity units that pay an 11 percent annual yield until they are converted into Citigroup common shares at a price of up to $37.24 a share between March 15, 2010, and Sept. 15, 2011.
The investment is the latest by sovereign funds in the Middle East that have been building up their overseas investments recently, many of them on the back of oil prices that have risen more than 60 percent this year and have brought the region record cash flows.
Dubai International Capital, which is owned by the ruler of that booming Persian Gulf city-state, announced earlier Monday that it has acquired a stake of undisclosed size in the Japanese electronics and media company Sony Corp. Its other investments this year included acquiring a 3.12 percent of European Aeronautic Defence & Space Co., which builds Airbus commercial planes and military aircraft. The firm also holds stakes in Daimler AG and British bank HSBC Holdings PLC.
Many companies have welcomed such investments because the funds tend to be stable investors, but some U.S. officials have expressed concern that their acquisitions could target sensitive industries with links to national security.
Abu Dhabi's move recalls the early 1990s investment in Citi made by Saudi Prince Alwaleed bin Talal. After Citi made some losing bets on U.S. real estate and Latin America, Alwaleed bought a stake in the bank for less than $600 million that has since ballooned into several billions of dollars.
The Abu Dhabi investment, which was expected to close within the next several days, comes at a time when Citi is trying to reassure investors amid heavy credit-related losses and its search for a new CEO.
“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,” Acting Chief Executive Win Bischoff said in a statement.
Citi shares fell $1, or 3.2 percent, to close at $30.70 Monday after hitting a five-year low earlier in the day.
“This investment also enables us to access capital in an efficient manner, and is consistent with our strategy of maintaining a balance sheet that benefits from highly diverse sources of funding in terms of both geography and type of security,” Bischoff said.