Posted on 11/27/2007 7:19:58 PM PST by STARWISE
By agreeing to purchasing a $7.5 billion stake in the faltering banking giant Citigroup, the secretive, government-controlled Abu Dhabi Investment Authority is breaking with tradition.
As the largest sovereign wealth fund in the world, with assets estimated at $650 billion, it poured money in the past into low-return, low-profile investments or small emerging market deals, unlike its flashy emirate neighbor, Dubai.
But a falling dollar and a growing cash pile are spurring Abu Dhabi to change strategy, according to analysts, economists and deal makers, who said that more big-ticket deals might be ahead.
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Abu Dhabi is the largest oil producer of the seven United Arab Emirates and is eager to spend its petrodollars.
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Abu Dhabi also has an interest in making sure the U.S. economy does not slow further, Ginsberg said, which helps to make investments like the Citigroup stake more attractive.
The deal has already been approved by U.S. regulators and has the blessing of some of the most ardent critics of other planned Middle East investments. It was expected to close in a few days.
The purchase gives the Abu Dhabi ruling family, headed by Sheik Khalifa bin Zayed al-Nahyan, the largest individual stake in Citigroup, edging past Prince Walid bin Talal of Saudi Arabia.
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The Citigroup deal came together last week after a marathon series of phone calls and an 11th-hour trip by Robert Rubin, chairman of Citigroup, to Abu Dhabi, the capital of the United Arab Emirates, according to people briefed on the negotiations.
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But the Citigroup deal is by far the fund's largest. According to estimates by Euromoney, the fund has had an annual growth rate of 10 percent.
(Excerpt) Read more at iht.com ...
What is it with these Arabs and Citibank? Some Saudi prince (don’t ask his name, it’s too long) is the world’s largest shareholder in Citibank.
P.S. Message to Abu Dhabi: Say hi to Nermal for me
Largest bank in the US.
Does Nermal still make an appearance from time to time? I stopped reading that strip about 15 years ago.
Yep, he’s still around
Funny though, the terms of the deal, don’t actually look all that great. At least not as good as it sounds. The bonds pay 11% but will convert to stock priced between 31-37 (stock now at 30). So, the 11% is pure fiction, and the proper calculation needs to account for the loss of 1 to 7 bucks per share. This is no different than paying a big premium for a treasury, that has a big fat coupon. The coupon, yield to call, yield to maturity are each different stories. Now granted, the stock could go way up, and they collect the coupon along the way.
The stock sure acted like crap today, for being the “savior”. Another poster here at FR sent me some information that suggests that this foreign investor has motivation to now actually short the stock, to mitigate the potential of the stock to go down, create a sure fire, safer return. Interesting theory, not sure I’m convinced of that either.
Again, this is 1%, not much money really. Especially when you consider that C has lost 150b of their own market cap, and the whole industry must be way over 1 trillion in market cap (stock)losses. Gee, after what’s a few billion after a trillion??
C does have an asset, with significant value, should they really need the money. Smith Barney Brokerage firm is probably worth a pretty penny, and could be spun off healthy enough, to fetch a swell price. I mean you are talking much more than these few billion.
I know ... but, betting on the long haul,
and as the article states: it’s not
all that bad that they now wouldn’t
want to see declines in the US economy
since they’re invested.
It is staggering to think of this
measly 7.5B compared to the
650B or so in their fund.
They probably even have a policy, not more than such and such percent. Pretty typical for a mutual fund to not have a larger than 1/2 percent, or 1 percent start position. When you see a stock being 3-5% in a mutual fund, it is probably because they are close to selling it, has been a big winner for them.
Over the years, many have touted stocks saying “warren buffett is invested here, or Michael Gates is invested there”, but when you look at the tiny sums, relative to their wealth, that was just play money for them. Usually, those stocks stink it up...
” The stock sure acted like crap today, for being the “savior”. Another poster here at FR sent me some information that suggests that this foreign investor has motivation to now actually short the stock, to mitigate the potential of the stock to go down, create a sure fire, safer return. Interesting theory, not sure I’m convinced of that either.”
The old ‘short your own reg-S purchase before it closes’ tactic comes to mind, but at the billionaire level!?
Later, it turns out in the deal, they agreed formally not to hedge their position. So, it is common, even in very large positions. Yes, seems hard to imagine doing that on the low down huh? No just because they can’t short against the box with the C, they could do it against a basket of similar companies? I got into financials and out of them perfectly. Unlike others, I’m not eager to go back. I’m thinking early 2009. I can’t remember an industry correction of major size, that was less than a 24-36 month trip. Please, correct me if I’m wrong. And just because the volume slows down, the stocks quit freefall, doesn’t mean they’ll go up anytime soon.
The odd market selloff Monday (bonds too) and subsequent C news to screw shorts, has apparently formed a short-term market bottom is just that imho, BUT I do always recall August, when the market proceeded to rally 10%+ off the bottom despite worse things to come.
Asia is flying right now to the upside. Looks a bit volatile too though. Short squeeze, profit taking from shorts, better to come, worse to come? Dang, what a crazy ride huh?
I’m really worried that tomorrow, we wake up, market is getting clobbered again, hard to have faith in a sustained up move right now. Of course, when I feel taht way, restless, I’m usually wrong. Times like that, I’m better off not doing much, just waiting it out. Where there are some serious bargains showing up, very tempting, is in the debt markets. Seeing massive sell offs of fixed income, as people are front running the coming credit downgrades. This is huge... I’m not ready to buy in a big way yet, but it’s coming, and should be like the junk market of late 2002. You can find far more anomolies to make money in bonds, than you can with stocks. The chance for serious mispricing is greater. Or what you say??
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