Opposition saboteur Loh Chee Kong, why don't you report this instead to show the people how "smart" your political masters are. 
Abu Dhabi Investment Authority (ADIA) cleverly avoided being affected by Citigroup's deal to convert all preferred shares to common stocks. This is because instead of subscribing to Citi preferred shares like GIC, it bought debt instrument that pays 11% quarterly interest. Hence, it will continue to get interest payments from Citigroup on these debt instrument. Furthermore, it also avoided the risk of shareholders dilution when the US govt make further capital injection into Citigroup later. Now why didn't the "superbrains" in GIC think of that? Notice that our govt-owned state media dare not report this.
http://www.thenational.ae/article/20090228/BUSINESS/344054446/0/NEWS
ADIA escapes Citi fallout
Wayne Arnold
Last Updated: March 01. 2009 1:03AM UAE / February 28. 2009 9:03PM GMT
ABU DHABI // Abu Dhabi’s $US7.5 billion (Dh27.54bn) investment in Citigroup, the ailing US bank, would not be affected by the latest deal to convert preferred shares into common stock, Citigroup said.
And the bank said it would continue making interest payments to the emirate. Citigroup on Friday announced a new deal to shore up its capital base by converting $52.5bn of preferred shares into common stock, the latest in a string of efforts to keep the bank from succumbing to the global credit crisis.
As part of that arrangement, a group of preferred shareholders that includes Singapore’s largest sovereign wealth fund and Prince Alwaleed bin Talal of Saudi Arabia will end up swapping regular interest payments for new shares.
The US government’s conversion of its own $25bn worth of preferred shares will result in it owning up to 36 per cent of Citigroup, while existing shareholders will see their ownership shrink by as much as three quarters to just 26 per cent.
The emirate’s largest sovereign wealth fund, the Abu Dhabi Investment Authority, or ADIA, was the first of a group of investors that moved to prop up Citi in the early days of the financial crisis in late 2007 and early last year.
Rather than buy preferred shares, however, ADIA paid $7.5bn for a debt instrument that pays it 11 per cent in quarterly interest payments, but that it must start converting into 235.6 million Citigroup shares in March next year.
A spokesman for Citigroup, Stephen Cohen, said Abu Dhabi’s investment in the bank was unaffected by the latest changes and that its interest payments would continue.
But Mr Cohen declined to comment, however, on whether the bank was in talks with ADIA to alter the terms of its investment. ADIA also declined to comment.
So for the time being, ADIA seems to be enjoying the benefits – and drawbacks – inherent in holding what amounts to a convertible bond. It will continue to receive cash from Citi at a time when Gulf nations are caught between falling oil revenues and rising government outlays.
But ADIA also appears to be passing up the opportunity to cut its losses on the Citi investment to grab a much larger stake.
Instead, it seems to be opting to limit its exposure to the troubled bank in favour of cash, something economists say Abu Dhabi and the UAE may not necessarily need.
“The UAE is in pretty good shape,” said Howard Handy, the chief economist at Samba Financial Group in Riyadh. Although oil prices have fallen to roughly $44 a barrel, Mr Handy projects that the nation – and Abu Dhabi – will continue to post a budget surplus this year, much of which will be handed to ADIA to manage.
Faced with a constant stream of oil surpluses in recent years, ADIA’s challenge has been trying to find investments that emphasise capital appreciation rather than income streams. So its decision to opt for cash instead of equity when it invested in Citigroup has long been considered atypical.
The Citi deal was attractive, analysts say. According to Rachel Ziemba, an economist at RGE Monitor in New York who tracks sovereign wealth funds, ADIA’s 11 per cent coupon topped what any other fund was able to negotiate. “That’s the first-mover advantage,” Ms Ziemba said.
Despite the relatively high return, many analysts have said ADIA’s investment was uncharacteristically political, a public expression of support for the US financial system and the US dollar that has had a heavy cost. ADIA normally takes only very small stakes in companies, rarely large enough to require the kind of announcement that accompanied its investment in Citi.
That and a spate of large and highly publicised investments by other sovereign wealth funds in US financial institutions last year sparked a political backlash.
Prodded by the US, Europe and the IMF, ADIA took a lead in creating a working group of sovereign wealth funds that in October last year issued a statement of investment principles, designed to blunt criticism that the funds were investing to achieve political ends.
Citigroup’s latest deal is the third time in the past five months that the US government has been involved in trying to prop up the bank. The government will raise its stake in Citi to 36 per cent, from 8 per cent.
While it does not give Citigroup more government cash, it raises the bank’s equity base and reduces its interest expenses. It also gives the US government a greater say in the bank’s operations.
Thanks to Washington’s direct involvement, analysts say ADIA now faces a lower risk of Citi defaulting. By sticking to debt instead of holding equity, ADIA delays becoming exposed to any risk that the US government will later have to inject even more equity in Citigroup, further diluting shareholders.
But ADIA may be missing an opportunity to cut the paper losses it has incurred since it made its investment. Under the current terms of its investment, ADIA will end up paying $31.83 a share for what amounted to a 4.9 per cent stake when the deal was signed.
Citi’s stock closed on Friday at $1.25, representing a 96 per cent – or roughly $7.2bn – unrealised loss on ADIA’s original investment. Citi’s 11 per cent interest payments help offset that, but only slightly.
The Government of Singapore Investment Corp, or GIC, said on Friday that it had agreed to exchange its $6.88bn investment in preferred shares into common stock at just $3.25 a share, giving it an 11.1 per cent stake and making it Citi’s second-largest shareholder.
GIC forgoes the 7 per cent it was earning on its preferred shares and realises a 50 per cent loss, or $3.7bn, on its investment, but sidesteps what was a $6.5bn paper loss on its original deal, under which it could only convert to stock at $26.35 a share.
Prince Alwaleed and other large holders of preferred shares have also reportedly agreed to convert their holdings into common stock.
He was Citi’s largest shareholder and it remained unclear how large his stake would be after adding the conversion of his preferred shares to the fully diluted stake of common stock he already owned.
It was also still unclear whether the Kuwait Investment Authority, which invested $3bn into Citi preferred shares in January last year alongside GIC, had agreed to convert.
Abu Dhabi Investment Authority (ADIA) cleverly avoided being affected by Citigroup's deal to convert all preferred shares to common stocks. This is because instead of subscribing to Citi preferred shares like GIC, it bought debt instrument that pays 11% quarterly interest. Hence, it will continue to get interest payments from Citigroup on these debt instrument. Furthermore, it also avoided the risk of shareholders dilution when the US govt make further capital injection into Citigroup later. Now why didn't the "superbrains" in GIC think of that? Notice that our govt-owned state media dare not report this.
http://www.thenational.ae/article/20090228/BUSINESS/344054446/0/NEWS
ADIA escapes Citi fallout
Wayne Arnold
Last Updated: March 01. 2009 1:03AM UAE / February 28. 2009 9:03PM GMT
ABU DHABI // Abu Dhabi’s $US7.5 billion (Dh27.54bn) investment in Citigroup, the ailing US bank, would not be affected by the latest deal to convert preferred shares into common stock, Citigroup said.
And the bank said it would continue making interest payments to the emirate. Citigroup on Friday announced a new deal to shore up its capital base by converting $52.5bn of preferred shares into common stock, the latest in a string of efforts to keep the bank from succumbing to the global credit crisis.
As part of that arrangement, a group of preferred shareholders that includes Singapore’s largest sovereign wealth fund and Prince Alwaleed bin Talal of Saudi Arabia will end up swapping regular interest payments for new shares.
The US government’s conversion of its own $25bn worth of preferred shares will result in it owning up to 36 per cent of Citigroup, while existing shareholders will see their ownership shrink by as much as three quarters to just 26 per cent.
The emirate’s largest sovereign wealth fund, the Abu Dhabi Investment Authority, or ADIA, was the first of a group of investors that moved to prop up Citi in the early days of the financial crisis in late 2007 and early last year.
Rather than buy preferred shares, however, ADIA paid $7.5bn for a debt instrument that pays it 11 per cent in quarterly interest payments, but that it must start converting into 235.6 million Citigroup shares in March next year.
A spokesman for Citigroup, Stephen Cohen, said Abu Dhabi’s investment in the bank was unaffected by the latest changes and that its interest payments would continue.
But Mr Cohen declined to comment, however, on whether the bank was in talks with ADIA to alter the terms of its investment. ADIA also declined to comment.
So for the time being, ADIA seems to be enjoying the benefits – and drawbacks – inherent in holding what amounts to a convertible bond. It will continue to receive cash from Citi at a time when Gulf nations are caught between falling oil revenues and rising government outlays.
But ADIA also appears to be passing up the opportunity to cut its losses on the Citi investment to grab a much larger stake.
Instead, it seems to be opting to limit its exposure to the troubled bank in favour of cash, something economists say Abu Dhabi and the UAE may not necessarily need.
“The UAE is in pretty good shape,” said Howard Handy, the chief economist at Samba Financial Group in Riyadh. Although oil prices have fallen to roughly $44 a barrel, Mr Handy projects that the nation – and Abu Dhabi – will continue to post a budget surplus this year, much of which will be handed to ADIA to manage.
Faced with a constant stream of oil surpluses in recent years, ADIA’s challenge has been trying to find investments that emphasise capital appreciation rather than income streams. So its decision to opt for cash instead of equity when it invested in Citigroup has long been considered atypical.
The Citi deal was attractive, analysts say. According to Rachel Ziemba, an economist at RGE Monitor in New York who tracks sovereign wealth funds, ADIA’s 11 per cent coupon topped what any other fund was able to negotiate. “That’s the first-mover advantage,” Ms Ziemba said.
Despite the relatively high return, many analysts have said ADIA’s investment was uncharacteristically political, a public expression of support for the US financial system and the US dollar that has had a heavy cost. ADIA normally takes only very small stakes in companies, rarely large enough to require the kind of announcement that accompanied its investment in Citi.
That and a spate of large and highly publicised investments by other sovereign wealth funds in US financial institutions last year sparked a political backlash.
Prodded by the US, Europe and the IMF, ADIA took a lead in creating a working group of sovereign wealth funds that in October last year issued a statement of investment principles, designed to blunt criticism that the funds were investing to achieve political ends.
Citigroup’s latest deal is the third time in the past five months that the US government has been involved in trying to prop up the bank. The government will raise its stake in Citi to 36 per cent, from 8 per cent.
While it does not give Citigroup more government cash, it raises the bank’s equity base and reduces its interest expenses. It also gives the US government a greater say in the bank’s operations.
Thanks to Washington’s direct involvement, analysts say ADIA now faces a lower risk of Citi defaulting. By sticking to debt instead of holding equity, ADIA delays becoming exposed to any risk that the US government will later have to inject even more equity in Citigroup, further diluting shareholders.
But ADIA may be missing an opportunity to cut the paper losses it has incurred since it made its investment. Under the current terms of its investment, ADIA will end up paying $31.83 a share for what amounted to a 4.9 per cent stake when the deal was signed.
Citi’s stock closed on Friday at $1.25, representing a 96 per cent – or roughly $7.2bn – unrealised loss on ADIA’s original investment. Citi’s 11 per cent interest payments help offset that, but only slightly.
The Government of Singapore Investment Corp, or GIC, said on Friday that it had agreed to exchange its $6.88bn investment in preferred shares into common stock at just $3.25 a share, giving it an 11.1 per cent stake and making it Citi’s second-largest shareholder.
GIC forgoes the 7 per cent it was earning on its preferred shares and realises a 50 per cent loss, or $3.7bn, on its investment, but sidesteps what was a $6.5bn paper loss on its original deal, under which it could only convert to stock at $26.35 a share.
Prince Alwaleed and other large holders of preferred shares have also reportedly agreed to convert their holdings into common stock.
He was Citi’s largest shareholder and it remained unclear how large his stake would be after adding the conversion of his preferred shares to the fully diluted stake of common stock he already owned.
It was also still unclear whether the Kuwait Investment Authority, which invested $3bn into Citi preferred shares in January last year alongside GIC, had agreed to convert.
