The United Arab Emirates, still reeling from the Dubai debt saga, are set for further embarrassment when the Abu Dhabi is forced to buy Citigroup shares at almost eight times their current value.
Under a bailout deal signed in November 2007, the Abu Dhabi Investment Authority (ADIA) will start next March exchanging convertible bonds issued by Citigroup for common shares in the bank at a price of $31.83 per share.
Citi stock was trading down 0.98 per cent this afternoon at $4.06 per share. If the stock remains at a similar level over the coming four months, ADIA will pay about 7.8 times more than the shares are worth.
At the time of the deal, Citigroup described the ADIA as “one of the world’s leading and most sophisticated equity investors”, while Sheikh Ahmed Bin Zayed Al Nahayan, the authority’s managing director, said he was confident that Citigroup would build shareholder value.
In November 2007, Citigroup shares were worth $34 each.
Advertisement
Earlier this week, Sheik Mohammed bin Rashid Al Maktoum, the leader of Dubai, derided global investors and the media for failing to understand Dubai World’s request for a delay in its debt repayments, which sent markets plunging around the world.
The ADIA paid $7.5 billion for its Citigroup convertibles, which pay an 11 per cent yield but must be converted into common stock between March 2010 and September 2011.
The conversion will be done in four tranches with the price ranging from $31.83 to $37.24 per share, giving the ADIA a 4.9 per cent stake in the bank.
The authority’s bailout of Citigroup was negotiated by Robert Rubin, the bank’s former chairman, and Michael Klein, the bank’s former co-head of investment banking.